Development Aid and the CDM - How to Interpret 'Financial Additionality'

17 Pages Posted: 7 Aug 2003

See all articles by Michael Dutschke

Michael Dutschke

biocarbon economics Ltd.

Axel Michaelowa

Hamburg Institute of International Economics (HWW)

Date Written: May 2003

Abstract

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 financial, sectoral and regional terms. There are possibilities to use ODA benchmarks to define diversion such as the UN 0.7% target but they are unlikely to be politically acceptable. On the project level, three main options exist but none of them is perfect. The value of emissions credits (CERs) could be deducted 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 subsidising of CDM projects.

Keywords: International climate policy, CDM, development assistance

JEL Classification: Q25, O13

Suggested Citation

Dutschke, Michael and Michaelowa, Axel, Development Aid and the CDM - How to Interpret 'Financial Additionality' (May 2003). HWWA Discussion Paper No. 228. Available at SSRN: https://ssrn.com/abstract=413341 or http://dx.doi.org/10.2139/ssrn.413341

Michael Dutschke

biocarbon economics Ltd. ( email )

CKR House, 70 East Hill
Dartford / Kent, Middlesex DA1 1RZ
United Kingdom
+447774447686 (Phone)

HOME PAGE: http://biocarbon.net

Axel Michaelowa (Contact Author)

Hamburg Institute of International Economics (HWW)

c/o 177 Bd. de la Republique
F-92210 St.-Cloud
France
+33 147712680 (Phone)

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