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Development assistance and the CDM – how to interpret ‘financial additionality’

Published online by Cambridge University Press:  22 March 2006

MICHAEL DUTSCHKE  and
AXEL MICHAELOWA
MICHAEL DUTSCHKE
Affiliation:
Hamburg Institute of International Economics (HWWA), Neuer Jungfernstieg 21, 20347 Hamburg, Germany
AXEL MICHAELOWA
Affiliation:
Hamburg Institute of International Economics (HWWA), Neuer Jungfernstieg 21, 20347 Hamburg, Germany
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Abstract

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International climate negotiations have specified that projects under the Clean Development Mechanism (CDM) should not lead to a ‘diversion’ of official development assistance (ODA). It is however unchallenged that ODA can be used in capacity building for the CDM. Diversion can be interpreted in purpose, sectoral, and regional terms. There are possibilities to use ODA benchmarks to define diversion such as the UN 0.7 per cent target but they are unlikely to be politically acceptable. On the project level, three main options exist but none of them is perfect. The Development Assistance Committee of OECD endorses deduction of the value of emissions credits (CERs) from ODA. This however leads to a long-term pressure on the ODA level. Differentiating an ODA-financed baseline project and a ‘piggyback’ CDM option is likely to be arbitrary in many circumstances. Even if CERs do not accrue for the ODA share of the investment, still private CDM projects are crowded out due to the subsidizing of CDM projects.

Type
Research Article
Information
Environment and Development Economics , Volume 11 , Issue 2 , April 2006 , pp. 235 - 246
Copyright
© 2006 Cambridge University Press