copy the linklink copied!Accelerating the transition to low-emissions, climate-resilient development pathways

How the climate crisis is handled today and in the coming years will determine the rise of average global temperatures and our ability to adapt to increasingly frequent and severe climate impacts. In each scenario, the impacts on development will be huge. Climate change threatens every sector and community, but especially those in developing countries and particularly the poorest and most vulnerable. However, in spite of the relationship between development and climate change, there is no systematic global effort to align development co-operation with the objectives of the Paris Agreement. This chapter outlines the key challenges as well as a way forward for providers of development co-operation.

    
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Development co-operation as a key player in global sustainable development

This report examines how development co-operation can support ambitious climate action in developing countries to deliver on its sustainable development mandate.

It examines why and how development co-operation providers should align their strategies, policies and operations with the objectives of the Paris Agreement, recognising that development co-operation is a partnership wherein providers support developing countries to achieve development gains. Countries define their development pathways, and own and control their own development successes. Development co-operation providers, as partners, can support but not deliver developing countries’ needed transition to low-emissions, climate-resilient pathways.

Likewise, every country that is party to the Paris Agreement holds primary responsibility for ensuring that its policies and activities are consistent with its commitments under the Agreement and the objectives of the Agreement. In fulfilling its mandate to work with developing countries to enable and safeguard sustainable development, development co-operation can support them in the shift to pathways that are consistent with the objectives of the Paris Agreement. Ultimately, the alignment of development co-operation should serve developing countries and better enable them to achieve sustainable development through low-emissions, climate-resilient pathways. These agendas – climate and sustainable development – are inseparable. Many developing countries recognise the imperatives and benefits of shifting to low-emissions, climate-resilient development pathways. The role of development co-operation is to help them to make the shift.

This report focuses on development co-operation. As a consequence, it does not aim to assess or formulate recommendations for developing countries’ current or future actions to align with the objectives of the Paris Agreement. Rather, it is concerned with the alignment of development co-operation and how development co-operation can best support developing countries on their development pathways.

copy the linklink copied!Why is it a priority to align with the Paris Agreement?

Sustainable development and climate change are inseparable. Climate change is an emergency that threatens the growth and sustainable development prospects of every sector and community. The threat is especially acute in and to developing countries. The changing climate is already altering the ecological and social systems that underpin human well-being and economic activity, and will continue to shape how countries develop beyond 2100 (IPCC, 2018[1]). The risks are greatest for the world’s poorest and most vulnerable people, who are the central focus of sustainable development efforts and are already being forced to confront and adapt to the adverse impacts of climate change.

Climate change jeopardises society’s ability to protect people from poverty, satisfy basic human needs, and achieve sustainable, equitable growth and development (OECD, 2018[2]; Hoegh-Guldberg et al., 2018[3]; Rüttinger et al., 2015[4]). The impacts of climate change that are felt and seen today are geographically varied, unpredictable and exponential, and they are projected to worsen depending on the efficacy of climate action (IPCC, 2018[1]). The way in which communities, cities and countries develop ultimately determines both their vulnerability to climate change and their exposure to its impacts, which multiply and compound upon one another – particularly in places where poverty and disadvantage are widespread and existing development is limited (Hallegatte et al., 2016[5]; Zscheischler et al., 2018[6]).

The escalating climate crisis is a huge obstacle to reducing poverty (Hallegatte et al., 2018[7]; IPCC, 2018[1]). Natural disasters alone are pushing 26 million people a year into poverty and climate change is expected to increase the frequency and severity of such events (Hallegatte et al., 2018[7]; IPCC, 2018[1]). Without sound, climate-informed development, climate change could force more than 100 million people into extreme poverty by 2030 (Hallegatte et al., 2015[8]). Climate change also adds to the challenges arising from rapid population growth and urbanisation in many developing countries, placing further pressure on already scarce resources and systems and especially on land, water and food.

In 2015, countries came together to address these interrelated challenges, mobilising to protect global development prospects as well as past development gains by creating the 2030 Agenda for Sustainable Development and the Paris Agreement on climate change (UN, 2015[9]; UNFCCC, 2015[10]). The Paris Agreement is a framework for country-led action to shift to low-greenhouse gas (GHG) emissions (low emissions), climate-resilient development pathways. To address the climate emergency, the Agreement sets three clear objectives: limiting the rise in global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the rise to 1.5°C; adapting to the adverse impacts of climate change; and making all finance flows consistent with both these efforts. It is well established that if developed and developing countries do not urgently increase their ambition to meet these objectives, the 2030 Agenda and its Sustainable Development Goals (SDGs) will not be met and the world will fail in its overarching pledge to leave no one behind (IPCC, 2018[1]).

Countries’ decisions on development and climate in the coming decade will determine the world’s future.  
        

Countries’ collective commitments and efforts to date do not put them on track to achieve the 2030 Agenda or the Paris Agreement, and time is running out. Countries have roughly a decade left to make massive cuts to collective global emissions – approximately halving them from 2010 levels – if they are to successfully limit global warming to 1.5°C this century (IPCC, 2018[1]). Failure to dramatically abate global emissions over the next ten years, until 2030, will result in a much warmer world and will have dire consequences for sustainable development. If global warming continues at the current rate and countries do not strengthen their existing commitments under the Paris Agreement, set out in the unconditional pledges in their nationally determined contributions (NDCs), the world is projected to undergo a global average temperature increase of between 2.9°C and 3.4°C of warming by 2100 relative to pre-industrial levels, with warming continuing afterwards (IPCC, 2018[1]; World Meteorological Organization, 2019[11]). Limiting global warming to 1.5°C compared with 2°C could reduce the number of people exposed to climate-related risk and poverty by up to several hundred million by 2050 (IPCC, 2018[1]).

Countries’ policy and investment decisions today also will determine whether the interlinked global challenges can be overcome effectively (New Climate Economy, 2018[12]). Nearly all countries have committed to implementing the Paris Agreement. Yet, further commitments and action are needed to plan, finance, deliver and maintain the transformative changes that the Agreement calls for. All pathways to limit global warming to 1.5°C or well below 2°C require improving energy efficiency, rapidly decarbonising energy supply and electrifying energy end use, and increasing the use of negative emissions technologies (IPCC, 2018[1]). To achieve the 1.5°C goal, coal use needs to be essentially phased out by 2030, the electricity sector needs to be fully decarbonised by 2050, and 70-85% of all power should come from renewable energy (IPCC, 2018[1]). To move beyond commitments, a range of actors need to step up to mobilise and provide increased finance, support policy reforms, and build capacity.

The objectives of the Paris Agreement are central to the mandate of development co-operation. The fundamental purpose of development co-operation is to facilitate developing countries’ economic, social and environmental transformation in the face of complex challenges. Climate change threatens the aims of the many institutions that facilitate and provide development co-operation; they cannot deliver on their mandates without anticipating and accounting for climate change.

Development co-operation providers that fail to step up and actively help developing countries to take ambitious climate action risk supporting unsustainable development.  
        

The economic and social case for taking ambitious, accelerated climate action in both developed and developing countries is well established. The global economic consequences of failing to take ambitious climate action are equally stark. Global economic damages in 2100 are projected to be smaller under global warming of 1.5°C than under 2°C. The Intergovernmental Panel on Climate Change (IPCC) estimates that the damages from warming in 2100 could cost USD 54 trillion with 1.5°C of global warming and USD 69 trillion with 2°C of global warming relative to the period 1961-901 (Hoegh-Guldberg et al., 2018[3]). Emissions-intensive development also overlooks the potential for technological and social innovation to reduce emissions and build communities’ resilience to climate change and other interlinked social challenges (New Climate Economy, 2018[12]).

Aligning with the Paris Agreement brings opportunities for development. Development co-operation decision makers should recognise and take up the vast evidence that sound climate change policy is also sound development policy.   
        

Fundamentally, alignment means ensuring that development pathways are low-emissions and climate-resilient and as a result, sustainable in the face of the multi-layered challenges that developing countries now face.

By factoring the objectives of the Paris Agreement into their activities, development co-operation providers can accelerate the necessary transformation to low-emissions pathways while also supporting adaptation to adverse climate impacts and building resilience. In their traditional form, many development co-operation activities have contributed to the current unsustainable trajectories, in particular through financing major infrastructure and economic activities that are the main sources of emissions (IPCC, 2018[1]). Yet the knowledge, technical solutions and financial resources for alternative development models and better development outcomes already largely exist. Development co-operation should also deliberately support what Hallegatte et al. (2015[8]) call “rapid, inclusive and climate-informed” development that supports communities to adapt to the adverse impacts of climate change. Building the resilience and capacity of poor and vulnerable countries and communities to respond to climate change alongside other stressors, delivers many development co-benefits (Hallegatte et al., 2018[7]). Development that supports adaptation to climate impacts also helps to alter existing modes of development that lead to maladaptation and put at risk past development gains.

Development co-operation has an equally vital opportunity to support developing countries in making transitions that are just, inclusive, and supportive of communities’ long-term social and ecological health. A fundamental part of development co-operation’s mandate is to support countries to develop in a way that is equitable, inclusive and leaves no one behind (OECD, 2018[2]). The changes that are needed to meet the 2030 Agenda and the Paris Agreement will be complex and disruptive to many sectors’ traditional activities. Development co-operation can help countries to plan and implement these shifts in a way that lays the groundwork for better societies. Just, inclusive climate action can also help to foster greater public acceptance for climate policies and enable more rapid progress.

In response to climate change, developing countries and their development co-operation partners can support investments in infrastructure and deliver social and livelihood protection policies that build resilience to climate change while protecting the poor (Hallegatte et al., 2016[5]). At the same time, they can strengthen the health of ecosystems that support life on Earth and deliver broader environmental co-benefits. Measures such as nature-based solutions can provide adaptation and mitigation benefits while also helping to slow or reverse the risk of ecosystem degradation, biodiversity loss and mass species extinction that currently threaten development prospects (Griscom et al., 2017[13]; IPBES, 2019[14]). Across the board, there are clear co-benefits for development co-operation providers that seek to address both development and climate imperatives.

Low-emissions, climate-resilient development pathways now represent the only sound option for achieving the ambitions of development co-operation under the 2030 Agenda.  
        

Development co-operation is critical to unlocking ambitious climate action and should support countries to seize the current window of opportunity. The coming year, 2020, will be especially decisive, as countries update their NDCs; communicate vital, long-term strategies; commit to the required levels of transparency and accountability; and through these processes, set the levels of their practical and political ambitions on climate change and sustainable development for the coming years (New Climate Economy, 2018[12]).

Development co-operation should also work to apply development finance resources more strategically, given that the financing needs for achieving the 2030 Agenda and for shifting to low-emissions, climate-resilient pathways are much higher than the levels of historical development finance flows. Because official development finance (ODF) is deployed with an explicit development mandate, it can provide, especially through its concessional resources, core resources for the more difficult and ambitious changes that need to occur in developing countries to shift to achieve low-emissions, climate-resilient development pathways. Climate-related development finance2 has stagnated in recent years, though bilateral and multilateral actors have announced ambitious increases of climate-related development financing. There is also a concerning declining trend in official development assistance (ODA) provided to the least developed countries, which are most reliant on international development finance and need the most support to confront the climate emergency (OECD, 2019[15]).

Recognising that sound climate policy is sound development policy is the vital first step. The transformations that accompany the development process invariably include challenging transitions. Providers of development co-operation need to assume their role as key actors for supporting developing countries to successfully address climate change and undertake the vast transformation that is needed as part of the sustainable development journey.

copy the linklink copied!What does Paris alignment mean for development co-operation?

At a fundamental level, Paris alignment means supporting ambitious climate action and reinforcing the principles of sound development. Development co-operation that is Paris-aligned supports the three core objectives of the Paris Agreement on climate change mitigation, adaptation and finance flow consistency (outlined in Article 2.1). It also demands concerted attention to implementing and improving countries’ key mechanisms for delivering their commitments under the Paris Agreement, i.e. NDCs and long-term low greenhouse gas emissions strategies (LTSs). Countries have committed to prepare, communicate and maintain NDCs over time, revising them every five years with the aim of reaching the levels of collective ambition needed (UNFCCC, 2015[16]). The Paris Agreement also proposes LTSs to guide countries’ efforts towards the collective target to reach global peaking of emissions as soon as possible, while also noting that this will take longer for developing countries, and towards global net zero emissions in the second half of this century (UNFCCC, 2015[10]). This longer term goal of the Agreement sets a clear target for global emissions abatement over the coming decades, supported by progressive NDCs.

Countries’ determination and ownership of their development pathways – a core principle of sound development practice – are also practical necessities for effective, long-term development progress.  
        

Both the 2030 Agenda and the Paris Agreement were created with the critical basis of country ownership in mind, in recognition that countries hold primary responsibility for their economic and social development (UN, 2015[9]). The ownership principle applies to development efforts and global climate objectives that are delivered at both national and subnational levels. Developed and developing countries are implementing the Paris Agreement through national and subnational strategies, policies and programmes – that is, not only through NDCs and LTSs but also through many other modalities and processes that are cross-sectoral and sector- and climate-specific.

Development co-operation that is aligned with the Paris Agreement has four main characteristics. In view of the central objectives and mechanisms of the Paris Agreement and the fundamental development principles that complement them, this report proposes four main characteristics of development co-operation that is effectively aligned with the Paris Agreement. These characteristics offer a conceptual framework for development co-operation providers to design, implement and continually assess their efforts to align with the Paris Agreement.

  1. 1. Paris-aligned development co-operation does not undermine the Paris Agreement but rather contributes to the required transformation. Development co-operation activities should not merely do no harm to effective action on climate change. The activities should make a positive contribution to the system-wide transformation that is needed to achieve low-emissions, climate-resilient pathways. This is the extent of action necessary to ensure development co-operation delivers on its mandate and supports the achievement of the SDGs. It is insufficient for development co-operation providers to focus on meeting no more than the minimum standard of doing no harm by avoiding actions that actively undermine the Paris Agreement. Not all development co-operation activities need to include active climate objectives, but it is nonetheless critical that providers’ underlying assumptions, conditions and objectives support a systemic, holistic approach to achieving low-emissions, climate-resilient development.

  2. 2. Paris-aligned development co-operation catalyses countries’ transitions to low-emissions, climate-resilient pathways. For developing countries to successfully shift to low-emissions, climate-resilient pathways, development co-operation should act as a catalyst for the transformation. This means deploying finance strategically and engaging in policy support and capacity development (see Section 2.3) to trigger broader change in developing countries – in particular, change led by partners and other actors – while ensuring that activities support the groups and communities in developing countries that most need the support. It is especially critical for development finance to be catalytic given its significant potential to influence other sources and applications of financing.

  3. 3. Paris-aligned development co-operation supports the short- and long-term processes under the Paris Agreement. Collectively, the NDCs and LTSs under the Paris Agreement are core mechanisms that will determine the direction and effectiveness of global climate action over the coming decades. Development co-operation that is Paris-aligned supports the development, financing and implementation of the NDCs and LTSs, helping countries to make these coherent and to increase their ambition over time in line with the objectives in Article 2.1. In particular, development co-operation should support countries to connect climate-centric processes with other development and sectoral plans. Action on climate change cannot be effective if it is disconnected from countries’ broader decision making on development (World Resources Institute/UNDP, 2018[17]).

  4. 4. Paris-aligned development co-operation proactively responds to evidence and opportunities to address needs in developing countries. This means responding to a range of developments: continually emerging and evolving evidence on the pace and scale of climate change and its impacts; identified needs within specific communities and sectors; and opportunities and solutions (including technologies and good practices) for addressing these challenges. Given the indivisibility of climate change and sustainable development, providers can be pioneers for Paris-aligned development interventions, supporting developing countries to identify opportunities and respond flexibly as new evidence and information emerge and to work towards Paris alignment in their development and sector strategies.

Paris alignment demands action from a variety of development co-operation actors through the levers of finance, policy support and capacity development. To support developing countries’ transitions to low-emissions, climate-resilient pathways, development co-operation providers should use the main levers at their disposal of financing, policy support and capacity development. In practice, development co-operation interventions almost always involve more than one of these levers and are delivered by a range of established actors with different historical roles and different potential contributions to make to the transition. Paris alignment demands action from donor governments, development banks and bank-like institutions, non-bank providers of development co-operation, and specialised agencies and funds. They have varied roles to play in devising strategies that support Paris alignment, raising and delivering resources, and supporting action in-country through the three levers (Figure 0.1)

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Figure 0.1. Complementary levers of development co-operation
Figure 0.1. Complementary levers of development co-operation

Source: Authors

Paris alignment requires that climate action be included in development co-operation strategies, programmes and operations. Some development co-operation providers have made important progress towards Paris alignment in recent years by devising and employing different tools to achieve specific climate and other environmental goals. Their aim is to institutionalise their approaches to addressing climate change and to supporting developing countries to implement commitments made under the Agreement. There is clear scope for building on these existing efforts to ensure that climate action that is incorporated into their interventions is at the necessary pace and scale to achieve the Agreement’s ambitious objectives.

Providers’ efforts to date reflect a growing recognition that it is necessary to consider climate action at the very heart of sustainable development, fully integrated into strategies, theories of change and programming. This places the Paris Agreement within the broader strategic context of sustainable development. At the same time, many approaches show a dual focus on both increasing climate finance and ensuring that all activities consider and incorporate the objectives of the Paris Agreement. Providers and key research institutions increasingly refer to this as a shift towards a Paris alignment paradigm that supports the emphasis in Article 2.1c on all financial flows (Larsen et al., 2018[18]).

The call to make all financial flows consistent with a pathway towards low-emissions, climate-resilient development encompasses development finance. Accordingly, providers are increasingly focusing on the need to align all their resources – across portfolios, pipelines and activities – with the objectives of the Paris Agreement, in addition to continued efforts to increase volumes of development finance for climate objectives.  
        

Many of the emerging approaches to Paris alignment also involve the combination of bottom-up, country-driven approaches and global or top-down targets that is embraced by the Paris Agreement. The use of financing targets, investment criteria and climate mainstreaming are among the top-down tools and approaches being deployed by providers to guide their own institutions’ activities and their activities in developing countries. Many providers are also working with countries from the bottom up to support NDCs, LTSs, and other nationally and subnationally driven processes that articulate countries’ commitments under the Paris Agreement and strengthen these commitments according to country context over time.

Paris alignment requires the integration of climate action across development finance. The integration of climate objectives across project portfolios, as shown by data analysis on both concessional and non-concessional ODF (Section 2.5 and Annex C), provides an indication of the extent to which development co-operation (and the activities it facilitates) is supporting alignment with the objectives of the Paris Agreement.

In developing countries, development finance – financial instruments and resources with an explicit development mandate – needs to play a role in achieving ambitious climate goals by directly addressing resource gaps, by leveraging additional resources and by triggering broader change from other actors. Development finance is increasingly seen as an important part of a broader context of financing for sustainable development that includes additional resources mobilised through, for example, domestic taxation, private investment and remittances. In a similar vein to Article 2.1c of the Paris Agreement, the Addis Ababa Action Agenda of the Third International Conference on Financing for Development calls on public and private actors to work together in mobilising the means to finance sustainable development, including through concerted efforts related to domestic public resources, domestic and international private finance, and development co-operation (UN, 2015[19]). In development co-operation, this collaboration varies by provider type and the nature of finance being used.

On the whole, providers are not yet sufficiently integrating climate considerations across portfolios.  
        

The impacts of climate change and their risks to developing countries are increasingly well evidenced, but development co-operation’s response to the resultant needs remains, so far, unclear. Climate-related development finance accounted for 18% of bilateral and 32% of multilateral development finance from 2013 through 2017. While the Paris Agreement, with its clear policy imperatives, was established roughly in the middle of this five-year period, the evidence of how climate change threatens development across all sectors has been long established, and it is clear that development co-operation still needs to respond to these challenges much more comprehensively across portfolios.

Climate-related development finance does not show an indication of the strong upward trend required by both growing evidence of climate risks to sustainable development and the clear global consensus signalled by the adoption of the Paris Agreement in 2015 (Figure 0.2).This lack of a clear response suggests insufficient action throughout development co-operation, though its extent varies by provider. Bilateral support to climate-related development finance has stagnated, ranging from 15-19% as a share of its overall development finance in 2013-17. Multilaterals have been on an upward trend since 2015 in terms of volumes of climate-related development finance. They also increased the share of climate-related development finance as a proportion of their overall development finance over this five-year period, from 33% to 43%; the share of climate-related finance by multilaterals was highest, at 54%, in 2016. These differences may reflect the different focuses of different types of providers in pursuing Paris alignment and climate action more broadly.

The central concern of many providers to date has been to align financial flows with the objectives set out in Article 2.1c of the Paris Agreement. This is especially the focus among multilaterals, which are primarily bank-like institutions that are more likely than non-bank providers of development co-operation to use debt financing to fund big-ticket projects such as infrastructure. While finance for low-emissions, climate-resilient infrastructure is critical to achieve the objectives of the Agreement, it is equally important to expand the scope of Paris alignment to include other social and economic sectors as well as policy support and capacity development activities across all of providers’ portfolios and activities.

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Figure 0.2. Shares of climate-related development finance, 2013-17
Figure 0.2. Shares of climate-related development finance, 2013-17

Note: Percentages shown in white text represent shares of climate-related development finance as a proportion of overall development finance committed within each year by provider type. Percentages shown in black text represent shares of development finance reported without any climate objective as a proportion of overall development finance committed within each year by provider type.

Source: Authors based on (OECD, 2019[20]), Creditor Reporting System (database), https://stats.oecd.org/; (OECD, 2019[21]), Climate Change: OECD DAC External Development Finance Statistics (database), http://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/climate-change.htm

 StatLink https://doi.org/10.1787/888934036766

To date, climate-related development finance has been concentrated in sectors that are clear priority areas for the low-emissions, climate-resilient transition. As shares of all development finance, it represented 24% in the energy sector; 20% in transport and storage; 12% in agriculture, forestry and fishing; 9% in water supply and sanitation; 7% in general environment protection; and 6% in “other multisector”. Together, these sectors accounted for nearly 80% of the total climate-related development finance committed in 2016-17. Nevertheless, to safeguard and advance developing countries’ progress towards sustainable development, there is an overarching need to shift from the current climate finance paradigm to a Paris alignment paradigm, as they are termed by Larsen et al. (2018[18]). This means that climate considerations should be integrated across other sectors and activities that have not traditionally been recognised as central to the transition. This shift should go hand in hand with efforts to put an end to the persistent use of development finance in support of activities that undermine the transition and by extension are unsustainable, such as the production and consumption of fossil fuels in developing countries. The data also indicate improvement is needed even in sectors that are recognised as priorities. For example, fully 40% of development finance in the agriculture, forestry and fishing sector in 2016-17 was not climate-related. Other areas with increasingly recognised relevance to the transition, among them the banking and financial services and the health sectors, show especially low levels of climate-related development finance.

Achieving a balance between adaptation and mitigation objectives requires a focus on country needs.  
        

Developing countries will be better placed to participate in and benefit from a low-emissions, climate-resilient global economy if mitigation and adaptation needs are supported without delay. While the Paris Agreement recognises that developing countries’ fossil fuel use is projected to peak later than that of high-income countries, this should not prevent developing countries from taking up opportunities to transition (OECD, 2017[22]; UNFCCC, 2015[10]; New Climate Economy, 2018[12]). As noted, mitigation, adaptation and development imperatives are deeply intertwined. Meeting adaptation needs is a prerequisite to sustainable development, for instance, and countries’ ability to address climate risks also depends on mitigation progress. Development finance needs to achieve a balance between mitigation and adaptation objectives by focusing on varying country needs for each. A significant part of this task is increasing financing to meet adaptation needs (UNEP, 2018[23]).

Climate-related development finance remained fairly constant over 2013-17 in terms of shares for each objective,3 with the majority of the finance (52%) going towards mitigation efforts. Multilateral providers emphasised mitigation objectives more than bilateral providers (54% versus 48%) within their respective portfolios. Multilateral providers also emphasised adaptation slightly more (33% versus 30%), although bilaterals financed significantly more cross-cutting objectives (22% versus 13%). It is difficult to directly compare financing for climate objectives, and particularly to determine the balance for the climate-related country needs. Progress on adaptation is inherently incremental and context-specific, and quality metrics for climate resilience are limited (UNFCCC, 2018[24]). Climate change adaptation also needs to be included within other interventions and is often not an intervention’s sole objective.

The energy sector has received the largest shares of mitigation-related development finance to date, followed by the transport and storage sector. Most adaptation, however, has been concentrated in the agriculture, forestry and fishing sector and the water supply and sanitation sector. This concentration reflects that adaptation is especially needed in these sectors in developing countries. Effective action could be improved with a more holistic approach. The World Bank (2010[25]) has estimated that the costs of adapting to global warming of 2°C amount to between USD 70 and USD 100 billion every year from 2010 to 2050. Inclusive development in the countries that most require it can dramatically offset these costs in terms of share of gross domestic product (GDP). Inclusive development, however, needs to proactively incorporate adaptation goals and activities.

The concentration of climate-related development finance in six priority sectors points to the need to pursue alignment across all development portfolios and into other areas (Figure 0.3). It is also significant that much higher volumes of climate-related development finance (70%) are committed through debt instruments, compared to development finance without climate objectives (46%). This is due in part to higher allocations for climate change mitigation than for adaptation. Financing for mitigation is concentrated in infrastructure-related sectors that typically receive less grant-based development finance. The distinction also holds true across income levels. Climate-related development finance is less grant-based than development finance without climate objectives within both low-income and middle-income country groupings.

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Figure 0.3. Shares and volumes of climate-related development finance by sector, 2016-17 average
Figure 0.3. Shares and volumes of climate-related development finance by sector, 2016-17 average

Note: Volumes of finance calculated using the two-year average in each sector by climate objective for 2016-17. Percentages shown in white text represent shares of climate-related development finance as a proportion of overall development finance committed within each sector, calculated using the two-year average volume of finance in each sector for 2016-17. Percentages shown in black text represent shares of development finance reported without any climate objective as a proportion of overall development finance committed within each sector, calculated using the two-year average volume of finance in each sector for 2016-17.

Source: Authors based on (OECD, 2019[20]), Creditor Reporting System (database), https://stats.oecd.org/; (OECD, 2019[21]), Climate Change: OECD DAC External Development Finance Statistics (database), http://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/climate-change.htm

 StatLink https://doi.org/10.1787/888934036785

Overall, development finance data can provide only a limited indication of Paris alignment by showing the extent to which different climate objectives have been included across relevant areas such as sectors and instruments. Even with this caveat, however, it is evident that a holistic approach is lacking throughout sectors, income levels, regions and countries.

copy the linklink copied!How can development co-operation align with the objectives of the Paris Agreement?

Development co-operation should support developing countries to eliminate inconsistencies between the objectives of the Paris Agreement and countries’ insufficient NDCs and LTSs. In recognition of the urgency of the climate crisis and its importance to sustainable development, momentum among development co-operation providers is growing to align their strategies, policies and operations with the Paris Agreement objectives. At the same time, three factors combine to pose a core challenge to Paris alignment. One is the insufficient ambition of current NDCs. A second factor is the small number of LTSs that countries have communicated to the United Nations Framework Convention on Climate Change (UNFCCC) to date. The third is the disconnect between these two key mechanisms and broader development strategies, associated sector policies and resource plans.

Collectively, current NDCs are insufficient to achieve the objectives of the Paris Agreement. Trajectories implied by initial NDCs are set to lead to global warming of between 2.9°C and 3.4°C by 2100, with devastating consequences for development (World Meteorological Organization, 2019[11]; IPCC, 2018[1]). The initial NDCs were hastily compiled; disconnected from relevant planning and implementation mechanisms, available capacities and sectoral contexts; and often based on inadequate scientific data and information. Countries need to take bolder action and are required to prepare and submit new or updated NDCs that go beyond current efforts and demonstrate a higher level of ambition.

A long-term perspective is needed to progressively increase ambition for climate change, but very few countries have developed long-term strategies. With LTSs, countries can define climate action and commitments according to their development priorities and capacities, balancing and accounting for the objective of a global emissions goal of net zero emissions in the second half of the century. LTSs should provide clear, long-term political signals to frame policy and regulatory measures and to shape market expectations. Progress on LTSs is very limited; only 13 countries have communicated LTSs to the UNFCCC, among them 4 ODA-eligible countries (UNFCCC, 2019[26]).

Planning for climate action is often siloed from broader development and sector plans. The insufficiently ambitious NDCs, lack of LTSs and siloed planning for climate action are linked. As long as NDCs and LTSs do not reflect countries’ central planning tools, mechanisms and sector policies, implementing policies to bring about required structural change will be impossible. In the absence of a comprehensive approach, it also will not be possible to effectively address the need for a just transition and fulfil the collective pledge to leave no one behind. Evidence shows that the disconnect from country strategies, sector planning and resourcing was the main challenge to countries in formulating their NDCs.

Paris-aligned development co-operation calls for an effective response to these core challenges. Siloed climate action represents missed opportunities, as development strategies, planning and resourcing processes that do not consider the needed transition will fail to deliver sustainable development. Thanks to their support for development and sector planning processes, the provision of capacity building, and support they provide to undertake policy and regulatory measures, development co-operation providers have a unique role to help developing countries to overcome the challenges that stem from the absence of a comprehensive approach for climate action. Providers should not interpret low climate awareness and insufficient ambition in developing countries as sanctioning support to activities that are inconsistent with the objectives of the Paris Agreement and that compromise countries’ ability to achieve sustainable development.

Development finance should not be used for activities that undermine sustainable development. Development finance should be designed and delivered for financial, policy support and capacity development interventions in developing countries in a way that is consistent with the objectives of the Paris Agreement. Activities that counter or impede the transition to low-emissions, climate-resilient pathways are an ineffective use of resources. Ensuring that development finance is consistent with the Paris Agreement means embedding climate action as a prerequisite of sustainable development, placing development needs at the heart of providers’ objectives, and appropriately factoring for both short- and long-term climate risk projections.

Development finance continues to support the production and consumption of fossil fuels in developing countries. A conservative estimate indicates that average commitments of ODF for upstream and downstream fossil fuel activities amounted to USD 3.9 billion annually from 2016 through 2017, for which non-concessional finance from multilateral providers comprised 70% (OECD, 2019[20]). Approximately one-quarter of this amount is attributed to bilateral support for fossil fuel energy. In addition, upstream fossil fuel operations from multilateral providers account for nearly half, or USD 1.9 billion, of the ODF supporting fossil fuel activities. Sustainable alternatives are now widely available and affordable, and developing countries have broader choices available beyond fossil fuels to ensure quality access to energy.

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Figure 0.4. Development finance to the energy sector, by provider type and subsector, 2014-17
Figure 0.4. Development finance to the energy sector, by provider type and subsector, 2014-17

Note: Volumes of finance calculated using the two-year average in each subsector by provider type for 2014-15 versus 2016-17.

Source: (OECD, 2019[20]), Creditor Reporting System (database), https://stats.oecd.org/

 StatLink https://doi.org/10.1787/888934036880

Providers underemphasise climate considerations in sectors where developing countries have expressed adaptation needs. Several areas identified as crucial to adaptation in developing countries continue to receive significant volumes of development finance that does not consider any climate objectives. Health and agriculture are identified as priority sectors for adaptation action in 75% of developing country NDCs. Yet very little of the development finance allocated to health (5%) was climate-related in 2016 and 2017, and a significant proportion (40%) of development finance to agriculture, forestry and fishing was reported to have no climate objectives. This inconsistent provision of development finance does not support the fundamental development principle of country ownership, and clearly indicates that climate considerations are lacking in areas where they are necessary to achieve effective development.

Development co-operation can tackle these core issues by addressing key challenges at home, within developing countries and at the system level. Paris-aligned development co-operation constitutes holistic and broad-based support to developing countries to formulate, finance and implement NDCs and LTSs that will meet the objectives of the Paris Agreement. This support includes a shift in development finance flows, including with a view to ceasing support to fossil fuel-related activities and increasing support to identified adaptation priority sectors. The shift requires that key challenges to Paris alignment be addressed at three levels:

  • at home – i.e. in donor countries’ and development co-operation providers’ overarching strategies and policies – to help ensure that providers and donor countries are coherently supporting the transition of developing countries towards low-emissions, climate-resilient pathways

  • within developing countries – to support developing country governments to plan for, finance and implement the transition to low-emissions, climate-resilient pathways

  • at the system level – to establish consistent standards and pursue ambitious action across the international development co-operation architecture.

Aligning with the objectives of the Paris Agreement at home

Challenge 1: Development co-operation providers are not yet adequately set up to address the climate emergency. While development co-operation providers increasingly recognise the importance of the objectives of the Paris Agreement for achieving sustainable development, they face persistent challenges in integrating climate considerations across their portfolios. This is a result of their fundamental parameters – e.g. mandates, performance indicators and capacities – currently not being set up to address the climate emergency. Few providers have integrated climate considerations into their mandates, and only slightly more than two in five include climate-related targets in their institution’s performance framework.

  • The way forward: Integrate the climate imperative into providers’ mandates and performance systems and establish the right capacities and tools. In particular, donor country governments and development co-operation providers should:

    • establish mandates for providers that are commensurate with the ambition of the Paris Agreement

    • change providers’ institutional practice through internal performance and incentive systems that drive staff behaviour to engage in transformative climate action

    • establish adequate capacity for providers to execute the mandate

    • deploy a set of tools that enable staff to drive climate action at the pace and scale needed.

Challenge 2: Lack of coherence in donor countries’ broader international activities counteracts climate action through development co-operation. The Paris Agreement highlights the role of developed countries in supporting developing countries’ mitigation, adaptation and resilience efforts, including through financial support and co-operation for technology development, dissemination and deployment (UNFCCC, 2015[10]). This support is typically provided through a range of international activities overseen by different ministries and government agencies. In their current form, these activities sometimes include interventions that undermine the transition to low-emissions, climate-resilient pathways. For example, export credits are a major public instrument for trade promotion that undermine global climate and sustainable development goals.

While development co-operation providers are undertaking efforts to align with the objectives of the Paris Agreement, there is less evidence of donor countries working to ensure consistency their international activities beyond ODA are individually and collectively consistent with the objectives of the Paris Agreement.

  • The way forward: Donor countries should eliminate policy conflicts between their international activities and their commitments under the Paris Agreement. In particular, donor country governments should:

      • ensure that strategies and action plans in relation to the Paris Agreement cover the entire range of international activities

    • establish cross-government mechanisms to translate whole-of-government strategies and action plans into implementation.

Aligning with the objectives of the Paris Agreement in developing countries

Challenge 3: Process and capacity limitations in many developing countries constrain the integration of climate action into critical plans and decision making. Among the core challenges to achieving the objectives of the Paris Agreement is the insufficient integration of climate action into development plans, sector policies and budgetary processes. Staggering policy making and budget cycles, low awareness of the climate emergency and its imperatives among decision makers, and inadequate information on technological progress hinder an effective climate response in many policy areas.

Centres of government are pivotal in whole-of-government, economy-wide climate action through their responsibility and oversight of apex inter-governmental co-ordination mechanisms and their role in initiating transformative policy reforms and pursuing integration opportunities within and across different sectors. Crucially, such enabling frameworks at the national level can support critical action to combat climate change by subnational, local and private actors. As climate change will affect every sector, there is a need for development co-operation providers to support developing countries to rethink the traditional approaches of ministries of environment or their equivalents as the primary institutions responsible for co-ordinating climate action, and provide financial resources to build climate capacity in central institutions of developing countries.

  • The way forward: Support the leadership and capacity of central actors and systems to drive the integration of climate change into policy and planning. In particular, development co-operation providers should:

    • work with developing countries to incorporate ambitious climate objectives in their development plans and sector policies

    • support and facilitate leadership for transformative climate action at centres of government

    • provide targeted resources to enhance climate capacities in central institutions.

Challenge 4: Central systems in public administrations and private finance in many developing countries continue to perpetuate high-emitting and climate-vulnerable pathways. Public and private actors in developing and developed countries alike continue to finance high-emitting, climate-vulnerable activities, as highlighted by the fact that in 2017, investment in fossil fuels still represented 57% of global investments in energy supply. Tax and budgetary systems as well as financial systems enable these financial flows as they fail to integrate climate considerations in their frameworks. For example, many fiscal and financial systems contain provisions that continue to provide positive incentives for fossil fuel consumption and production and create or exacerbate vulnerability to climate change impacts.

  • The way forward: Assist developing countries to incorporate ambitious climate objectives throughout their financial and budgetary systems. In particular, development co-operation providers should:

    • support the integration of climate action into financing strategies that leverage public and private, domestic and international sources

    • support the integration of climate objectives into national budgeting frameworks and tax systems, as a core component of robust public financial management

    • support the development of green financial systems in developing countries.

Aligning with the objectives of the Paris Agreement at the system level

Challenge 5: The basic rules of the game of the international development system do not consider climate as an integral dimension of sustainable development. Development co-operation providers are increasingly eliminating support for fossil fuel-related activities. However, the eligibility standards of the international development co-operation architecture continue to overlook the climate emergency.

Moreover, no mechanism or process provides a common understanding, across development actors, of activities that are consistent with low-emissions, climate-resilient development in a given context. In the context of financial sustainability, the debt sustainability framework of the International Monetary Fund provides such a common understanding. Similar mechanisms are needed for climate action, including to ensure that support provided through development co-operation is consistent with the needed transition to low-emissions, climate-resilient pathways.

  • The way forward: Adopt core definitions and mechanisms to ensure Paris alignment at the system level. In particular, all countries and institutions providing development co-operation should:

    • update key standards to rule out the promotion and subsidisation through concessional resources of activities that undermine or delay the transition, such as new fossil fuel-based energy supply and power generation

    • support measures that provide systemic guidance to all development co-operation providers to identify activities that are incompatible with the objectives of the Paris Agreement, and by extension sustainable development.

Challenge 6: Fragmented approaches in development co-operation limit the scale of effective climate action. Given the multitude of diverse actors in the international development co-operation system, harmonised approaches or standards are essential to avoid fragmentation and inefficiencies. Such standards are of particular importance for funding and financing instruments, data and information, and infrastructure. A more concerted effort is needed to overcome bottlenecks across these three areas to make progress on Paris alignment at the system level and promote the needed transition to low-emissions, climate-resilient pathways.

Access to climate-related development finance is often perceived as inefficient, ineffective and burdensome to developing countries. This perception stems from the complexity of the international climate finance architecture, and greater harmonisation and standardisation is needed if developing countries are to access available resources and effectively implement adaptation, resilience and mitigation measures. To engage in the right measures, a better data, information and evidence base is needed that overcomes the currently fragmented data architecture. Such stronger data, information and evidence base is also required to make progress in establishing low-emissions, climate-resilient infrastructure as a broad-based asset class, adjacent to needed progress on contractual, financial and deal standardisation.

  • The way forward: Drive effective, scaled-up climate action through common standards in finance, data and infrastructure. In particular, development co-operation providers should:

    • increase harmonisation and transparency of climate-related development finance and improve access to such finance

    • promote harmonised standards and approaches regarding the generation and use of climate data

    • reinforce efforts to standardise procedures and specifications for infrastructure investments.

Challenge 7: Large volumes of finance are available globally, but systemic barriers impede investment in low-emissions, climate-resilient infrastructure in developing countries. The investment decisions for infrastructure will determine whether the interlocking agendas for sustainable development and climate action can be achieved. Establishing infrastructure as a broad-based asset class can open unprecedented opportunities, but developing countries face additional systemic barriers in promoting low-emissions, climate-resilient infrastructure. These barriers – including shallow capital markets, limited scope for local currency financing and trade, and foreign exchange risks – imply fundamental constraints to generate and effectively intermediate financial resources to bridge the infrastructure investment gap.

A collective and concerted approach is needed to address these systemic barriers to enable developing countries’ transition to low-emissions, climate-resilient pathways and make progress on Paris alignment at the system level. Such efforts should build on initial success stories, including initiatives supported by different donor and non-donor country governments to address foreign exchange risks. Strong and broad political support are essential, given the considerable resource, engagement and co-ordination needs. Building on the momentum created from the United Nations Climate Action Summit in September 2019, strategic partnerships of governments, development co-operation providers as well as the private sector are central in bringing these efforts to fruition.

  • The way forward: Focus on effective partnering to promote finance for investments in low-emissions, climate-resilient infrastructure at scale. In particular, donor country governments and development co-operation providers should:

    • focus on multi-stakeholder partnerships to trigger the needed transformation, building on the momentum generated by the UN Climate Action Summit 2019

    • establish a strong, mission-driven partnership to address foreign exchange risk that signals political commitment and will to deliver a systemic solution.

copy the linklink copied!Alignment with the Paris Agreement is vital to accelerating the transition to low-emissions, climate-resilient development pathways

For development co-operation providers, aligning with the objectives of the Paris Agreement means taking individual responsibility while also committing to be part of a global partnership – just as the Paris Agreement and the 2030 Agenda constitute a joint agenda for people and planet. Development co-operation providers should clearly and unreservedly commit to aligning with the objectives of the Paris Agreement by setting concrete objectives, creating shared commitments, and taking ambitious and consistent action.

Leadership is needed to unlock both financial capital and political will, including to take on the risks that come with shifting to new approaches. The imperative to align is based on solid evidence that sound climate policy is sound development policy. The solutions for achieving the objectives of the Paris Agreement exist. It is vital that development co-operation providers mobilise now to apply these climate solutions to advance sustainable development.

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Notes

← 1. This estimate refers to the mean net present value of the costs of damages from global warming, and what Hoegh-Guldberg et al. (2018[3]) describe as “costs associated with climate change-induced market and non-market impacts, impacts due to sea level rise, and impacts associated with large-scale discontinuities”. See https://www.ipcc.ch/site/assets/uploads/sites/2/2019/05/SR15_Chapter3_ Low_Res.pdf

← 2. Climate-related development finance is different from climate finance, and the two concepts cannot be equated. Box 2.7 in Chapter 2 elaborates the differences.

← 3. The reporting of multilateral development banks (MDBs) to the DAC using their joint approach for measuring climate components begins on 2013 flows; climate-related development finance reported prior to this year does not include MDBs. For more detail on the methodology, see Annex C.

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Accelerating the transition to low-emissions, climate-resilient development pathways