Download Climate Change and Poverty

IDB Position Paper
Climate Change and Poverty: what do governments need to consider when looking
at these two development agendas?
March, 2009
Amin, Amal-Lee; Beall, Elizabeth, Grunwaldt, Alfred, Meerganz von Medeazza, Gregor,
Meirovich, Hilen
Today, climate change has become one of the most salient issues in the global political
agenda. Global warming is a recognized problem and an issue that needs immediate
policy action. States initially recognized the need to address this issue by signing an
international treaty in 1992, the United Nations Framework Convention on Climate
Change, in the context of the Earth Summit.1 Green house gas (GHG) emission levels
have risen considerably since then, however.2 Climate change policies, –defined as a
twofold action: attempting to mitigate the effects of climate change by reducing
greenhouse gas emissions of anthropogenic sources and seeking to adapt to climatic
changes –have been an exception more than a rule.
The need to address the impacts of climate change, in the developing world is growing
more urgent, particularly within the poorest countries given their greater vulnerability.
According to the Stern Review: The Economics of Climate Change (2006), poor
countries are the ones that will bear the greatest burden of the impacts of climate change.3
Poverty alleviation necessitates not only good macroeconomic policies that foster
sustained economic growth, but also take into account the interaction between poverty,
energy, agriculture, resource availability and climate and environmental issues.4
Thus, developing countries’ governments confront the challenges of meeting growing
energy needs as a result of pursuing economic development objectives and raising living
standards. Combining climate change policies with economic development goals will
ideally result in a shift from this developmental paradigm towards more resilient lowcarbon economies. In order to change the existing patterns of development and ensure the
shift towards low carbon economies, all sectors of the economy must be included in
developing effective policies to confront the new problems and adapt to new realities.
1
The Earth Summit in Rio de Janeiro was a singular UN conference, in terms of both its size and the scope
of its concerns. Twenty years after the first global environment conference, the UN sought to help
Governments rethink economic development and find ways to halt the destruction of natural resources and
pollution of the planet.
2
At a global level, the concentration of GHG has increased to 379 ppm in 2005. According to the InterGovernmental Panel on Climate Change Fourth Assessment Report, eleven of the twelve years, within the
period of 1995 to 2006, rank among the twelve warmest years in the instrumental record of global surface
temperature (IPCC, 2007). Moreover, the rate of growth of CO2-eq emissions was much higher during the
recent 10-year period of 1995-2004 (0.92 GtCO2-eq per year) than during the previous period of 19701994 (0.43 GtCO2-eq per year).
3
Stern Review: The Economics of Climate Change, HM Treasury (2006).
4
Eugenio Díaz Bonilla, (2008), Global Macroeconomic Developments and Poverty, IFPRI Discussion
Paper No 00766.
These policies entail changes in many areas including patterns of production, usage of
alternative sources of energy as well as transportation. Climate change policies become a
new prism by which to look at economic development.
However, the challenge is how to undertake this change of path when facing a short term
financial crisis, where poverty alleviation tends to be the first goal not reached? This
paper presents some ideas of how government can use already existing instruments as
well as new financial mechanisms to advance both poverty alleviation and climate change
agendas.
The Dual Challenge: Poverty and Climate Change
Poverty reduction is the underpinning challenge of the Millennium Declaration and its
associated Development Goals (MDGs) endorsed by 189 nations to halve extreme
poverty by 2015. The 2008 Millennium Development Goals Report (MDGR) published
by the United Nations describes the progress achieved by countries around the world,
even in some of the more challenging regions, in terms of incidence of poverty.
According to the Report, it is also expected that, a number of goals5 will be reached by
2015, as was originally planned. However, in absolute numbers, presently over 1 billion
people – two thirds of them women – live in extreme poverty, i.e. with less than US$ 1 a
day, nearly 3 billion with less than US$ 2 a day. This means, that in absolute terms,
despite international efforts, poverty and inequalities have worsened in many countries
over the last decade.
This reality could be made even worse given the current financial crisis. As the literature
on poverty alleviation and macroeconomic developments suggests, after financial turmoil
there is a documented increase in poverty.6 Economic disruptions have clear negative
effects on poverty in the short term, and tend to crowd out investment on education,
health and infrastructure in the long term. The current world economic recession raises
the question of the impacts of the global economic downturn and resource availability on
growth and poverty in developing countries.
In addition to the questions surrounding the possibilities of poverty alleviation in the
context of the financial crisis, there are a group of goals7 and specific targets that will not
be achieved unless additional and immediate international support is mobilized. or
climate change is taken into account when considering development options.8 This is of
particular relevance if one considers that net development gains from poverty alleviation
efforts could be offset by already observed and anticipated impacts of climate change.
5
Goal 1: Eradicate extreme poverty and hunger; Goal 4 : Reduce child mortality
Díaz Bonilla, 2008.
7
Goal 5: Improve maternal health, particularly in the Sub-Saharan region and Southern Asia.
8
Specifically, target 1 under goal 7: Ensure environmental sustainability calls for an immediate
international action to contain rising Greenhouse Gas emissions; specifically marine areas and land
conservation need greater attention
6
Since its constitution, the Intergovernmental Panel on Climate Change (IPCC) has
increasingly emphasized that the current and predicted changes in the global climate
system are primarily anthropogenic, i.e. caused by human activities. The increases in
temperatures worldwide triggers profound changes in the biosphere, such as sea level
rise, variations of precipitation patterns, shifts of climatic zones, increase of the
frequency and magnitude of extreme weather event such as droughts, floods and storms.
More specifically for Latin America and the Caribbean, the Fourth Assessment Report
(FAR) published by the Interdisciplinary Panel on Climate Change (IPCC), indicates that
initial estimates of the projected mean warming for Latin-America and the Caribbean
could be between 1 and 4 degrees in the best case scenario (B2), and between 2 and 6
degrees in the worst case scenario (A2). In addition, according to IPCC, most general
circulation models have predicted large rainfall anomalies in the Inter-tropical region and
smaller ones in Extra-tropical regions, what in turn will seriously affect crop yields and
the availability of water for human consumption, energy production and irrigation. These
predicted changes in rainfall patterns have been confirmed by observations throughout
the region. Moreover, climate models predict that the Caribbean basin will be prone to
more intense and frequent extreme events, affecting millions already vulnerable due to
other non-climate related stresses directly compromising their adaptive capacity.
Furthermore, new scientific evidence suggests that climate change is happening faster
than forecasted a few years ago and that time is running out. While the prediction of these
changes, with regard to exact rates and local implications, is subject to uncertainty due to
the high complexity of the science behind the models, the one single most important and
undisputable fact is that climate change is happening, it is happening fast, and responses
are urgent and actions must be committed and concrete.
However, vulnerability to observed and anticipated effects of climate change could be
significantly reduced if proper actions are taken during the design process of national
sustainable development plans. In summary, climate variability and change threatens to
undo all the progress made so far in the achievement of the MDGs and to stagger
economic growth in the region in a context where financial resources are limited.
The First Step is to Perceive Climate Change as an Economic Development Issue
Climate change is likely to further raise seawater levels, change ocean chemistry, reduce
access to drinking water, decrease crop yields, deplete fishing grounds, accelerate land
degradation, habitat destruction and biodiversity loss, as well as to increase the
transmission and occurrence of infectious diseases, and all together change the
geographic range of vector-borne diseases such as malaria and dengue fever, exposing
new populations to them. Overall climate change exacerbates the existing vulnerabilities
the poor suffer from, threatening their livelihoods and further increasing inequalities
between both the developing and developed worlds as well as between the rich and poor
within the same country.
Climate change is, therefore, a cross-cutting issue of the MDGs and has engrained links
with every single one of these goals. Climate change presents a high potential to
jeopardize poverty reduction programs and could reverse several decades of development
efforts if nothing is done. In brief, climate change exacerbates poverty worldwide.
Although climatic changes occur on a global level, the local impacts vary greatly by
region. And similarly, while the vulnerability of poor communities also varies greatly
geographically, climate change generally impacts poorer nations and the poorest sections
of society more severely. The prime reason for this is the higher vulnerability of the poor,
due to their greater dependence upon natural resources, ecosystem goods and services,
and their lower capacity to deal with extreme climatic events. Climate-sensitive sectors
like agriculture and fisheries are also more economically important in developing
countries. In general, human, institutional and financial capacity to foresee, prepare and
counter the direct and indirect effects of climate change is also more limited. Developing
countries capacities to cope with natural disasters such as floods or extreme climate
events such as prolonged drought are already stressed, and livelihood buffers are
narrower than those of richer countries and communities. For instance, climate
variability and extreme weather conditions, which would cause controlled damage and
few casualties in developed regions, are likely to cause much larger-scale damage and
dramatic loss of life in developing regions.
Furthermore, among the poor, vulnerability varies; certain population groups within the
have even less access to the financial, political and social means to cope with climate
change or may be further constrained by social and cultural structures. Women, children,
elderly and disabled people may be exposed to climate risks more severely due to
existing discrimination limiting their access to income, education and representation. In
such cases, these communities may be further strained by other development challenges
such as HIV/AIDS.
The Third and Fourth Assessment Reports of the IPCC (2007) demonstrate that least
developed countries in tropical and sub-tropical areas are likely to suffer the most from
climatic alterations; and within these countries the poorer sections of population even
more so. Moreover, famines and loss of coastal landmass will increasingly cause the
involuntary displacement and migration of “climate refugees”, in some cases likely to
exacerbate existing geopolitical tensions. This issue is particularly daunting, considering
that over half of the world population lives within 60 kilometers of the coast and that 18
of the world 25 mega-cities are on coastlines and 13 of these are in developing countries.
Although the macroeconomic implications of climate change are enormous, the key
message of the Stern Review on the Economics of Climate Change of climate change is
that the costs of inaction are much greater than the efforts necessary to mitigate its
destructive effects.
Already in 2002 the Johannesburg Declaration on Sustainable Development argued that
“the adverse effects of climate change are already evident, natural disasters are more
frequent and more devastating and developing countries more vulnerable.”
Notwithstanding, risks linked to climate change are still not sufficiently accounted for in
current development strategies.
The Department for International Development (DFID) has published several studies on
the connection between poverty reduction and the threat that climate change represents
for the fulfillment of the MDGs. One of these studies9 urges the need for integrating risk
management into development interventions. Specifically, the study indicates that the
world’s poor will be the most affected by climate change and that worldwide efforts to
eradicate poverty will be at risk, since climate change will increase the poor’s
vulnerability and make pro-poor investment more difficult. The study pointed out that
economic growth resulting poverty reduction will be diminished by the impacts of
climate change on the MDGs (e.g. lowered industrial output and labor productivity,
security of poor people’s livelihood assets and increased vulnerability of the poor). It is
also mentioned that the impacts of climate variability and change should not be framed as
a future event, since many poor countries and poor people already face difficulties in
adjusting their actual climate coping range and their disaster recovery capacity. Drought,
floods and extreme events in general can seriously stagger economic growth and affect
poverty reduction processes in many developing countries.
Additional studies carried out by DFID 10 also indicate that without the inclusion of
indentified climate risks into development plans, critical sectors such as agriculture and
industries based on natural resources may suffer and be less able to contribute to broadbased growth and sustainable livelihoods. Specifically, it is pointed out that the nature
and size of said implications will depend on many factors among which the authors
mention: (i) Actual impact on relevant resources, (ii) longer-term climate damage
implications, (iii) disruption of government revenues, (iv) stress on additional financial
aids as a result of needs for disaster relief expenditures, (v) success on the
implementation of integrated risk reduction plans that respond to anticipated impacts of
climate change.
Regional or national development plans should integrate adaptation strategies/programs
in order to allow poor communities to expand their climate coping range, which at the
end will be translated to the protection of lives, livelihoods and important infrastructure
assets. The development of detailed climate change current and future vulnerability
assessments in key sectors is a good starting point to identify those priority areas for
intervention. Information generated throughout this process will set up the basis for
communities’ awareness and preparedness to climate change. Additionally, it will
retrofit the decision making process as it will strengthen a much needed climate change
knowledge base for the determination of costs and benefits related to the design and
implementation of replicable adaptation pilot measures.
To put it boldly, not only achieving the MDGs, but the success of any poverty reduction
strategy, will be seriously threatened unless urgent and concrete measures are taken to
9
Climate Change deepens poverty and challenges poverty reduction strategies, Global and Local
Environment team, DFID 2004
10
DFID (2004) The Impacts of climate change on pro-poor growth, Global and Local Environment team;
DFID (2004) Adaptation to climate change: Making development disaster-proof, Global and Local
Environment team.
reduce the vulnerability of the poor and to increase their capacity to cope with climate
change. This will have to be achieved through courageous policy innovations that
mainstream climate change into priority sectors, that serve as a cornerstone for
sustainable development; in addition to the rapid implementation of both mitigation and
adaptation measures.
Renewable Energy as a Solution
Poverty reduction, as called for in the Millennium Development Goals, can not occur
without affordable and reliable energy services. At the same time, burning fossil fuels for
energy only contributes to the damaging effects of climate change on the world´s poor. In
order to achieve poverty reduction in the context of climate change a dual approach is
required, first to address access and reliability of the energy supply, especially in poor
communities; and second, ensuring that the energy supply does not further exacerbate the
problems of climate change by increasing emissions. The relationship between climate
change and energy is symbiotic in that the impacts of climate change can have serious
negative impacts on sustainable development; while at the same time, implementing
renewable energy projects to deal with climate change can improve and support
sustainable development.
The energy sector is by far the largest contributor to increasing greenhouse gas emissions,
with energy related carbon dioxide emissions accounting for 61% of total GHG
emissions. Energy, currently primarily provided by fossil fuel sources, is essential for
development and creating jobs, in addition to improving health and education services
and other basic needs. Approximately 1.6 billion people worldwide, or about one quarter
of the global population, do not have access to electricity, with four out of five of them
living in rural areas. The International Energy Agency estimates that if the MDG poverty
reduction target is to be met, modern energy services will need to be provided to an
additional 700 million people by 2015.11
Renewable energy can bring many benefits to poor communities including greater access
to electricity, lower costs, preservation of local environmental resources, and support
local infrastructure development for schools and health care. For example, introducing
biogas generators in rural areas to produce methane from local waste or biomass
resources, could provide the energy required for cooking and lighting, to reduce or
eliminate reliance on costly kerosene, and to preserve neighboring forests that may be
stressed from over-logging for fuel. 12 Installing small scale energy generation systems,
such as wind, solar, and small hydro, can help to bring access to rural areas, since they do
not require the large investment of a coal fired or large hydro project nor the necessary
transmission lines.
11
World Energy Outlook 2008,
http://www.worldenergyoutlook.org/docs/weo2008/WEO2008_es_english.pdf
12
Renewable Energy and Poverty Alleviation, CGPRT, October 2004,
http://www.uncapsa.org/Flash/flash1004.pdf
Many efforts have been undertaken globally to address poverty reduction by improving
access to and reducing the costs of renewable energy but there are still many challenges
to scaling up renewable energy projects in the developing world. Although renewable
resources, by definition, are abundant in most poor countries, most have not adopted
policies to support and expedite the development of renewable energy technologies.
Government policies in much of the developing world still largely focus on conventional
energy sources such as fossil fuels and large hydro.
Another significant challenge is that initially many renewable energy options are more
expensive than the conventional alternatives in the developing world, given that there is a
period of scale up required. Policy incentives favoring renewable energy can help to
defray the initial costs, and as scale of use increases the costs decline significantly. For
example, in the case of solar energy, costs have been reduced from $200 to $3 per
installed watt. Private sector investment will also be a key element in reducing costs
further. The Millennium Task Force on Poverty estimates that total public funding
required to achieve the necessary energy targets will amount to $14.3 billion annually or
$20 per capita. 13
Combating Poverty with Renewable Energy: Clean Development Mechanism
Financing
In addition to the Climate Investment Fund, discussed in a separate section in this paper,
one of the key mechanisms approved under the Kyoto Protocol to attract much needed
capital flow to developing countries for investment in renewable energy projects, is the
Clean Development Mechanism (CDM). The CDM provides industrialized countries
with the possibility to meet their emission reduction commitments by contributing to
greenhouse gas reductions in developing countries. The goal of the CDM is to promote
investment in renewable energy projects in the developing world.
However, there is some concern about the real development, or poverty alleviation
impact of CDM projects. There are higher transaction costs of “pro-poor” projects due to
many organizational and administrative factors, including large up-front costs, longer
payback periods, and relatively higher risks. The policies and procedures that projects
must follow can be a barrier to achieving poverty reduction goals, given that this often
impedes the ability of smaller projects to succeed in gaining CDM financing. 14
One example of efforts to address these barriers and make the CDM more effective at
improving sustainable development is through the Inter-American Development Bank’s
(IDB) Sustainable Energy and Climate Change Initiative. The IDB is providing grants
for technical assistance to assess GHG reduction potential across a range of sectors and
REN 21,Worldwatch Institute, “Energy for Development: The Potential Role of Renewable Energy in
Meeting the Millennium Development Goals”,
http://www.ren21.net/pdf/REN21Report%20RETs%20for%20MDGs.pdf
14
Richards, Micahel, (2003) “Poverty Reduction, Equity and Climate Change: Global Governance
Synergies”, Overseas Development Institute
http://www.odi.org.uk/IEDG/publications/climate_change_web.pdf
13
projects, and also providing the underlying financing for projects with a high
development impact. The objective of the IDB’s carbon financing strategy is to reduce
the transaction costs and risks for project development in order to increase the number
and type of CDM projects in the region, with a focus on high development impact.
Combating Poverty with Renewable Energy: The Biofuels Example
Biofuels offer poverty reduction potential and greenhouse gas savings if certain key
criteria are taken into account. Key poverty reduction considerations related to modern
biofuels industry include: job creation; ownership; access to food, land and water; labor
conditions; and rural development generally. Biofuels are extremely labor intensive and
biofuels development can lead to significant job creation where opportunities exist in
feedstock production, handling and processing; distribution and marketing. New
positions include high-skill science, engineering and business-related employment,
medium-level technical jobs as well as jobs for unskilled workers. Development of
biofuels will have a much more dramatic impact on rural livelihoods when the production
involves the participation and ownership of the production chain by small-scale farmers
and other rural workers.
By utilizing biofuels instead of fossil fuels, it is possible to reduce greenhouse gas
emissions caused by non-renewable energy sources. In addition, sustainable biomass
production for liquid biofuels could reduce the negative environmental impacts relative to
conventional industrialized agriculture if farming practices aim to maximize total energy
yield, diversify biomass input varieties and reduce chemical inputs.
Liquid biofuel production from edible crops is booming in a world where an estimated
850 million people worldwide suffer from chronic hunger. The rise in food prices has
caused, and will continue to cause significant debate. On the one-hand, the food-insecure
are the people least able to pay more for food and increasingly the poorest are flocking to
cities. On the other hand, the majority of the world’s poor still live in agricultural areas
and if they can receive a share of the increased prices for agricultural crops, they will be
better off and less likely to move to urban slums.
In order to ensure that bioenergy contributes to, rather than detracts from, poverty
reduction targets, its important to differentiate between biofuels and promote those
biofuels that have a high development impact. One tool that has been created in order to
differentiate between biofuels is the IDB’s Biofuels Sustainability Scorecard
(www.iadb.org/scorecard). The Scorecard includes criteria such as land ownership,
capacity building, technology transfer, and poverty reduction potential. By supporting
projects that rank highly in these areas, the IDB is helping to make sure that biofuels
contribute to poverty reduction throughout the region.
As discussed in this section, renewable energy can help to reduce greenhouse gas
emissions and achieve poverty reduction goals. There are many challenges in addressing
the dual challenges of climate change and poverty, but renewable energy can serve as one
of the key elements in tackling both simultaneously.
Financial Mechanisms leading to a New Understanding of Development
One of the largest lessons learned by the Inter-American Development Bank (IDB) is that
the most effective way to tackle the negative impacts of climate change on the poor is to
integrate both mitigation and adaptation measures into sustainable development policy
and poverty reduction strategies from a very early stage.15 The second lesson is that
(sometimes sophisticated) institutional innovations are required to improve governance
and decision making processes as well as to mainstream climate issues into international,
national, sub-national and sectoral planning strategies.
The role of multilateral development banks (MDBs) becomes critical in this process, a
role that can be achieved by using already existing financial mechanisms such as PolicyBased Loans (PBLs). The PBL provides resources to implement policy reforms and/or
undertake institutional changes seen as necessary to meet these ends. The Banks can use
such instruments to promote and assist with policy innovation. In the specific case of
climate change, the PBLs have two goals: foster transfer of best practices from “front
runners” to “followers” and the creation of institutional capacity and coordination
mechanisms to address development and implementation of public policies in this area. A
PBL helps create the institutions, operational mechanisms and policy frameworks that
will allow the adoption of resilient and low-carbon development.
This process consists of three building blocks. First, the creation of new institutions
requires a sequential approach that allows for stakeholders to adapt to new realities. The
PBLs, therefore, aim at gradual policy innovation that starts with small steps and
increases in depth and scope. The modality of a programmatic PBL is the more suitable
one because a programmatic PBL is used when there are a series of single tranche
operations (each with its own loan contract), set within a medium-term framework of
reforms/institutional changes, approved on a phased basis to support the borrower in
achieving the country’s reform program, with specified triggers for moving from one
operation to the next. The aim of a programmatic PBL operation is to support the process
of good policymaking, while providing an incentive structure for reform/institutional
change agendas to be implemented in a timely fashion.
Second, mitigation to climate change refers to the activities and programs that aim at
reducing Green house gas emissions (GHGs). These activities include the capacity to
develop and formulate projects subject to the Clean Development Mechanism (CDM) as
well as activities and programs that, although mitigate GHGs, do not qualify under the
CDM standards given the lack of an approved methodology by the United Nations
Executive Board. An innovative policy will therefore have a twofold objective: a) reduce
transaction costs for the development and further implementation of CDM projects and b)
15
Although adaptation may, and is often portrayed of being a measure to be adopted more specifically by
poorer nations, adaptation must go hand in hand with mitigation of climate change by drastically reducing
the emission of greenhouse gases. Indeed, the magnitude and rate of climate change will directly correlate
with efforts to reduce greenhouse gas concentrations in the atmosphere and irreversible damages to
ecosystems and incidentally to human society.
support the country to develop programmatic CDM in priority areas such as energy
efficiency. The sequential approach, given by a programmatic PBL, allows an initial
institutional assessment of the capacity to achieve these objectives, and then throughout
the phases of the PBL be able to support gradual innovation of mitigation activities.
Finally, adaptation to climate change is a specific example in which policy innovation
can offer countries an opportunity to develop integral programs and flexible strategies16
oriented towards the reduction of identified vulnerabilities in priority sectors at several
levels simultaneously. The direct impacts of climate change are felt on a local level and
adaptation measures must be tailored to local circumstances while contributing to
improve adaptive capacity and actively demonstrating the costs and benefits of
adaptation. In many cases, for these efforts to be efficient and effective they must be
guided and supported by aforementioned national policies and strategies17. Thus, the
adaption component will seek to support the agenda at the federal and state levels by
promoting a comprehensive action plan that includes complementary activities in both
directions: top-down (federal-state) and bottom-up (state-federal). Additionally, an
adaptation policy should include developing instruments that make evaluation and
reduction of vulnerabilities possible.
In sum, the cross-sectoral nature of climate change requires the development of a clear
national operational framework that would provide an institutional environment leading
to an active and comprehensive dialogue among key stakeholders, to create climate
change awareness and facilitates the inclusion of policy innovation in the areas of
mitigation and adaptation to climate change.
New Financial Resources: Climate Investment Funds
As mentioned previously, climate change presents an urgent challenge to all countries
and particularly to the poorest countries and communities which are likely to suffer
earliest and hardest due to geographical location, low incomes, and low institutional
capacity, as well greater reliance on climate-sensitive sectors such as agriculture.
Moreover, in order to ensure economic growth, developing countries will face growing
demand for energy in the power, transport, building and industrial sectors. Investment
decisions being made now will typically be locked in for the next 40 to 50 years, thereby
having a far-reaching impact on the global climate. Therefore, the next 10-15 years
provides a finite window of opportunity to demonstrate transformational investments that
provide energy and other infrastructure services, while reducing GHG emissions to
prevent irreversible climate change.
At the same time, even if efforts to reduce GHGs are successful, some degree of climate
change impacts will continue to occur in the next decades. An effective response to
climate change must therefore combine both mitigation – to avoid the unmanageable and adaptation – to manage the unavoidable.
16
17
Joel B. Smith, (1994) Climate Change adaptation policy options, Climate Research.
Burton et. al (2006).
Lower historical contribution to existing concentrations of GHGs underpins developing
countries expectations for international support for financing their transition to lowcarbon growth, as well as for building resilience to climate change. Future financing
arrangements of a long-term post-2012 climate change agreement are central to the
current UNFCCC negotiations as reflected in the Bali Action Plan. Yet the urgency of the
climate change and development challenges requires immediate action – to accelerate and
scale-up low carbon investments, particularly to reduce the trend of emissions growth in
those developing countries with already large emission profiles, as well as to build
climate resilience, notably for the poorest and most vulnerable developing countries.
As a response to the climate and development challenges, the Multilateral Development
Banks, in consultation with interested countries, UN agencies, civil society and the
private sector have developed the Climate Investment Funds (CIF). The overall objective
of the CIF is to support country investments that deliver poverty reduction and
development goals through transition to a low carbon and climate resilient development
path.
The CIF aims to promote and support poverty reduction and development in a way that is
consistent with the challenges posed by climate change, through:
 being country-led and undertaken in the broad context of sustainable development
and poverty reduction;
 piloting innovative approaches and ideas for integrating climate change within
poverty reduction and development planning and assistance
 providing incentives for transformational public and private sector financing to
encourage early action (both mitigation and adaptation) in developing countries
over the next five years, and until the future carbon market and other international
funding arrangements become effective;
 enabling a learning-by-doing that can inform and support a successful long-term
(post-2012) agreement under the UNFCCC; and
 utilizing the skills and capabilities of the Multilateral Development Banks to raise
and deliver concessional climate financing at a significant scale to achieve
meaningful reductions of carbon emissions and support climate resilient growth in
eligible middle and low-income countries.
 providing a more coherent international locus to encourage support from a range
of bilateral donors, private sector and civil society contributors and to catalyze
innovative forms of global financing towards the climate and development
challenges.
This new financing dedicated to climate change objectives therefore provides a major
opportunity for the IDB to scale-up its operations in support of LAC countries climate
change agendas. The IDB, along with five other MDBs,18 is an implementing agency of
the funds. The IDB has taken an active role, working with the World Bank as Trustee of
18
The other MDB implementing agencies are the African Development Bank, Asian Development Bank,
European Bank for Reconstruction and Development, International Finance Corporation and the World
Bank.
the Funds and host to the CIF Administrative Unit of the CIF, in the ongoing design of
CIF programs and investment guidelines and criteria. Focus now is for working with
LAC countries that are seeking to access the funds and, by utilizing existing IDB
procedures, to assist Governments in identifying, preparing, executing, monitoring, and
evaluating CIF related projects and programs.19
The CIF provides grant and concessional loans to be blended with IDB ordinary capital
through a variety of sovereign and non-sovereign guarantee financing instruments,
including Specific Investment Loans, Policy Based Loans, Conditional Credit Lines for
Investment Programs, Financial Intermediary Loans, and risk mitigations instruments,
such as Partial Off-take of Risk and Guarantees. It is expected that the CIF will provide a
menu of blending options to accommodate different needs of client’s countries and
Program interventions. The Trust Fund Committee will endorse programs and projects to
be financed by CIF at the concept and pre-appraisal stages, following which projects
should follow internal IDB procedures and will require Board approval.
The Climate Investment Funds comprise of two new funds dedicated to supporting
climate change related investments, notably: the Clean Technology Fund (CTF) and the
Strategic Climate Fund (SCF). In September 2008, potential donors pledged $6.2 billion
for the two funds, around $5.0 billion for the CTF and the remaining for the SCF. The
CIF aims to complement and reinforce the UN negotiations on climate change, without
seeking to prejudice the on-going UNFCCC deliberations regarding the future of the
climate change regime.
Clean Technology Fund (CTF): aims to provide scaled-up financing for public and
private sector projects that contribute to the demonstration, deployment, and transfer of
low-carbon technologies with a significant potential for long-term greenhouse gas
emissions savings. At the request of the Mexican Government, the IDB is working with
the International Bank for Reconstruction and Development (IBRD) and the International
Finance Corporation (IFC) to develop an Investment Plan for Mexico, which is will
potentially attract around US$500m of CTF concessional finance. As the CTF finance
seeks to leverage MDB financing (and expertise), along with other public and private
sector investment, this should result in around $8 billion of investment in support of
Mexico’s low-carbon objectives identified in the 2007-2012 National Development Plan,
its National Climate Change Strategy and Special Climate Change Program.
Strategic Climate Fund (SCF): has a broad scope for integrating climate change within
development planning and assistance and support related strategic poverty reduction and
climate change priorities. Programs designed under the SCF are likely to prioritise Low
Income Countries where poverty reduction challenges are greatest. So far three programs
are under design, with each likely to total around $500m of concessional finance that will
be available for piloting new and innovative investment approaches in a small number of
low income countries.
According to the CIF Guidelines for Investment Plans “the first step in country programming is for the
multilateral development banks (MDBs) to conduct a joint mission, involving other relevant development
partners, to discuss with an interested government, private industry and other stakeholders.
19
The first program is the Pilot Program for Climate Resilience (PPCR) which aims to
integrate resilience to climate change within developing countries national development
and planning processes. The focus is on less developed and most vulnerable countries,
the Small Island Developing States amongst them.
Consultations are underway on a new Forest Investment Program to mobilize
significantly increased funds to reduce deforestations and forest degradation and to
promote improved sustainable forest management, leading to emission reductions and the
protection of carbon reservoirs.
A Program for Scaling-up Renewable Energy in Low Income Countries is also being
considered to support investments in low income countries for energy efficiency,
renewable energy and access to modern sustainable energy.
Conclusions: Greening the energy matrix and depolarizing poverty
The combination of issues involved in poverty alleviation and climate change present
challenges in the short and long run. For example, the complexity of linking poverty
alleviation programs with climate change considerations is challenging given the global
and more abstract nature of climate change issues; in comparison with the concrete case
of poverty occurences, further compounded by the current financial crises. Financial
stress on countries lead governments to shift their focus, many times, from poverty
alleviation considerations in favor of macroeconomic stability until economic growth is
achieved. In this situation, it is expected that climate change considerations will be left
behind. This paper has tried to show that such a decision can be reverted by existing and
new financial instruments as the PBLs from the MDBs and the newly created CIF.
These instruments bear greater relevance when considering the ecological debt, and here
more precisely to greenhouse debt from developed countries to developing ones. The socalled developed countries are home to about one quarter of the world population yet are
responsible for three-quarters of the (both present and past) greenhouse gas emissions
causing climate change. The Millennium Ecosystem Assessment (MA) reported that
around 60% of the ecosystem services surveyed are being degraded or used
unsustainably.20 Although the MA did not calculate the induced costs of this degradation,
new findings estimating the environmental costs of human activities over the 1961-2000
period suggest that “through disproportionate emissions of greenhouse gases alone, the
rich group [of nations] may have imposed climate damages on the poor group greater
than the latter’s current foreign debt.”21 The latter highlights the disparity between
developing countries and/or poorer population groups, who despite their larger share of
Millennium Ecosystem Assessment (2005), “Ecosystems and human well-being: current state and trends:
Findings of the condition and trends working group”, Island, Washington D.C.
21
Srinivasan, U. Thara; Carey, Susan P.; Hallstein, Eric; Higgins, Paul A.T.; Kerr, Amber C.; Koteen,
Laura E.; Smith, Adam B.; Watson, Reg; Harte, John; Norgaard, Richard B. (2008), “The debt of nations
and the distribution of ecological impacts from human activities”, Proceedings of National Academy of
Science, vol. 105, no. 5, pp.1768-1773.
20
population emit (and consume) less than the industrialized countries and/or richer
population groups that bear greater (historically accumulated) responsibility in the
alterations of the climate.
Having said this, middle-income countries and fast emerging economies such as China,
India, Brazil, South Africa or Mexico gradually scale up energy consumption and
associated greenhouse gas emissions in their ongoing fight against poverty and for human
development. This is why as Jeffrey Sachs22 points out “a successful international
agreement on climate change will have to recognize the increasingly important role of the
developing world, both as contributors to the problem and as leaders in solving it.”
But more specifically, since a fossil fuel based economy is clearly not a sustainable
option for developed nor developing countries, a rapid mainstreaming of renewables in
the energy matrix and increase of energy efficiency and conservation in energy services
should be aimed at depolarizing North and South and, on both sides, rich and poor.
22
Sachs, Jeffrey (2008), Common Wealth: Economics for a Crowded Planet, Penguin Press