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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart IV Conclusion
close this folder14 Constructing a global greenhouse regime
View the document(introduction...)
View the documentConditionality and additionality
View the documentTechnology transfer
View the documentMulti-pronged approach
View the documentImplementation procedures
View the documentRegional building blocks
View the documentNorth-'South' conflicts
View the documentConclusion
View the documentNotes and references

Conditionality and additionality

The language of the Convention implies - although it is nowhere specifically stated - that the commitment of parties to the Convention should encompass the costs of actually reducing greenhouse gas emissions in developing countries. (As developing countries carefully avoided committing themselves to abatement at this stage, they did not obtain a precise matching commitment from the developed world to fund their abatement costs but only vague statements of intention; see Chapter 1.)

A variety of conditions on providing or accepting financial assistance to abate greenhouse emissions or to ameliorate the impacts of climate change have been advanced. These include the possibility that donors will tie the aid to greenhouse abatement activities and/or require that recipients reform their energy prices and institutional structures; and on the part of possible recipients, that acceptance of such aid in no way infringes on the exercise of national sovereignty in determining the best use of development assistance and that its provision in no way reduces existing flows of official development assistance.

Some analysts have argued that transfers to the South ought not to be for any purpose. Michael Grubb, for example, suggests that the transfer should only be convertible into provision of technical assistance and equipment needed to abate greenhouse gas emissions, and not cash. Conversely, the Group of 77 have argued that funds provided for incremental abatement costs 'will be to a great extent of a compensatory nature.'

There are strong arguments that compensatory payments should be linked closely with greenhouse gas reduction activities. Most important, the resource transfer calculated in Chapters 5 and 6 was based on an obligation-topay index applied to marginal carbon abatement cost curves. This estimate did not define marginal benefits of avoiding greenhouse gas induced climate change. Thus, it does not represent an estimate of compensation that the North might owe the South for having pre-empted atmospheric space or for climate change induced damages.

In practical terms, it is also impossible to calculating monetary values for compensation. There are other advantages to providing compensation in the same dimension as the damages imposed by climate change. An in-kind approach makes explicit the nature of the international transaction. It thereby avoids any connotations of a buy-off of recipient elites.

From a pragmatic perspective, technology transfers financed by funds placed at the disposal of developing countries would increase economies of scale in supplier countries, thereby reducing the cost of supplying the aid in the first place. Linking compensation to specific uses may also help to circumvent elite corruption in recipient countries. It could also increase political support in donor countries.

However, linking resource usage reaches its limits when dealing with the most vulnerable states where urgent local development priorities require that resources be applied across a variety of economic and welfare projects, not limited to greenhouse projects. The most advanced expression of this nonlinkage is the proposal for an insurance fund for the most-affected island and coastal states as outlined in Chapter 7. Some mix of compensatory and linkedcompensatory resource transfer therefore seems inevitable.

Other conditions that might be placed on the transfers studied above include sectoral policies aimed at reforming energy prices or institutional arrangements in a recipient country. In China, for example, coal prices bear little relationship to supply and demand. In the Soviet Union, subsidized natural gas prices foster a high rate of leakage of methane out of transmission pipes. Conditions related to project self-financing by the recipient state, to environmental performance, and to expanding the role of the private sector (including permitting foreign investment in abatement activities) might also be included by donors. If financial and resource efficiencies are to improve in developing country energy utilities, many deep-seated causes of poor institutional performance must be rectified, including: overstaffing; inappropriate skill mixes; shortages of middle level and technical staff; low wages; rigid and politicized hiring and firing practices; political interference, graft and corruption in procurement and billing activities; and inadequate training facilities.

As international energy expert Russell deLucia puts it, 'The primary problems are associated with institutional matters and market structure,' not technology or know-how. In short, the energy sector in developing countries is often so irrational and inefficient that donors will be very reluctant to provide substantial technical or financial assistance unless prices are revised upward to reflect cost, and energy utilities are privatized.

Developing countries assert strongly that they will not accept greenhouse-abatement financial assistance unless such transfers add to rather than substitute for current official development assistance (ODA) flows. The ODA recipients are concerned that existing ODA will be diverted from local development priorities to global environmental concerns, to redress problems created by the donor countries in the first place. They also hold that it is impossible to distinguish between development projects that benefit only their own country, and those that damage or restore only the global environmental protection.

'Additionality', however, is a deceptively simple word. ODA flows fluctuate from year to year in most donor budgets; some donor countries have announced a gradual increase in ODA up to about 1 per cent of annual GNP; others are allowing their ODA to slide to even lower levels. There is no simple (or even complicated) way to ascertain what would have happened to ODA if donors do not fund greenhouse projects in recipient countries. Furthermore, many of these projects are justified in traditional developmental terms with or without consideration of global environmental concerns of the donors. The issue is largely symbolic, therefore, with the United States declaring in 1991 that its contribution to one important mechanism for greenhouse funding, the Global Environment Facility, comes from existing ODA flows on the one hand; and Norway creating a new budget line separate from existing ODA to fund the Facility on the other.

Defusing this issue requires two things to happen. First, overall ODA levels (minus identifiable greenhouse-related aid) should not fall but rather should remain constant or increase. Second, greenhouse-related projects in China, India and elsewhere (especially those funded by the GEF) should deliver enough developmental benefits to allay fears that greenhouse-related projects are an environmental diversion that benefit only the donor states.

Countries like China have also insisted that they will only participate in a Climate Change Convention that does not impinge on their national sovereignty. This stipulation presumably includes retaining control over setting of priorities for the use of external assistance in domestic development projects.

Finally, donor countries may insist on using bilateral rather than multilateral aid mechanisms to transfer greenhouse abatement assistance. In part, this preference would arise from the sheer scale of the transfers discussed above that would exceed the total current United Nations budget and fears that a bloated, inefficient international bureaucracy could not hope to meet the challenge in a timely fashion. Again in part, it would follow from the pursuit of narrower national interests in tying the aid to their own suppliers of greenhouse abatement goods and services as in traditional bilateral aid relationships. In so far as greenhouse projects are funded multilaterally, donor countries prefer the World Bank's Global Environment Facility rather than setting up a new mechanism for climate change (as suggested by China). Developing countries have objected strongly to the nonrepresentative and World Bank dominated decision-making system at the Facility. Given the strong statement in the Convention on reforming the GEF (see Chapter 1), it seems inevitable that either the South must be allowed to participate in the decision-making at GEF on an equal basis, or bilateral funding will dominate the global climate change arena.