Abstract
Purpose Climate finance is regularly not only seen as a tool to efficiently combat global warming but also to solve development problems in the recipient countries and to support the attainment of sustainable development goals. Thereby, conflicts between distributive and allocative objectives arise, which threaten the overall performance of such transfer schemes. Given the severity of the climate change problem, this study aims to raise concerns about whether the world can afford climate transfer schemes that do not focus on prevention of (and adaptation to) climate change but might be considered as a vehicle of rent-seeking by many agents. Design/methodology/approach Future designs of international transfer schemes within the framework of the Paris Agreement are to be based on experience gained from existing mechanisms. Therefore, the authors examine different existing schemes using a graphical technique first proposed by David Pearce and describe the conflicts between allocative and distributional goals that arise. Findings In line with the famous Tinbergen rule, the authors argue that other sustainability problems and issues of global fairness should not be primarily addressed by climate finance but should be mainly tackled by other means. Research limitations/implications As there is still ongoing, intense discussion about how the international transfer schemes addressed in Article 6 of the Paris Agreement should be designed, the research will help to sort some of the key arguments. Practical implications There are prominent international documents (like the Paris Agreement and the UN 2030 Agenda for Sustainable Development) seeking to address different goals simultaneously. While synergies between policies is desirable, there are major challenges for policy coordination. Addressing several different goals using fewer policy instruments, for example, will not succeed as the Tinbergen Rule points out. Social implications The integration of co-benefits in the analysis allows for taking into account the social effects of climate policy. As the authors argue, climate finance approaches could become overstrained if policymakers would consider them as tools to also solve local sustainability problems. Originality/value In this paper, the authors will not only examine what can be learnt from the clean development mechanism (CDM) for future schemes under Article 6 of the Paris Agreement but also observe the experiences gained from a non-CDM scheme. So the authors pay attention to the Trust Fund of the Global Environment Facility (GEF) which was established with global benefit orientation, i.e. – unlike the CDM – it was not regarded as an additional goal to support local sustainable development. Yet, despite its disregard of local co-benefits, the authors think that it is of particular importance to include the GEF in the analysis, as some important lessons can be learnt from it.
Highlights
Recent efforts in the industrialized world to improve climate protection, like the Green Deal of the European Union or the German $60bn Climate Package, raised some concern about the efficiency of climate policy on the global scale
While the benefits from slowing or combatting global warming are considered as the “primary benefits” (Buchholz et al, 2020) all “other benefits” from climate change mitigation measures are called “ancillary benefits” or “co-benefits”
The transfer-induced “export” of climate protection improves the prospects for attaining sustainable development goals (SDGs) in developing countries
Summary
Recent efforts in the industrialized world to improve climate protection, like the Green Deal of the European Union or the German $60bn Climate Package, raised some concern about the efficiency of climate policy on the global scale. This would in the end allow to bring about a higher global level of climate change mitigation as the funds saved could be spent elsewhere to induce additional abatement activity Under both the GIC and NIC scheme, the global community would enjoy a net welfare gain of the triangle ADF from increased climate protection in country i, but as the GIC scheme requires higher transfers of funds which are lost for supporting climate protection elsewhere, the developed countries financing the GEF would be better off with the NIC scheme. While this implies higher costs for industrialized countries, the system remains profitable for developing countries, which enjoy higher co-benefit levels free of charge
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