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Development Aid 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 financial, sectoral and regional terms. There are possibilities to use ODA benchmarks to define diversion such as the UN 0.7% target but they are unlikely to be politically acceptable. On the project level, three main options exist but none of them is perfect. The value of emissions credits (CERs) could be deducted 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 subsidising of CDM projects.

Suggested Citation

  • Dutschke, Michael & Michaelowa, Axel, 2003. "Development Aid and the CDM - How to Interpret "Financial Additionality"," Discussion Paper Series 26243, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26243
    DOI: 10.22004/ag.econ.26243
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    References listed on IDEAS

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    1. Dutschke, Michael & Michaelowa, Axel, 1997. "Joint Implementation as Development Policy - The Case of Costa Rica," Discussion Paper Series 26337, Hamburg Institute of International Economics.
    2. Greiner, Sandra & Michaelowa, Axel, 2003. "Defining Investment Additionality for CDM projects--practical approaches," Energy Policy, Elsevier, vol. 31(10), pages 1007-1015, August.
    3. Halsnaes, Kirsten, 2002. "Market potential for Kyoto mechanisms--estimation of global market potential for co-operative greenhouse gas emission reduction policies," Energy Policy, Elsevier, vol. 30(1), pages 13-32, January.
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    Cited by:

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    2. Silayan, Alan, 2005. "Equitable Distribution of CDM Projects Among Developing Countries," Report Series 26098, Hamburg Institute of International Economics.
    3. Rubbelke, Dirk T.G. & Rive, Nathan, 2008. "Effects of the CDM on Poverty Eradication and Global Climate Protection," Climate Change Modelling and Policy Working Papers 46650, Fondazione Eni Enrico Mattei (FEEM).
    4. Silayan, Alan, 2005. "Equitable distribution of CDM projects among developing countries," HWWA Reports 255, Hamburg Institute of International Economics (HWWA).
    5. Nathan Rive & Dirk Rübbelke, 2010. "International environmental policy and poverty alleviation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 515-543, September.
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    7. Michaelowa, Axel & Umamaheswaran, K., 2006. "Additionality and Sustainable Development Issues Regarding CDM Projects in Energy Efficiency Sector," HWWA Discussion Papers 346, Hamburg Institute of International Economics (HWWA).
    8. Jusen Asuka & Kenji Takeuchi, 2004. "Additionality reconsidered: lax criteria may not benefit developing countries," Climate Policy, Taylor & Francis Journals, vol. 4(2), pages 177-192, June.

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