chapter  8
31 Pages

Effectiveness of Development Policy Lending in Mainstreaming and Financing Climate Change: Case Studies from Indonesia and Vietnam

ByTaro Katsurai, Yuka Murakami

In December 2010, the 16th session of the Conference of Parties (COP16) to the United Nations Framework Convention on Climate Change (UNFCCC) was held in Cancun, Mexico, and adopted the Cancun Agreements. The Cancun Agreements, once again, called for global efforts to “reducing global greenhouse gas emissions so as to hold the increase in global average temperature below 2 ºC above preindustrial levels.” The 2 ºC warming from the pre-industrial level is said to be the level in which the world can expect to experience “dangerous” consequences. Growing scientific evidence reveals that maintaining the warming within this threshold is difficult (Parry, 2009). Furthermore, predictions of the consequences of even a 2 ºC increase are becoming increasingly severe (Smith et al., 2009).4 These current understandings clearly suggest the need for two measures. First, worldwide mitigation efforts must include developing countries. Even though their current contribution of global GHG emissions is still small, it is, nevertheless, critical to take actions and considerations immediately in order for them to avoid locking into a high carbon economy (Shalizi and Lecocq, 2009). Second, because severe climate change impacts are unavoidable, adaptation efforts to prepare for such events are also paramount (Parry et al., 2009). Does this lead to the conclusion that developing countries should abandon their current development strategies and completely reorganize them around climate change? Probably not because as pointed out by Martin Parry, former co-chair of IPCC Working Group II, future vulnerability5 depends more on the level and quality of development than on climate change (Parry, 2009). In other words, quality development or sustainable development is an effective, if not the most effective, climate change response (Parry, 2009). Developing countries, therefore, should continue pursuing their current sustainable development strategies;6 the

difference is that it has to be implemented better and their concept of sustainability to include considerations for climate change. Development cooperation agencies have already expressed their full commitment to assisting developing countries pursue this approach. Agencies are rapidly increasing both the quantity and scale of climate change adaptation and mitigation projects as well as mainstreaming climate change7 into all their projects. In spite of this, however, there are two apparent shortcomings. Although donor-assisted projects are being climate-mainstreamed, non-donor-assisted projects may remain climate-unconsidered. Thus, the first challenge will be to find a means through which agencies’ efforts can reach all development efforts especially the ones not financed by them but financed domestically or privately. Meeting this first challenge, however, also leads to a second one: how can development cooperation agencies channel their financing to cover the additional cost entailed by mainstreaming climate change or integrating mitigation and adaptation measures into development projects, especially if such projects are financed domestically? We argue here that an ODA financing modality called development policy lending (DPL) is an effective means of addressing both these challenges. In the following section, we provide a general overview of DPL, followed by reviews of climate change DPLs in Indonesia and Vietnam. In the final section, we present the reasoning behind our conclusions that DPL is an effective mechanism for addressing these challenges.