By: Lykke E. Andersen*
In an attempt to deal with the threat of climate change, many development banks and development institutions have established considerable budgets in support of climate change mitigation and adaptation projects in addition to their usual development projects. For example, the Inter-American Development Bank (IDB) is aiming for 25% of their lending portfolio to be destined to climate change and sustainable development projects by 2015.
There is a concern, however, that these climate change projects may not be truly additional, compared to the business-as-usual scenario, but may just represent a renaming of already existing projects (compare panels (i) and (ii) of Figure 1), or worse, that the climate change projects are actually diverting funds away from development projects to the detriment of the poor (panel (iii)).
Figure 1: Illustration of different types of additionality in climate financing
Source: Author’s elaboration.
There are two basic ways in which additionality can be secured. The most obvious way is to keep doing the business-as-usual development projects, and then add climate mitigation and adaptation projects on top of that, implying a significant increase in total financing (panel (iv)). However, a potentially smarter and more efficient way may be to rethink and redesign development projects so that they also become mitigation and/or adaptation projects (panel (v)).
Such rethinking is possible, because some types of projects may fulfill several of the three goals simultaneously (see Figure 2). For example, large tree planting programs in cities could help the population adapt to a warmer climate because the trees provide refreshing shade. The trees would also absorb CO2 while they grow up, thus contributing to mitigation. And finally, they might contribute to development in several different ways (e.g. creating jobs in Parks & Recreation and making people healthier and happier because they live in green cities). This would be an example of a project in the sweet spot, and a good alternative to more traditional employment generation projects, that have only the development goal in mind.
Figure 2: A typology of projects
Source: Author’s elaboration.
The possibility of rethinking future projects with the three -sometimes compatible, but also sometimes contradictory- goals in mind is an interesting option also because it reduces the probability of inadvertently financing projects that support one goal but is detrimental to another.
Thus, while the overlaps between development, mitigation and adaptation projects do represent a complication in terms of calculating additionality, it is exactly this kind of overlap we should aim for in the real world. Rather than worrying about quantitative targets for climate finance, we should focus on designing high quality projects that are compatible with both development, mitigation and adaptation objectives.
* Dr. Lykke E. Andersen is the Director of the Center for Economic and Environmental Modeling and Analysis (CEEMA) at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia.