Nicholas Stern warns against rigid separation of aid and climate finance

Governments should not create a rigid separation between their overseas aid for supporting development and their financial support to help developing countries tackle climate change, Nicholas Stern has warned in a new policy paper published today (23 March 2015) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science.

Lord Stern’s paper was produced to inform negotiations ahead of a key international conference on finance for development, due to take place in Addis Ababa, Ethiopia, in July 2015, and the United Nations climate change summit, which will be held in Paris in December 2015.

The paper states: “The challenges of development, growth, poverty reduction and sustainability are deeply and intricately interwoven with those of mitigation of and adaptation to climate change. It would be deeply damaging to try to treat them as separate entities for action and for finance.”

It adds: “The different organisational tracks for the conference in Addis Ababa and the summit in Paris should be seen as an opportunity to complement and reinforce, not as a recipe for separation. Indeed, radical separation of finance for development and climate finance could be deeply damaging. It is a serious mistake to see action on climate and action on development as in conflict, or action on the former as a ‘plot’ to slow the latter.”

Negotiations about climate finance ahead of the Paris summit have focused on the achievement of a commitment by rich countries, made in 2010, to provide US$100 billion per year from public and private sources by 2020 to developing countries to help them make the transition to low-carbon economic growth and to make themselves more resilient to those impacts of climate change that cannot now be avoided.

Lord Stern’s paper states: “In thinking about the scale and nature of climate finance for the Paris summit, it should be clearly recognised that overall infrastructure finance for emerging markets and developing countries could be of the order of US$3 trillion per annum in the next decade or so. It is important to see climate finance for the Paris summit, at US$100 billion per annum, as catalytic in this context, rather than ‘gap-filling’.”

The paper examines the critical issue of the ‘additionality’ of climate finance with respect to official development assistance (ODA), and identifies four ways of defining it:

• supporting programmes or projects that would not have come about without climate finance;
• stimulating action in areas which would not be otherwise covered or financed adequately by other sources;
• mobilising new sources of financing that would not otherwise be forthcoming or available; and
• providing a scale of overall ODA resources for climate action which is additional to what has been previously committed to development.

The paper proposes six priority areas for support by climate finance:

• promoting low- or lower-carbon activity in relation to infrastructure that may be under-emphasised in the agreement in Addis Ababa;
• enhancing low-carbon activities, including energy efficiency, in non-infrastructure activities for buildings, transport, industry, agriculture, etc.;
• funding adaptation, particularly for the most vulnerable and poorest countries;
• avoiding deforestation, more productive land use, and protection of fragile resources, including oceans and biodiversity;
• investing in innovation and breaking new ground for climate action, including novel ways for the public and private sectors to work together (eg on carbon capture and storage or climate-resilient agriculture); and
• creating regional action, as many climate actions for both adaptation and mitigation are regional in nature but at the moment are under-supported and under-funded.

– Download the report

NOTES FOR EDITORS

1. Lord Stern is chair of the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy and the Grantham Research Institute on Climate Change and the Environment, as well as I.G. Patel Professor of Economics and Government and Director of the Asia Research Centre, at London School of Economics and Political Science. Since July 2013, Lord Stern has been President of the British Academy for the humanities and social sciences. Lord Stern was Second Permanent Secretary at HM Treasury between 2003 and 2007. He also served as Head of the Government Economic Service, head of the review of economics of climate change (the results of which were published in ‘The Economics of Climate Change: The Stern Review’ in October 2006), and director of policy and research for the Commission for Africa. His previous posts included Senior Vice-President and Chief Economist at the World Bank, and Chief Economist and Special Counsellor to the President at the European Bank for Reconstruction and Development. Baron Stern of Brentford was introduced in December 2007 to the House of Lords, where he sits on the independent cross-benches. He was recommended as a non-party-political life peer by the UK House of Lords Appointments Commission in October 2007.
2. The ESRC Centre for Climate Change Economics and Policy (https://www.cccep.ac.uk/) is hosted by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council (https://www.esrc.ac.uk/). The Centre’s mission is to advance public and private action on climate change through rigorous, innovative research.
3. The Grantham Research Institute on Climate Change and the Environment (https://www.lse.ac.uk/grantham) was launched at the London School of Economics and Political Science in October 2008. It is funded by The Grantham Foundation for the Protection of the Environment (https://www.granthamfoundation.org/).The ESRC Centre for Climate Change Economics and Policy (https://www.cccep.ac.uk/) is hosted by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council (https://www.esrc.ac.uk/). The Centre’s mission is to advance public and private action on climate change through rigorous, innovative research.