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


Dutschke, Michael; Michaelowa, Axel (2006). Development assistance and the CDM – how to interpret ‘financial additionality’. Environment and Development Economics, 11(2):235-246.

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 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.

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 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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:06 Faculty of Arts > Institute of Political Science
Dewey Decimal Classification:320 Political science
Scopus Subject Areas:Social Sciences & Humanities > Development
Physical Sciences > General Environmental Science
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:April 2006
Deposited On:30 Apr 2014 16:32
Last Modified:11 May 2024 01:41
Publisher:Cambridge University Press
ISSN:1355-770X
OA Status:Green
Publisher DOI:https://doi.org/10.1017/S1355770X05002780
  • Content: Published Version
  • Language: English