Development Aid and Climate Finance

CREE Working Paper No. 15/2013

41 Pages Posted: 1 Mar 2014

See all articles by Johan Eyckmans

Johan Eyckmans

Catholic University of Leuven (KUL) - Center for Economic Studies

Sam Fankhauser

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Date Written: February 28, 2014

Abstract

This paper discusses the implications of climate change for official transfers from rich countries (the North) to poor countries (the South). The concern is no longer just about poverty alleviation (i.e. income in the South), but also about global emissions and resilience to climate risk. Another implication is that traditional development transfers to increase income are complemented by new financial flows to reduce greenhouse gas emissions (mitigation transfers) and become climate-resilient (adaptation transfers). We find that in the absence of institutional barriers to adaptation, mitigation or development, climate change will make isolated transfers less efficient: A large part of their intended effect (to increase income, reduce emissions, or boost climate-resilience) dissipates as the South reallocates its own resources to achieve the mitigation, adaptation and consumption balance it prefers. Only in the case of least-developed countries, which are unable to adapt fully due to income constraints, will adaptation support lead to more climate resilience. In all other cases, if the North wishes to change the balance between mitigation, adaptation and consumption it should structure its transfers as “matching grants”, which are tied to the South’s own level of funding. However, the North can also provide an integrated transfer package that recognizes the combined climate and development requirements of the South.

Keywords: inequality aversion; mitigation; adaptation; climate change finance; development assistance; aid effectiveness

JEL Classification: D63, Q50, Q54, Q56

Suggested Citation

Eyckmans, Johan and Fankhauser, Sam and Kverndokk, Snorre, Development Aid and Climate Finance (February 28, 2014). CREE Working Paper No. 15/2013. Available at SSRN: https://ssrn.com/abstract=2402742 or http://dx.doi.org/10.2139/ssrn.2402742

Johan Eyckmans

Catholic University of Leuven (KUL) - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Sam Fankhauser

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

HOME PAGE: http://personal.lse.ac.uk/fankhaus/

Snorre Kverndokk (Contact Author)

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)

HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html

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