Chapter 7: Development Cooperation

The impacts of climate change are expected to exacerbate the problems already faced by developing countries, especially LDCs, that have the least ability to cope. Climate change will have a disproportionate impact on vulnerable communities in areas of agriculture, water and health, with serious ramifications for development and the attainment of MDGs. Denmark has prioritized the needs of LDCs in its development cooperation program, where nine of 15 countries on its bilateral programming list are LDCs. Denmark’s development policy is considered a central and integral part of foreign and security policy.

Critical Issues: The Impact of Development Cooperation on Climate Change Efforts

While there are a number of ways in which development cooperation policy might influence the ability and inclination of developing nations to collaborate on effective climate change efforts, it must be recognized that the leverage of official development assistance (ODA) is marginal, particularly in regard to high-emitting developing countries. For example, India has declined bilateral ODA from Denmark, Canada and a number of other countries, choosing to work with only six bilateral funders (including the EU) and multilateral agencies from 2006 onward. In 2005, China was the third largest recipient of foreign direct investment (FDI), after the United States and the United Kingdom^[1], and therefore does not depend on ODA.

In 2004, FDI accounted for more than half of all resource flows to developing countries and was considerably larger than ODA. However, FDI is concentrated in a handful of developing countries (China, Brazil, Mexico, Singapore and Chile), while ODA remains the most important source of finance in a number of other developing countries. This is particularly the case for most LDCs^[2]. OECD statistics in 2005 demonstrated a scaling up of ODA, with additional aid going toward improving infrastructure, especially in the transport, communications and energy sectors^[3].

The realities of these resource transfers impact on the ways in which development cooperation policy might influence the ability and inclination of developing nations to collaborate on effective climate change efforts. The main linkages are:

• Development cooperation can help provide the means and resources to assist developing countries in dealing with climate change, within a framework that integrates national development goals and MDGs. The varying levels of development indicate that different types of programming are required to appropriately address priority issues in regard to climate change (e.g., adaptation in LDCs; technology cooperation in high-emitting countries).

• Global programs (e.g., those delivered through IFIs and new forms of partnerships such as the Bill and Melinda Gates Foundation) can be climate-proofed and climate-sensitized to ensure that this aid effectively addresses climate change considerations.

• Aid delivery mechanisms can be improved, or indeed new ones developed, to increase the flexibility to incorporate climate change measures into ambitious development assistance.

• Adequate funding for international institutions (e.g., GEF) can help to ensure that a global approach is used to address this global issue.

• Development cooperation is a fundamental part of the aid for trade agenda, whereby development cooperation can assist in strengthening domestic institutions in developing countries to make increased exports possible. This has considerable overlap with the trade issue, whereby improved capacity can have positive impacts on both trade (e.g., increased foreign investment, better exploitation of the opportunities presented by liberalization) and climate change.

Opportunities for Integration

There are several opportunities that arise for development cooperation policy efforts to help achieve international climate change objectives.

Addressing the Varying Needs of Developing Countries

The primary linkage is in the potential of development cooperation policy to affect the means of developing countries to address mitigation and adaptation objectives, although countries will have different needs depending on their level of development. Denmark has begun to approach the need of different climate change priorities in development cooperation programming by having priority programming countries (mainly LDCs with a focus on poverty alleviation and sustainable development) and Clean Development Mechanism (CDM) priority countries (Malaysia, Thailand, South Africa, China and Indonesia).

Denmark and the EU have taken steps to climate-proof their development cooperation through the implementation of Danida’s Climate and Development Action Programme, which builds on and supports the EU Action Plan on Climate Change in the Context of Development Cooperation. These initiatives are at the pilot stage, but Denmark has learned that “climate-proofing” needs to be modified for each country and has to work on many different levels in each country to be successful.

If the needs of program countries (e.g., adaptation in small island developing states [SIDS] and LDCs) can be addressed, they could play a key role in the development of a post-2012 agreement by pressuring larger countries to take on commitments. Directed ODA could help to meet these needs. In the same note, if the needs and concerns of high-emitting countries can be met, they may be more open to taking on commitments, or increasing efforts to reduce emissions—although exerting pressure through ODA is extremely difficult, if not impossible.

Global Programs

The global aid architecture has changed dramatically in the last decade. Nearly a third of ODA now flows through partnership-based global and regional programs whose goals are set at the global level, rather than through the country-focused programs of assistance that have been traditionally used by aid donors^[4]. There is a need to ensure that this aid effectively addresses climate change or at the least does not work against it. Climate proofing, or at least climate sensitization, is needed for the growing global programs (e.g., IFIs, UN agencies, private foundations).

As noted in Section 3, this is an issue at the level of the EU. While the EU strategy on Climate Change in the Context of Development Cooperationand its Action Plan provide for a wide range of activities to mainstream climate change concerns in development cooperation so that “they receive a higher profile in priority setting in a way that is completely coherent with the overarching objective of poverty reduction,^[5]” actions indicate that mainstreaming is not always a priority.

Multilateral organizations, such as the World Bank, regional development banks and UN agencies, delivered 32 per cent of total development aid from OECD countries in 2005^[6]. Their programming includes grants and low-interest loans for large development projects, and leverages substantial private sector investment. Infrastructure development, particularly in poor nations, is supported by these banks and offers opportunities to move these countries onto a clean energy path in regard to power generation, transportation and energy efficiency. There is also opportunity for mainstreaming climate change, especially in agriculture, forestry and sustainable livelihood projects. These projects offer opportunity for integrated development that addresses a number of concerns, including adaptation and mitigation, as well as the MDGs.

The shifting focus of ODA leaves a gap in improving the ability of developing countries to meet the day-to-day and institutional needs of priority issues, which often do not include climate change. Sensitization to the linkages between priority issues and climate change, and support to system improvements in national and local agencies could help developing countries make this linkage and include climate considerations in programs and projects. Developing countries often lack the resources (both human and financial) to effectively participate in climate change and other negotiations, to support proposal development to access funds from global programs, and to raise awareness of the issue of climate change across sectoral departments.

Aid Delivery Mechanisms

An examination of the delivery mechanisms for aid also presents opportunities for integrating climate change into development cooperation policy. Developing countries are interested in increased funding and programs to prepare for and adapt to climate change. While there are existing mechanisms to respond to these needs, notably the GEF, more responsive programs that could be programmed in a time-efficient manner may interest developing nations. The pursuit of MDGs, working inside national budgets in partner countries, and creating country ownership based on national priorities as set out in Poverty Reduction Strategy Papers offer opportunity for donor countries to address climate change in an integrated manner that focuses on the development priorities of partner countries.

More frequent and serious weather-related disasters indicate a need for more effective response mechanisms (which are closely related to adaptation programs). Schipper and Pelling note that disaster relief, if properly addressed, provides an opportunity to address climate change goals and the MDGs in an integrated manner^[7]. Special attention in this regard is needed for LDCs and SIDS because of their high level of vulnerability and risk.

Financing for Development

Developed countries need to demonstrate their seriousness in dealing with the priority issues of developing countries, including climate change, through the provision of substantial funding. While recognizing that simply increasing the amount of money available will not necessarily lead to climate change results, focused spending on programs identified as priorities by developing nations, and adequate funding of existing financial mechanisms established for climate change, can indicate a seriousness and commitment on the part of developed nations. This includes adequate replenishment of the GEF, consistent with or higher than levels of the previous replenishment periods; and sustainable levels of funding for the LDC Fund and the Special Climate Change Fund of the UNFCCC. In addition, innovative forms of financing, such as the Kyoto-based Adaptation Fund, could lead to new ways of providing funding for climate change programs in developing countries.

Adaptation will require significant funding, and there is recognition that much of this will need to come from domestic resources. ODA could be used to assist developing nations in creating market incentives to direct domestic programs toward climate-friendly choices (e.g., land use) and in increasing the capacity of decision-makers to make the right choices.

Aid for Trade

The importance of Aid for Trade was acknowledged in the 2005 WTO Ministerial Declaration, and a task force has been created to make recommendations on how it could be operationalized. Acting on the aid for trade agenda would demonstrate attention to the specific issues raised by developing countries, and would acknowledge the usefulness of international trade as a vehicle for economic development. This has considerable overlap with the trade issue, whereby improved capacity can have positive impacts on both trade (e.g., increased foreign investment, better exploitation of the opportunities presented by liberalization) and climate change. The aid for trade agenda proposes to build trade-related capacities, and attention could be given to ensuring that areas that overlap with climate change efforts (e.g., transport and other infrastructure) take these issues into account, and at the least do not work against them.

Through international and bilateral development agencies, the amount of trade-related assistance has increased markedly^[8]. A WTO agreement on aid for trade could further increase this type of support, but it will be only one element in the international community’s commitment to support development and poverty reduction. This commitment has many other expressions, including the MDGs, in the context of which the climate change challenge should be addressed.

Notes

1. ^UNCTAD, 2005. World Investment Report 2005: Transnational Corporations and the Internationalization of R&D. New York and Geneva: United Nations. p.8.
2. ^Ibid.
3. ^OECD, 2005. Aid Rising Sharply, According to Latest OECD Figures. Paris: OECD. p.1.
4. ^Lele, Uma, Nafis Sadk and Adele Simmons, 2005. The Changing Aid Environment: Can Global Initiatives Eradicate Poverty? Paris: OECD-DAC.
5. ^Commission of the European Communities (CEC), 2003. Communication from the Commission to the Council and the European Parliament: Climate Change in the Context of Development Cooperation. Brussels, 11.3.2003, COM(2003) 85 final, p.4.
6. ^OECD, 2005. Statistical Annex of the 2005 Development Cooperation Report. Tables 1 and 15. Paris: OECD.
7. ^Schipper, Lisa and Mark Pelling, 2006. “Disaster Risk, Climate Change and International Development: Scope for, and challenges to, integration.” Disasters, 30(1):19–38.
8. ^Finger, Michael J., 2006. Aid for Trade: How we got here and where we might go. International Lawyers and Economists Against Poverty (ILEAP), Background Brief No.10.