by Aidy Halimanjaya

Summary

A large amount of bilateral official development assistance (ODA) allocated to mitigating developing countries’ emissions or known as mitigation finance. Some developing countries, such as India, Indonesia and China have receive a significantly higher share of global mitigation finance

compared to other developing countries. This research paper assesses the relationship between the characteristics of developing countries and the amount of official climate mitigation finance inflow and describes the state of global mitigation finance across 180 developing countries from 180 developing countries. A two-part model and robustness checks were used to analyse a panel dataset from Rio Markers produced by the Organisation for Economic Co-operation and Development (OECD). The findings are summarised below.

1. Mitigation finance has been taken from the pot intended to alleviate poverty with limited guidance

Over the past decade, the relatively small amount of mitigation finance has increased rapidly, with poverty aid increasing at a slower rate. Yet, the definitions and principal guidance, i.e. how much ODA can be used as mitigation finance, are not yet agreed. The extent to which it should focus on reducing emissions and prioritising global as opposed to local development is also unclear.

2. Some commercial sectors receive signficantly a larger portion of mitigation finance than public sectors

The priority sectors in mitigation finance are energy (36%) and transport and storage (26%). The other sectors, namely forestry (3%), water supply and sanitation (1.6%) receive a little share of global mitigation finance.

3. Unwise allocation of mitigation finance may promote inequality

A profound difference in the distribution of mitigation finance and that of poverty aid emerges in their distribution across income groups. Least-developed and low-income countries with relatively low CO2 emissions receive only 15.2% of total mitigation finance, but they are still the dominant poverty aid recipients (51.9%).

4. Developing countries with large CO2 intensity are prioritised to receive mitigation finance exceptionally the Arabs.

The evidence from the research shows that developing countries with higher CO2 intensity, tend to be selected as recipients of climate mitigation finance, and receive more of it. This does not apply in the cases of Arabic countries. None of Arabic countries receive a large mitigation finance although they are the countries with some of the highest energy intensity in the world.

5. Mitigation potentials of developing countries attract mitigation finance 

Developing countries with larger carbon sinks tend to be selected as recipients of climate mitigation finance. Developing countries with larger Marine Protected Areas tend to be selected as recipients of mitigation finance and to receive larger amounts of such finance. Donors seem to rely on the assumption that emissions can be reduced alongside or as a long-term by-product of protecting marine biodiversity, e.g. mangrove plantations that also function as pollution mitigation zones.

6. Mitigation finance is not as pro-poor as poverty aid

Poverty aid tends to be allocated to countries with low CO2 emissions, possibly to avoid diverting aid from poorer developing countries. However, such a diversion is unavoidable if the share of mitigation finance in climate finance and in overall ODA continues to escalate. While the allocation of mitigation finance tends to co-benefit the economic development of developing countries with lower per capita gross domestic product, there is no strong evidence that this co-benefit favours the social development of the poor.

This research paper calls for an equitable allocation of total (ODA) mitigation and adaptation finance in addition to the 0.7% ODA/gross national income target, and for transparent criteria and the verification of reporting on the allocation of mitigation finance.

 

Access the full text here: Climate mitigation finance across developing countries: what are the major determinants? 

This journal article is published in Climate Policy in 2014 (online) and in 2015 (printed) and it was written as part of a Doctoral Research Project.