Is climate change aid promoting greenhouse gas emissions?

The Global Environment Facility (GEF) is the most prominent international financial mechanism supporting developing countries (and countries with economies in transition) on climate change. For its mitigation support it has an allocation system that is based on sending money where the problem is: developing countries with higher levels of greenhouse gas emissions get higher levels of money. This has led some critics to assume that GEF money rewards the “polluter” and gives these countries an incentive to emit even more greenhouse gasses as they will receive more money as a result. Other international support programs, like the Climate Change Investment Funds of the multilateral banks, could face the same kind of criticism. Is global support for developing countries thus making the problems worse rather than helping to solve them?

The GEF Independent Evaluation Office has looked at this issue and concluded that it is not true. Yes, more money is going to countries that emit a lot of greenhouse gases, but the money does not provide them with an incentive to emit even more gases – instead it has measurably reduced emissions in certain energy markets in these countries.
Let us look at the assumption a bit closer. First we need to establish whether GEF money is indeed going to countries with high levels of emissions. This we have done in the evaluation of the System of Transparent Allocation of Resources (STAR) that the GEF has in place to decide how much money would go to which countries to help them mitigate climate change. This system uses greenhouse gas emissions as an indicator of global environmental benefits. High levels of emissions mean potentially a rich harvest in benefits as these high levels are supposed to go down. This is why the indicator was chosen and why the system channels money to “polluters”.

The challenge for the evaluation was to see whether the money was used to bring down emissions, and if so, if the money spent in polluting countries was achieving more than money spent in countries with lower emissions. Through a series of evaluations (focal area, country level evaluations and impact case studies in China, India, Mexico and Russia) we were able to confirm that the money was successfully used to reduce emissions. Furthermore, in several cases GEF supported projects were able to change or even transform markets that led to bigger and permanent reductions in emissions. In other words: we were able to conclude that in general the money was well spent and did lead to significant reductions of emissions in certain markets.

On the other hand these significant reductions were just a drop in the ocean. In the huge and growing economy of Mexico, a single market transformation from inefficient incandescent light bulbs to other bulbs that need less energy (and thus require less greenhouse gas emissions from power plants) is not enough to turn around overall levels of emissions. The same is true for the other emerging economies that were evaluated.

Does this mean that the GEF focus on greenhouse gas emissions provides an incentive to countries like China, India and Mexico to increase pollution? A quick comparison to national budgets showed that the GEF funding is of interest to the ministry of the Environment, but certainly not to the ministry of Finance, as it dwarves compared to national budgets. China now has an economy that will in the coming decade pass that of the European Union and the United States in size. Will crucial decisions on its greenhouse gas emissions be swayed by a potential increase in GEF funding of perhaps ten million dollars extra? Once it is put in perspective, it is clear that the allocation system of the GEF does not provide any incentive for emerging economies to further increase their levels of greenhouse gas emissions. And we concluded thus in the second technical paper of the STAR evaluation (on the STAR design), where it can be found in a paragraph on page 9, leading to the concluding sentence that “there is very little likelihood that greater GEF support to countries that have high carbon emissions will create negative incentives that lead to increased carbon emissions.” Sometimes these conclusions are buried in technical language in technical papers, hidden in plain sight on a website, and a blog may be a useful way to ask attention for them. If we would have turned it into one of the major conclusions of the evaluation, many readers would have questioned our judgment – why would you ask attention of the GEF Council and the climate change negotiators for a refutation of a myth that most experts knew was a myth in any case?

The perception of the GEF providing incentives for pollution rather than for solving climate change is perhaps linked to two uncomfortable truths. The first is that the amount of money that the GEF has is not sufficient to really allow emerging economies to fundamentally change their energy sector. What use is it then? Our evaluations show that the use is mainly in innovative new approaches that hopefully will bring solutions in the long run. The second uncomfortable truth is that the discussion about climate change has been shifting more and more towards adaptation in the past decade, and so many of the countries with smaller economies are potentially on the receiving end of climate change and need to adapt to survive, like many islands states in the Pacific and in the Caribbean. An allocation system based on adaptation benefits would spread the funds around quite differently, and so far the big money for adaptation has not yet emerged. It hurts to see that a lot of money is spent on reducing greenhouse gas emissions without much direct impact, while money to help countries adapt to the consequences of climate change is not forthcoming. These uncomfortable truths will continue to play an important role in the background in the ongoing negotiations of the climate change framework convention and will continue to put uncomfortable questions on current practices, even though they are not incentivizing big recipients to emit more greenhouse gases.

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