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

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  • DUTSCHKE, MICHAEL
  • MICHAELOWA, AXEL

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.

Suggested Citation

  • Dutschke, Michael & Michaelowa, Axel, 2006. "Development assistance and the CDM – how to interpret ‘financial additionality’," Environment and Development Economics, Cambridge University Press, vol. 11(2), pages 235-246, April.
    • Handle: RePEc:cup:endeec:v:11:y:2006:i:02:p:235-246_00
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    Cited by:

    1. Makino Yamanoshita & Masahiro Amano, 2012. "Capability development of local communities for project sustainability in afforestation/reforestation clean development mechanism," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(4), pages 425-440, April.
    2. McHugh, Christopher A., 2023. "Competitive conditions in development finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    3. Emma Paulsson, 2009. "A review of the CDM literature: from fine-tuning to critical scrutiny?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(1), pages 63-80, February.
    4. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank.
    5. Anger, Niels & Böhringer, Christoph & Moslener, Ulf, 2007. "Macroeconomic Impacts of the Clean Development Mechanism: The Role of Investment Barriers and Regulations," ZEW Discussion Papers 07-026, ZEW - Leibniz Centre for European Economic Research.

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