Climate Finance for Developing Country Mitigation: Blessing or Curse?

  • Under the United Nations Framework Convention on Climate Change, industrialized countries have agreed to cover the incremental costs of climate change mitigation in developing countries and recent climate negotiations have reaffirmed the central role of climate finance for global mitigation efforts. We use an integrated energy–economy–climate model to assess the potential magnitude of financial transfers to developing countries that can be expected under non-market transfer mechanisms as well as international emission trading with several allocation schemes. Our results indicate that for the latter, depending on international permit allocation rules financial transfers to developing countries could reach almost USD bln 400 per year in 2020, with Sub-Saharan Africa receiving financial inflows of as much as 14.5% of its GDP. Reviewing the literature on natural resource revenues, official development assistance and foreign direct investment, we identify three major channels through which such sizable financial inflows may induce harmful effects for recipients: volatility, Dutch disease, and rent-seeking and corruption. We discuss the relevance of these mechanisms for climate finance and identify institutional arrangements which could help to avoid a ‘climate finance curse’. We conclude that there is no deterministic relationship between financial inflows and adverse consequences, as the most serious problems could be prevented or at least alleviated by appropriately designed policies and governance provisions.

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Metadaten
Document Type:Article
Language:English
Author(s):Christian FlachslandORCiD, Michael Jakob, Jan C. Steckel, Lavinia Baumstark
Parent Title (English):Climate and Development
ISSN:1756-5537
Publisher:Taylor & Francis
Publication year:2015
First Page:1
Last Page:15
DOI:https://doi.org/10.1080/17565529.2014.934768
Release Date:2015/10/29
Tag:Developing countries; Mitigation scenarios; Multilateral climate policy frameworks; North–South
Volume:7
Issue:1
Hertie School Research:Centre for Sustainability
Licence of document (German):Metadaten / metadata
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