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Baselines to assess “new and additional” climate finance
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Article published in ‘Climate and Development’ 3(3), pp. 175-92
New and additional to what? Options for baselines
to assess "new and additional" climate finance
Martin Stadelmann
∗
J. Timmons Roberts
+
, Axel Michaelowa
∗
Abstract
All major climate policy agreements - the UN Framework Convention, the Kyoto Protocol, and
recently the Cancun Agreements- have stated that climate finance for developing countries will be
”new and additional”. However, the term “new and additional” has never been properly defined.
Agreeing a system to measure a baseline from which “new and additional” funding will be calculated
will be central to building trust and realising any post-Kyoto agreement. We explore eight different
options for a baseline, and assess each according to several criteria: novelty to existing pledges,
additionality to development assistance, environmental effectiveness, distributional consequences, and
institutional and political feasibility. Only two baseline options do well on these criteria and are
therefore viable: "new sources only" and "above pre-defined business as usual level of development
assistance".
Keywords: climate finance, Copenhagen Accord, development assistance, Additionality, UNFCCC
∗
Chair of Political Economy and Development, University of Zurich, Affolternstrasse 56, CH-8050 Zürich,
Switzerland. Corresponding author: martin.stadelmann@pw.uzh.ch, tel. +41 44 634 50 91
+
Brown University, 135 Angell Street, Providence, RI 02912, USA, j_timmons_roberts@brown.edu
1
1. Introduction
Since the original Stockholm Earth Summit in 1972, developing nations have feared that attention to
protect the natural environment would sideline their ardent quest for meeting basic development needs
like health, education and economic growth (Hicks et al., 2008, paragraph 46). Therefore, from the
very beginning of international environmental statecraft, gaining these nations’ cooperation in efforts
to address global environmental issues required promises for funding above current development
assistance (“foreign aid”). Early phrasings described “The Earth Increment”, making clear that this
funding would not come from other promises, such as the 1970 Monterrey pledge of most wealthy
countries to send 0.7 percent of their GNI to assist poor countries overcome their poverty. The phrase
“new and additional” financial resources was used at the Rio 1992 drafting of the UN Framework
Convention on Climate Change (UNFCCC, 1992), and the language has appeared in every major
climate agreement since, including the Kyoto Protocol (1997), the 2009 Copenhagen Accord
(UNFCCC, 2009) and the Cancun Agreements (UNFCCC, 2010).
The Copenhagen Accord promises $30 billion in “new and additional“ fast-start finance” over 2010-
2012, “scaling up” to $100 billion a year of public and private climate finance by 2020. These
promises, integrated in the recent Cancun Agreements, are very ambitious given the existing flows ($
159 billion of ODA disbursements in 2009, of which about 6 billion are marked as climate-related, see
OECD (2011)). The promises were also fundamental to the reaching of any agreement given the even
higher estimates for climate finance needs (e.g. $ 150-300 billion annually by 2030 as estimated by the
World Bank (2009)). Both wealthy and poor nations agree on the need for such funds: developing
countries need funding to grow their economies without becoming locked in to fossil fuel dependence
and its high carbon footprint. The most vulnerable developing countries also need substantial funds to
prepare for, cope with, and recover from the growing number and intensity of climate-related disasters
and incremental changes in local climate.
However as has happened many times before, the terms “new and additional” were never clearly
defined, neither in Copenhagen nor in Cancun. “New and additional” to what exactly? Additional to
what year as a baseline? Which funds get considered in such a baseline and in new funds – only those
addressing climate change? Given the failure of most industrialized nations to meet their previous
pledges of foreign aid, from the 1970 0.7% of GNI pledge to the Gleneagles 2005 promises
1
,
developing countries question what the term “new and additional climate finance” means in practice
2
.
To establish clarity and potentially restore some trust in the integrity of Northern nation commitments,
an agreement on the interpretation of “new and additional” is urgently needed.
2
One can argue that the phrase “new and additional” has been less relevant for global environmental
treaties in the past, as official financial payments for developing countries have not reached more than
$0.15 billion annually per treaty and thus the potential for diversion of large amounts of development
assistance did not exist.
3
This has significantly changed with Copenhagen where industrialized
countries pledged $10 billion and more per year. This raises serious questions about both compliance
with these substantial pledges and their additionality to development assistance.
When defining “new and additional” climate finance, two major challenges arise. First, countries have
totally different understandings of the term “new and additional” (Brown et al., 2010; Stadelmann et
al., 2010; WRI, 2010). This is also reflected in the different baselines industrialized countries use for
their fast-start pledges (see Table 1). Second, the assessment of “additionality” is methodologically
challenging, as both realized by the Commission of Sustainable Development (Yamin and Depledge,
2004, p. 277) and scholars (Dutschke and Michaelowa, 2006).
[Table 1, includes the following sources: WRI (2010); and Faststartfinance.org (2011)]
In this article we address both challenges, the varying baseline definitions of different parties and the
methodological challenges: First, the criteria for assessing baselines are discussed. Second, a series of
options for baselines are analysed and assessed using five criteria (novelty to existing pledges,
additionality to development assistance, effectiveness, distributional consequences, and institutional
feasibility). We also examine the practical implications of these baseline proposals, and estimate
political resistance and support for each of them.
2. Criteria for a baseline
A baseline can be defined as the level against which a commitment or action is measured. In the 1997
Kyoto Protocol, for example, Annex 1 countries pledged to reduce their emissions by certain
percentages below a 1990 baseline. That very clear fixed baseline might be contrasted to a
hypothetical counterfactual that describes a business-as-usual (BAU) situation, where the effect of a
policy measure is assessed against what would have happened without it. These kinds of pledges of
reductions in emissions below BAU projections were offered by major developing nations such as
India and China in the annexes to the Copenhagen Accord and Cancun Agreements. In the context of
“new and additional” climate finance, the baseline seems to logically mean the finance volume that
would have flowed to developing countries in the absence of climate finance flows. The question is
now how to define this business-as-usual level
4
.
3
Our criteria used here are derived from the climate negotiation texts and the academic literature. The
two obvious criteria for setting climate finance baselines are additionality and novelty, as these are the
criteria climate finance has to fulfil according to various international climate agreements (UNFCCC,
1992, 1997, 2008, 2009, 2010). Furthermore, baselines can be assessed according to the four criteria
for climate policies set out by the 4
th
Assessment Report of the IPCC (Gupta et al., 2007):
environmental effectiveness, cost-effectiveness, distributional considerations and institutional
feasibility. These four criteria represent five important disciplinary views: the one of environmental
sciences (environmental effectiveness), economics (cost-effectiveness), philosophy/sociology (equity)
and political science (institutional feasibility/realism). The four criteria also incorporate the principles
of the UNFCCC (1992): environmental effectiveness incorporates the precautionary principle spelled
out in the phrase “preventing dangerous climate change”; equity incorporates the “common but
differentiated responsibilities and capabilities” principle, as well as the specific needs and
circumstances of developing countries; cost-effectiveness incorporates the view that climate change
measures should not hinder sustainable development, and language on taking “cost effective” actions
is found throughout two decades of climate agreements. While institutional feasibility is not
representing any UNFCCC principle, it is clear that baselines, which fulfil all other criteria, need also
political acceptability and institutions to ever be implemented. The importance and definition of each
of these criteria is explained in the following.
Criterion 1: Additionality to development assistance
The discussion about development assistance baselines began essentially with the pledge of “new and
additional” resources in Rio 1992. The Commission on Sustainable Development unsuccessfully tried
to establish an indicator for “new and additional” financial resources in 1995 (Yamin and Depledge,
2004, p. 277). The question was further taken up in the discussion on “diversion” of development
assistance in the context of CDM projects from 2000 onwards (Asuka, 2000; Dutschke and
Michaelowa, 2006). Apparently, the lessons from this debate did not inform the discussion about
climate finance that has taken off since 2007. Here “additionality” is an often used term but its
meaning has never been clearly defined. Some understand “additional” as “additional to existing aid
flows”, while most developing countries and NGOs understand it as additional to existing developed
country promises to provide 0.7% of their GNI as “official development assistance” (ODA) (Dutschke
and Michaelowa, 2006; Oxfam, 2009; Müller et al., 2010). We use a middle-ground definition: climate
finance is additional if it leads to an increase both compared to present and projected future
development assistance (DA), while DA does not include the climate finance part of ODA. Climate
finance may be counted as ODA but the development assistance (DA) part of ODA
5
is not allowed to
be reduced below “business-as-usual” projections. This is a theoretically clear definition but
international institutions as well as recipients may find it difficult to assess the “business-as-usual”
4
(BAU) levels of DA. Donors may have some incentives to not reveal the real BAU level of DA,
similar to the distortion of investment parameters by project owners in the context of CDM projects.
Criterion 2: Novelty to existing flows and pledges
According to Müller et al. (2010) “new” mainly refers “to funds which are separate from those that
have already been promised, for climate change or as overseas development assistance”. However,
novelty” is also increasingly understood as new funding sources such as a tax on financial market
transactions, auctioning of emission allowances or levies on air and maritime transport (Müller et al.,
2010). The idea behind defining novelty as “new sources” is that industrialized countries’ government
budgets, especially the part dedicated for developing countries, are always subject to domestic
pressures (Fischer and Easterley, 1990; Bulír and Hamann, 2008; Doornbosch and Knight, 2008).
Therefore, governmental funds for climate finance can always be funds that had already been pledged
in the past, or promised as development assistance; and funds are only then really “new” if they stem
from new sources other than government pledges. While the “new sources” definition clearly has its
merits we define “new climate funds here as funds that have not yet been promised for supporting
developing countries’ climate or development actions, following the most common understanding
according to Müller et al. (2010).
Criterion 3: Environmental effectiveness
The IPCC (Gupta et al., 2007) lists environmental effectiveness as the first criterion to evaluate
environmental policies. Environmental effectiveness is understood here as the level of climate change
mitigation and adaptation achieved
6
. Assuming that an increase in funds leads to an increase in
mitigation and/or adaptation
7
, a baseline is environmentally effective if it increases funds useable for
climate mitigation and adaptation compared to business as usual. On one hand, we can assume that
the more stringent a baseline is regarding novelty to existing climate funds, the more climate funds
will be paid. However, once the sum of the baseline and the new climate funds reaches the maximum
level of climate finance donors are willing to pay in order to meet international standards, a further
strengthening of the baseline will not increase funding or even lead to decrease. On the other hand,
decreasing the stringency for additionality to existing development funds may also enhance climate
funds as lenient development baselines make diversion to climate funds more probable. However, this
diversion of funds through lowering development baselines will only happen until a minimum level of
development assistance is reached, beyond which donors do not want to reduce further.
This theoretical view that stringent development baselines do rather decrease climate funds, is not
confirmed when regressing the level of allocated fast-start funds (per GNI) on the baseline stringency
level: countries with stringent baselines pay more fast-start funds, which, however, is not statistically
significant when controlling for the level of ODA per GNI (see Table 1 for the data and Annex 1 for
5
the regression analysis). Our theoretical argument of diversion may, however, still be relevant:
currently, some climate- and development-friendly nations (e.g. Sweden, Netherlands, Norway) both
have stringent baselines and high level of fast-start. An international strengthening of development
baseline could make contributing nations more willing to disburse development rather than climate
funds..
A criterion linked to environmental effectiveness is “cost-effectiveness”: how many environmental
benefits can be created by one unit of finance. We exclude this criterion in the following, as the
influence of the baseline definition on cost-effectiveness is difficult to judge, for two reasons: First,
the way a baseline is set does not influence how the funds are spent. Second, a baseline leveraging
more funds can have different impacts: scale and learning effects linked to the size of the programmes
may increase cost-effectiveness, while the exhaustion of cheap options can decrease it.
Criterion 4: Distributional considerations
As with any economic policy measure, climate policy measures will have distributional impacts. For
this reason, commonly used terms in the climate policy context are “equity” and "fairness”, while
responsibility, capability and needs are the accepted principles for equity (Ringius et al., 2002).
Distributional considerations have focused on the phrase “fair burden sharing” (see e.g. Müller et al.,
2009). In our study we consider distributional questions by assessing the impact of different baselines
on burden sharing between developed and developing countries. We assume that current climate
policy pledges (mitigation and finance) of developed countries are way below their fair share of the
burden, when considering various burden sharing studies
8
(Pan, 2003; Den Elzen et al., 2005; Bernard
et al., 2006; Baer et al., 2007; Marklund and Samakovlis, 2007; Den Elzen and Höhne, 2008;
Chakravarty et al., 2009). A baseline, therefore, adequately addresses distribution the more it shifts
the burden away from developing nations, least responsible for the problem and least capable to
adapt.
Criterion 5: Institutional feasibility
The last IPCC criterion for environmental policy is institutional feasibility, or broadly speaking the
question of whether the theoretical ideas can be implemented, given the existing institutions and
political considerations, internationally as well as nationally. We divide institutional feasibility into
four sub-criteria: a proposed method’s political acceptability, its feasibility under budget constraints,
its transparency, and whether it interferes with other international regimes.
Criterion 5a: Political acceptability (North-South)
Not even the most objective definition of a baseline will be feasible if it is not accepted by the major
Parties to the UNFCCC. Political acceptability is an important precondition for participation, a key
6
criterion for success of an environmental regime (see e.g. Wettestad, 1999). Participation is a
widespread concern for the climate regime after the US did not ratify Kyoto (Barrett and Stavins,
2003); thus the impact of future non-participation has been studied as well (Keppo and Rao, 2007; van
Vuuren et al., 2009). As the world’s CO
2
emissions are about even split between developed and
developing countries (PBL, 2009; Olivier and Peters, 2010), while the share of developing countries’
emissions will further rise in the future (van Vuuren et al., 2009), the acceptability for both Northern
as well as Southern countries has to be assured. Under a universal international climate treaty, horse
trading of climate finance and mitigation targets would be possible, which would allow one to bring
baseline stringency in as one parameter of negotiations. However, the lack of progress in international
climate negotiations makes the fragmentation of the regime more and more likely and thus reduces
horse trading options. Furthermore, the room for concessions is narrow at the moment, as the North is
dealing with the consequences of a major economic crisis and the South is harbouring mistrust due to
disappointments on finance pledges
9
. Therefore, political acceptability of baseline stringency as part of
the climate finance negotiations is a major criterion; a baseline will be politically feasible if it is
expected to be acceptable to the major Parties to the UN framework convention.
Criterion 5b: Feasibility under a budget constraint
Even if the industrialized countries accept a certain baseline definition, it is not clear if it can really
leverage additional climate funds without diverting development assistance. In the short-term, a
government faces a certain budget constraint, given its expenditures and income. Additional finance
for climate change can only be raised if government deficits are increased or if expenditures are
internally shifted. As governments will hardly increase deficits in case of low-key issues such as
climate finance, the most probable source of climate finance is diverted development assistance. In the
mid-term, government budgets may be less constrained but aid budgets have been heavily determined
by external influences such as the global economic situation and unique historic events such as the end
of the Cold War (see e.g. Round and Odedokun, 2004; Mold et al., 2009). Therefore, the budget
constraint is a proxy assumption for the situation a Northern government faces, which will enable us to
identify some drawbacks of baseline options.
For a government with a budget constraint, the situation is depicted in Figure 1. The current and future
development assistance level does not exhaust the budget, but is seen as politically optimal. We
assume that the government willingness to spend “additional” climate finance is the residual of the
budget constraint. In the case of a baseline less stringent than BAU development assistance, the
government will increase climate finance at the expense of development assistance as far as the
baseline permits
10
, due to the preferences of the electorate to embark on climate policy. In the case of
7
a baseline that is more stringent than BAU of development assistance, the country increases
development assistance spending beyond the current level until the entire budget is spent, in order to
be able to generate “new and additional climate funds.” If the baseline stringency goes beyond the
budget constraint, then the country cannot spend anything on “additional” climate finance and
development assistance spending abruptly decreases to the BAU level. Therefore, the only feasible
baselines under a budget constraint are the ones between the projected BAU level of development
assistance and the budget constraint.
[Figure 1]
Criterion 5c: Transparency: clarity of definition and availability of data.
The importance of transparency for environmental regimes is acknowledged by academic scholars,
governments and NGOs (Mitchell, 1998). Transparency helps for achieving and assessing compliance
and effectiveness, which has been studied both for security and environmental regimes (Mitchell,
1998; Roberts and Parks, 2007). Transparency is important in many ways for the climate regime: e.g.
related to greenhouse gas inventories or the negotiation process
11
. Regarding transparency of finance,
financial contributions have haphazardly been included in national communications, but transparency
only came to the forefront when the notion of “nationally appropriate mitigation actions [...] supported
and enabled by technology, financing and capacity-building, in a measurable, reportable and verifiable
manner” was included in the Bali Action Plan (UNFCCC, 2008). By this wording, not only the actions
of developing but also the financial support of developed countries was to be measured and verified.
While the Parties are still negotiating the way this has to be done, scholars have already identified the
need for more transparency: the new climate funds set up in the last few years lack transparency
(Stewart et al., 2009) and more transparent guidelines for finance reporting are needed under the
UNFCCC (Roberts et al., 2010a; Tirpak et al., 2010). Such guidelines seem especially important as the
current way of labelling ODA as climate-related (labelling by donors using the OECD’s Rio Markers)
has been inconsistent and politically-driven in the past (Michaelowa and Michaelowa, 2010)
12
.
The transparency of a baseline is given if international organizations or parties can easily assess
whether the baseline for climate finance has been complied with. This assessment is possible if two
conditions are met: first, the definition of a baseline must be clear to avoid renegotiation and
redefinition. Second, the data for measurement and verification must be accessible and assessable.
Therefore, we will assess the transparency of baseline definitions by both analysing the clarity of the
definition and the availability of data.
8
Criterion 5d: Consistency with other regimes
Rules within the climate change regime may not be consistent with well established rules of other
regimes. This has especially been studied for the case of border carbon adjustment and the trade
regime (see e.g. Charnovitz, 2003; Brewer, 2004; Biermann and Brohm, 2005): e.g. taxes on
embodied carbon in imported goods, which can be seen as contributing to the precautionary principle
within the climate regime, are not consistent with WTO principles on free trade. In the case of climate
finance, we may have some interference with the rules for accounting development assistance. The
wording of “new and additional” in the climate regime somehow calls for a separation of development
and climate funds. However, the Organization of Economic Co-operation and Development (OECD)
has established rules that all financial transfers with a certain level of concessionality qualify as
Official Development Assistance (ODA). Therefore, a decision to not count climate funds as ODA
would heavily interfere with the established OECD rule, which is backed by major donor
preferences
13
. Beside the definition of ODA, a baseline definition may also include assumptions on the
pledged level of ODA, which is a large intervention into the development assistance regime as well,
given that donors are used to having sovereignty on ODA commitments. In contrast, honing the
definition of climate finance is less interfering into the development regime, as the existing Rio
Markers for both mitigation and adaptation (OECD, 2009) are quite new, not defined in detail, and the
definition is sometimes poorly understood by donor staff
14
.Therefore, we define the consistency with
other regimes as the level of consistency of climate regime rules with well-established rules in the
development assistance regime. Major interferences would be a change of the ODA definition or
fixing the level of ODA commitments.
3. Options for a baseline
In this section we describe eight baseline options and assess how well they perform on the criteria just
listed. Seven of the analysed baseline options are the ones mentioned in the literature and the
negotiations: 0.7% of GNI, no baseline, new channels, no ODA counts, current climate finance,
current development assistance and new sources. Furthermore, we propose a new, potentially
promising definition: projected development assistance.
Option 1: 0.7% of GNI
Many developing countries prefer that the ticker for new and additional funding start only after
countries have contributed 0.7% of their gross national income (GNI) to ODA (Ballesteros and
Moncel, 2010). The target that developed countries provide 0.7% of their Gross National Income
(GNI) as ODA has first been mentioned in the Report of the Commission on International
Development (Pearson, 1969), without any clear explanation on how this has been calculated
9
(Clemens and Moss, 2005). The 0.7% target has been several time restated, e.g. at
the ”Earth
Summit” in Rio de Janeiro 1992 and importantly in the final declaration of the UN’s International
Conference on Financing for Development in Monterrey 2002, attended by many heads of state
(Clemens and Moss, 2005)
15
.
Until now,
the 0.7% has been reached by only a very small number of
countries, and the highest overall ratio of ODA to GNI has been achieved before the target was even
set (see Figure 2). The 0.7% GNI threshold is also a favourite of European countries like Norway and
the Netherlands that already meet this ODA standard.
Although this threshold seems transparent and takes into account past pledges by developed countries,
it is not viable for two reasons. First, many developed countries will in the next few years neither
accept nor reach this threshold—especially the United States, with less than 0.2% of its GNI going to
ODA. Or in other words, the option is not feasible under the budget constraint of some countries and,
as the barrier is too high, some countries may even tend to pay less climate funds, which would lower
environmental effectiveness. Second, countries like Sweden and Denmark, which today exceed the
0.7% mark, may just divert existing ODA commitments and call them new and additional climate
finance. The non-feasibility of the 0.7% threshold has already been explained by Dutschke &
Michaelowa (2006) for the case of the CDM.
[Figure 2]
Option 2: No agreed baseline
Most industrialized countries favour having no agreed baseline, so that each contributor defines its
own baseline. This option is clearly not acceptable for developing countries, and “additionality to
development assistance is not given. Furthermore, the definitions will be arbitrary, comparing funding
across nations becomes very difficult, transparency is hardly given, and diversion of development
assistance is likely. This option is the current state of affairs at this writing, as each donor has its own
(or even no) definition of the baseline (WRI, 2011)
Option 3: New UN channels only
A simple option for avoiding this situation with unclear baselines is to count only funding disbursed
through new channels, such as the Adaptation Fund or the planned Green Climate Fund. Although
technically clear, the “new channels only” approach reduces flexibility for contributors and makes it
less acceptable to them to use the term “new and additional” or leaves them less willing to disburse
climate funds. Some existing channels may be better suited for certain types of flows or certain efforts
10
to address climate change.. This approach could have absurd consequences if old commitments are
simply redirected into new funds.
Option 4: No ODA counts
Another straightforward option would allow using the best channels and mechanisms, but would not
count ODA money as climate finance, to clearly separate between development and climate funds.
This options is favoured by many developing countries, who want climate finance to be above ODA
(Ballesteros and Moncel, 2010). Double-counting could be avoided and transparency enhanced.
Additional administrative costs of separately accounting climate funds from ODA are minimal if built
on existing accounting systems
16
. This approach forces contributors to decide whether the main goal of
funding is development or climate related. Despite the advantages of this approach, it is rejected by
most industrialized countries, as they prefer to use climate funds to reach their ODA targets.
Furthermore, developing countries argue that climate change issues should be “mainstreamed” into
existing development assistance, which is a non-consistent argument for rejecting separate accounting:
While mainstreaming in itself may be important
17
, it is not constrained by separate accounting of
development and climate funds
18
. Furthermore, this baseline approach would be inconsistent with the
well established rule in the development assistance regime that all concessional flows can be counted
as ODA
19
.
Option 5: Current climate finance
A baseline acceptable to contributors (and according to Brown et al. (2010) supported by Germany)
may be current climate finance: the existing climate funds and those pledged before Copenhagen
would define the fixed baseline. This could be the final year before Copenhagen (2008 or 2009), or a
five-year average such as 2005-2009. On the downside, with this model the diversion of development-
oriented aid is possible, and information on current climate finance is scarce. In three analyses, we
have attempted to quantify current levels of climate finance (Roberts et al., 2008; Michaelowa and
Michaelowa, 2010; Roberts et al., 2010b). Many definitional problems arise, showing starkly
conflicting numbers between OECD “Rio Marker” totals and those of our independent categorizations
at the project level. Therefore, the criterion of transparency is currently not given, both in terms of
clarity of definition and availability of data. However with clear definitions and sufficient resources,
such a baseline could be constructed for major contributor nations in the future.
Option 6: Current development assistance
Very close to current climate finance is the idea of a baseline of current development assistance. In
this case, all contributions above current development assistance may count as climate finance. Two
contributor countries, Australia and Switzerland, use a similar definition to this when saying that their
fast track pledge is part of an increase in development assistance (WRI, 2010). This essentially means
11
that all climate finance can be called “new and additional” as long as the development part of ODA is
increasing. However, this definition has some fundamental flaws: ODA has been increasing over time
and is expected to increase even more in the future as most countries attempt to get closer to their
0.7% of GNI target or their Gleneagles 2005 promises. Australia and Switzerland both fit this pattern:
their ODA has increased in the last few years, they have not yet met the 0.7% target, and it can be
projected that their ODA will increase in the future (see Figure 3
Figure
Figure Figure
Figure 3
33
3
). This baseline will,
therefore, not fulfil the criterion of “additionality to development assistance” and will not be
acceptable for developing countries.
[Figure 3, includes sources from OECD (2010) and WB (2010)]
Option 7a: Updated projections of development assistance
Instead of current development assistance levels, updated projections of development assistance could
be used as a baseline, which is a new option we propose (although Huhtala et al. (2010) mean a similar
baseline when proposing “benchmarking”). In this case, business-as-usual funding levels would be re-
assessed every year or two, taking into account current economic growth in industrialized countries
and development assistance commitments. For example, country X plans to increase development
assistance to $ x billion per 2020 if its economy is steadily growing. However, an economic crisis just
before 2015 makes the reaching of this target impossible. Therefore, the country will lower its
projected baseline for 2020 and the international community may allow the country to lower its
baseline for 2015. This option may be acceptable to contributors, as it could allow future spending on
climate finance to fall somewhat during economic downturns. Of course, obligations would also
increase in strong growth years. Although this method is theoretically close to the perfect assessment
of “new and additional”, it might fail at creating trust between parties, as developed countries may be
suspected of gaming the baseline, and because baselines are renegotiated every few years. Therefore,
we judge this baseline to not fulfil the criteria of “clarity of definition” and “political acceptability in
the South”.
Option 7b: Pre-defined projection of development assistance (with GNI growth adjustment)
A variant baseline using pre-defined projections of development assistance would avoid this
permanent re-negotiation by defining the projected business-as-usual level of development assistance
in advance, according to a realistic growth path for development assistance. The pre-definition task
would create a debate on which development assistance growth path is most realistic—very recent
years or a longer-term trend
20
. Industrialized countries may be concerned about agreeing to specific
12
levels of development assistance and climate finance without knowing their future GNI growth and
related tax income. It is relatively straightforward, however, to use a formula that takes into account
real GDP growth in later years
21
(see Figure 4 for illustration). The GNI dependence of the funds
would be a downside for developing countries, but by avoiding re-negotiation of the formula they
would benefit from better predictability. We do not see any major drawbacks beside some interference
with the development assistance regime
22
.
[Figure 4]
Option 8: New sources only
A final baseline definition, also proposed by Huhtala et al. (2010) for defining “new”, is ”new sources
only”, which is actually an alternative definition to “novelty” we rejected earlier. It combines all
issues: novelty, additionality and acceptability. This baseline would count new sources only, meaning
that only assistance from novel funding sources—such as international air transport levies, currency
trading levies or auctioning of emission allowances—would be seen as new and additional. Such funds
are new by definition, and they are likely to be additional to development assistance, as it is highly
improbable that new funding instruments—especially the ones related to pricing carbon emissions —
would be used for development assistance without a climate policy regime. The obvious drawbacks
are that it inflexibly bars the use of effective current funding streams, and would somewhat arbitrarily
define which sources are new. Although we believe that this baseline could be acceptable for
contributors, they have ruled it out for 2010-2012 “fast-start” financing, which will draw on existing
sources such as the general budget.
Therefore, the ”new sources only” option is probably one for
longer-term (post-2012) climate finance, especially the ramping up of climate finance for the 2020
promise of $100 billion a year, for which the UN Secretary-General’s High-level Advisory Group on
Climate Change Financing is suggesting especially new sources such as carbon taxes, auctioning of
emission allowances or levies on international transport (UN, 2010).
Summary of options
When assessing the different baseline options with the criteria discussed (Table 1) most options do not
fulfil at least one criterion. Only the baseline options “above a pre-defined projection of development
assistance with GDP growth adjustment” and “new sources only” can guarantee some level of
additionality, novelty, and acceptability by parties, as well as transparency and consistency with other
regimes.
13
The option “pre-defined projection of development assistance with GDP growth adjustment” does not
perform very well on any particular criterion, but it also lacks any major drawbacks. The main
challenge is to predefine projections of the development part of ODA. Such projections would not
mean a change of existing regime rules but to introduce a new rule, which will have to be agreed at the
head of state level. The second option with no negative rating on any criterion is “new sources only,”
which we consider very promising given that there is international agreement that new sources are
needed. Both the Copenhagen Accord and the Cancun Agreements specify that “alternative sources of
finance“ are to be included, but do not provide specific suggestions, which shows that a component of
a baseline has to come from new sources. While the “new sources” baseline option may have,
therefore, political support, it is hardly feasible in a strict sense: totally refraining from using
traditional aid budgets will decrease flexibility on the donor side and may, therefore, limit both
acceptability in the North and lower the overall climate funds (and, therefore, environmental
effectiveness). , Furthermore, many developing countries wish that most funding is coming from
public sources (see e.g. IISD, 2010a), whereas “new sources” also include private funds. Therefore, a
less strict baseline, e.g. the use of “at least 50% new sources” may be more promising.
[Table 2]
4. Conclusions
The current state of no transparency on novelty and additionality of climate finance pledges will
perpetuate mistrust in the climate regime. Many options for a baseline for a definition what “new and
additional” means have been put forward but the parties to the UNFCCC have not yet agreed on any.
From the climate negotiation texts and the academic literature we derive that a meaningful and
successful baseline must at least fulfil the following criteria: novelty, additionality, equity,
acceptability, transparency and consistency with other regimes. We conclude that only two of the
assessed baseline options are not violating any criterion excessively: “Above pre-defined projection of
development assistance” and “new sources only”. It is, therefore, warranted that parties consider those
two baseline options instead of restating their old extreme positions of either no baseline or a threshold
of 0.7% of GNI going to ODA.
Procedurally, the discussion on a baseline should be included either in the Ad-hoc Working Group on
Long-term Cooperative Action under the Convention, or as subtask for the new Standing Committee
on Climate Finance. If a global agreement on a single baseline definition is not possible, a (distant)
second-best solution would be to oblige each contributor to transparently declare its own baseline
14
definition, while providing guidance on needed data for each baseline option. Both a common as well
as individual baselines could be part of the “enhanced common reporting methodologies for finance
and tracking of climate-related support”, for which modalities and guidelines should be developed
according to the Cancun Agreements (UNFCCC, 2010, paragraph 46).
Both industrialized and developing countries can do their part to reach a compromise: while
industrialized countries could agree on elaboration of an internationally defined baseline or at least
attach a baseline to each of their pledges, developing countries may acknowledge that it was almost
impossible for industrialized countries to contribute $ 10 billion of “new and additional” funding in
2010, as the 2010 budgets have mostly been determined before Copenhagen. More scrutiny may be
applied to the figures for 2011 and 2012. Meanwhile, the “scaling up” period from 2013 (when fast-
start finance is past) and 2020 (when $100 billion/year is pledged) requires a sharp increase of about
$10 billion/year: deciding a baseline is critical for financing action during this period.
In the end, defining a baseline for “new and additional” is just one of many important pieces in the
larger jigsaw of climate finance. The new Transitional Committee will have to design the detailed
governance structures and modalities for access for the Green Climate Fund. However, this new fund
will only be part of the various bilateral, multilateral, private and even South-South flows that have to
do with financing climate change mitigation and adaptation. For realising the full potential of climate
finance, parties to the UNFCCC have to decide on a definition of “climate finance” and on rules and
institutions on how to track it. In parallel, new and acceptable financing sources have to be identified.
The new Standing Committee on Climate Finance could deliver important preparatory work for
decisions on definitions (both climate finance and “baselines”), tracking modalities and new sources.
Acknowledgements
We would like to thank Saleemul Huq, Benito Müller, researchers at the World Resources Institute
and two anonymous reviewers for comments on an earlier version.
Notes
2
Donors were never before as specific as at the Gleneagles summit: the European G8 members pledged to
increase their ODA to 0.7% of their GNI by 2012-2015, while also the US, Canada and Japan made pledges for
substantial increase of their ODA (G8, 2005).
2
For the uncertainty about delivery of Copenhagen finance promises and needed transparency, see Rudyk (2009)
and Schalatek et al. (2010)
15
3
It has to be noted that these pledges were much smaller than the $ 125 billion of annual international grants or
concessional flows needed to implement the Agenda 21 activities as estimated in 1992 (UNDESA, 1992), which
never materialized. However, compliance with the low pledges for biodiversity, climate change and ozone has
been high (see Benedick, 1998; GEF, 2006; Pallemaerts and Armstrong, 2009; GEF, 2010; UNEP, 2010).
4
Substantial experience of how to define baselines has been collected in the context of climate change mitigation
in developing countries financed through the CDM, see (see Michaelowa et al., 2007).
5
Official Development Assistance (ODA) as defined by the OECD-DAC currently consists of development-
focused programs but also of other funds such as for global environmental goods (e.g. Multilateral Fund in the
ozone regime or climate change mitigation funds). When using the concept of “development assistance” (DA),
we want to make clear that we only refer to ODA funds for “development” and not to ODA funds for “climate”.
This distinction is similar to the distinction between “ODA classic” and “ODA climate”, as made by Huhtala et
al. (2010).
6
Strictly speaking, only mitigation has an “environmental” impact by reducing climate change, while adaptation
has mainly direct economic benefits. However, as most climate finance is used for mitigation, we can easily
assume that climate finance enhances environmental effectiveness.
7
This is a weak assumption in our view: if international mechanisms are stringent enough, climate funds will be
spent on climate-related activities. Assuming minimal knowledge on mitigation and adaptation, environmental
benefits per unit may decrease with increased finance but will stay positive. In few cases, climate funding may
actually decrease environmental effectiveness, e.g. in case of maladaptation or if funds are allocated to energy
efficient coal power plants, which would have been built anyway. However, it is highly probable that such
negative effects will not outweigh the positive effects of climate finance.
8
Also advanced developing countries such as China, South Korea or Mexico may have to contribute. However,
the bulk of climate finance will have to come from industrialized countries.
9
For a recent critique of India and South Africa that industrialized countries do not deliver promised climate
finance, see Jebaraj (2011)
10
While diversion of a planned increase in development assistance is probable, we may hardly see a decrease in
the current level of DA funding.
11
See e.g. the Cancun summit: the success was partly related to the transparent procedures, applauded by many
parties (IISD, 2010b).
12
The Rio Markers are an important attempt to bring more transparency but the labeling has to be improved or
replaced by a new system in order to fulfill the function of transparency.
13
A senior Northern government official reported that his country advocated the change of the ODA definition
in order to separate climate funding. The attempt, however, had no chances.
14
This also points to the idea that climate finance labelling may be improved by training donors in reporting Rio
markers.
15
In contrast to the public perception, industrialized countries actually for a long time never promised to reach
the 0.7% target but only to make efforts to attain it (Clemens and Moss, 2005). This changed when the EU
pledged that their old member states reach the 0.7% level by 2015 (EU, 2005).
16
For e.g. the only change to the existing OECD DAC system would be that funds marked with the climate
change Rio Marker would not be counted as ODA but reported as “climate finance”. However, the quality of the
Rio Markers needs to be improved, see footnote 12.
17
The mainstreaming is important for making sure that climate change issues are integrated into development
planning. It is, however, questionable if climate change mitigation would strengthen development as mitigation
projects contribute to the Millennium Development Goals only to a minor extent (see Michaelowa and
Michaelowa, 2007).
18
Separate accounting just means that in case of a larger development project, in which climate change concerns
are mainstreamed, donors have to decide which part of the funding is development-related (ODA) and which
part is climate finance. This accounting exercise does not have an impact on the project design at all.
19
A softened version of this option is the idea of former British Prime Minister Gordon Brown to limit the
climate finance that can be accounted as ODA to 10% of overall ODA contribution. All climate finance beyond
this 10% needs to come from other sources to be seen as “new and additional” (Brown et al., 2010). We do not
treat this as a separate option here, as the 10% seems to be an artificial number that made sense for the UK Prime
Minister at a given time. We never heard that this number has been repeated by other nations.
20
For example in Figure 3 Switzerland shows a steeper increase over the final three years than over the trend—
Australia’s ODA was flat and then dropped in 2009, but a longer-term trend since 1996 gives it the steepest
slope of the three.
21
This pre-definition with later adjustment is similar to the case of the Clean Development Mechanism where
the baseline is estimated before the project is registered but it is adjusted ex-post according to some predefined
formula (e.g. the production level or the units installed).
16
22
This interference is not very severe, since projections of development assistance do not actually impact the
definition of ODA, as we distinguish here between ODA (all funds counted as Official Development Assistance
including climate finance) and development assistance (development funds only; excluding climate finance).
Introducing a new measure such as DA is less conflicting with existing rules than changing the existing
definition of ODA.
17
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21
„Additional“ climate finance
Figure 2: Historic ratio of ODA to GNI
Sources: OECD (2010) for ODA and WB (2010) for GNI
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
ODA/GNI
“Diverted”
climate finance “
„Additional“
climate finance
Feasible
baselines
Level of
funds
Budget
Constraint
Projected DA
Current DA
Development assistance (DA)
Baseline
stringency
Budget
Constraint
Projected DA
Current DA
[No climate
finance]
Figure 1: Impact of baseline stringency on the level of spending for development assistance (DA) and
climate finance in case of budget constraint
22
Figure 3: Possible projections of development assistance (straight line projections)
Source: Authors’ analysis using data from OECD (2010) and WB (2010)
Figure 4: Projected development assistance, adjusted to GNI
Source: Own graph, assuming ODA is projected to rise
0
1
2
3
4
5
6
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Bn 08 $
0.7% of GNI, Australia
0.7% of GNI, Switzerland
ODA, Australia
ODA, Switzerland
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Bn 08 $
Projected ODA, 4% GNI growth
Projected ODA, 2% GNI growth
Projected ODA, 0% GNI growth
Past ODA
23
Table 1: Baselines for “new and additional” used by industrialized countries for fast-start funding
1
Source: WRI (2010);and Faststartfinance.org (2011) for: Australia, Canada, Finland, Iceland, Switzerland, United Kingdom.
For Sweden and Norway, the “0.7% ODA/GNI” baseline is not explicitly mentioned but is clear given current ODA
contributions.
2
No specification is scored as 0, lenient specification is scored as 1, stronger specification scored as 2; 0.7% ODA/GNI scored
as 3. Canada is only scored with 1 as baseline is below climate funds in past years. The UK rating is 1 since past pledges are
included.
3
Fast-start funds already allocated to projects or fund (Faststartfinance.org, 2011). Funds clearly not additional to existing
ODA or commitments before Copenhagen were deducted.
4
Rated 1 if both fast-start report and project or fund level details for 2010 finance available (Faststartfinance.org, 2011).
Baseline definition
1
Baseline
stringency
2
Level of funds
allocated
3
Transparency
in reporting
4
Country % of 2009 GNI
Australia Existing aid budgets / no diversion 2 0.039% 1
Austria Not specified 0 0 0
Belgium Current ODA, pre-COP15 commitm. 2 0.015% 0
Canada pre COP15 commitments 1 0 0
Denmark above 0.7% ODA/GNI 3 0.018% 0
EU Commission Above planned programmes 2 (not applicable) 1
Finland Above 2009 climate finance 2 0.015% 1
France Not specified 0 0.014% 1
Germany Not specified 0 0.002% 0
Hungary Not specified - 0 0
Iceland Not specified 0 0 0
Ireland Not specified 0 0 0
Italy Not specified 0 0 0
Japan Not specified 0 0 0
Luxembourg above 0.7% ODA/GNI 3 0 0
Malta Not specified 0 0.002% 0
Netherlands above 0.7% ODA/GNI 3 0.056% 1
New Zealand Not specified 0 0 0
Norway above 0.7% ODA/GNI 3 0.060% 1
Portugal Not specified 0 0.008% 0
Slovenia Not specified 0 0 1
Spain pre COP15 commitments 2 0.013% 0
Sweden above 0.7% ODA/GNI 3 0.034% 0
Switzerland Existing ODA budgets 2 0 0
United Kingdom Past ODA, max. 10% of climate ODA
1 0.018% 1
United States Not specified 0 0.007% 0
24
Table 2: Assessment of baseline options
Criterion 1) Additional
to develop’t
assistance
2) New to exis-
ting flows and
pledges
3)Environ-
mental
Effectiveness
4) Distribu-
tional consid-
erations
5a) Political
acceptability
(North)
5a) Political
acceptability
(South)
5b) Feasibility
given budget
constraint
5c) Transpa-
rency: Clarity
of definition
5c) Transpar-
ency: Availa-
bility of data
5d) Consisten-
cy with other
regimes
Means of assessment
No DA
decrease No double
counting Funds for
mitigation &
adaptation
Shift of burden
away from
South
Public
statements Public
statements Total of Devel-
opment &
Climate Funds
Clarity % available Consistency
with rules of
the DA regime
Baseline Option
1) 0.7% GNI
+ + - + - + - + + -
2)
No agreed
baseline
- (-) (-) + - + - +
3) New UN
channels only
- - + + +
4) No ODA counts
+ (-) + - + + + -
5)
Current climate
finance
- + + - - +
6)
Current develop-
ment assistance
- + + - +
7a) Updated projec-
tion of DA
+ + - + - (-)
7b)
Pre-defined
projection of DA
+ + + + (-)
8)
New sources only
+ (-) + (-) (-) + + +
+ criteria given, – clearly not given; blank cells means no clear or necessary impact of the baseline option on the criterion. (-) probably not given.
DA = development assistance
25
Annex: Regression of fast start climate funds (allocated amounts per GNI) on nations’ baseline stringency,
transparency, and level of current ODA
OLS
Dependent variable
Coeff.
p-value
ODA/GNI 2009 0.227 (0.02)
Transparency 0.0002
(0.00)
Baseline_stringent 0.0001
(0.15)
Constant -0.0001 (0.08)
N 25
Adjusted R
2
0.63
Allocated fast-start funds per GNI (non-additional funds deducted) as
dependent variable. Baseline_stringent = 1 if Stringency level at least 2 (see
Table 1). All other independent variables (level of GNI, Climate Change
Performance Index) had clearly no significant influence on level of allocated
funds.
Correlation matrixes
(obs=25)
Faststartfinance.org, 2011. Fast Start Finance. Contributing countries.
<http://www.faststartfinance.org/content/contributing-countries>, accessed 26th April 2011.
OECD, 2010. ODA by Donor. <http://stats.oecd.org/Index.aspx>, accessed 31st August 2010.
WB, 2010. World Bank Data. <http://data.worldbank.org/>, accessed 4th October 2010 2010.
Fast-start
funds/GNI ODA/GNI Transparency Baseline_stringent
Fast-start funds/GNI 1.0000
ODA/GNI 0.6247 1.0000
Transparency 0.6167 0.1888 1.0000
Baseline_stringent 0.5612 0.6115 0.2358 1.0000
