Environmental and Resource Economics

, Volume 63, Issue 2, pp 429–450

Development Aid and Climate Finance

Article

Abstract

This paper discusses the implications of climate change for official transfers from rich countries (the North) to poor countries (the South) when the motivation for transfers is ethical rather than strategic. Traditional development transfers to increase income and reduce poverty 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 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. Alternatively, the North could provide an integrated “climate-compatible development” package that recognizes the combined climate and development requirements of the South. If the aim is to increase both mitigation and adaptation in the South, development assistance that increases the income level, can be an effective measure, but only if there is an international agreement and the recipient country is not income constrained. If the recipient country is very poor, development aid may reduce adaptation effort.

Keywords

Inequality aversion Mitigation Adaptation Climate finance  Development assistance Institutional barriers 

JEL Classification

D63 Q50 Q54 Q56 

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Johan Eyckmans
    • 1
  • Sam Fankhauser
    • 2
  • Snorre Kverndokk
    • 3
  1. 1.Center for Economics and Corporate SustainabilityKU Leuven Campus BrusselsBrusselsBelgium
  2. 2.Grantham Research Institute and Centre for Climate Change Economics and PolicyLondon School of EconomicsLondonUK
  3. 3.Ragnar Frisch Centre for Economic ResearchOsloNorway

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