Climate, Energy and Poverty Reduction

December 2, 2008 - nr.62
Summary

Summary and recommendations

 
International climate policy, adaptation and responsibility
Up till now, there has been a strong emphasis in international climate policy and research on reducing emissions and capturing/storing greenhouse gases. Collectively, these processes are typically referred to as mitigation. Even if we were to embark on a global mitigation programme today, the temperature in various parts of the world would continue to rise over the next few decades, allowing the other effects and manifestations of climate change to continue unabated. This means that in addition to alleviating climate change in all its myriad forms, we need to adapt to its effects. Adaptation entails devising a comprehensive set of facilities (including infrastructural facilities) and other measures – not in order to prevent the manifestations of climate change, but rather to respond to their harmful effects, both present and future.

There is a broad realisation that adaptation should be addressed with the same sense of urgency as mitigation. At present, the effects of climate change are mainly making themselves felt in vulnerable developing countries, which have contributed the least to the problem. These effects impede our progress towards the Millennium Development Goals.

Under international law, industrialised countries have a responsibility to aid vulnerable developing countries in their fight against the effects of climate change and the damage it causes. This responsibility arises from the general duty of international cooperation, the principle of common but differentiated responsibilities, and the principle of intergenerational equity (i.e. the obligation to take account of the interests of future generations). These principles are all firmly anchored in international law.

The ‘polluter pays principle’, which has been accepted by the countries of the OECD, is also enshrined in the Treaty on the Functioning of the European Union (article 191, paragraph 2). In the opinion of the AIV, this principle, which also appears as principle 16 of the 1992 Rio Declaration on Environment and Development, cannot yet be regarded as legally binding. A general basis for the responsibility of industrialised countries to help reduce climate change can be found in principle 7 of the Rio Declaration, and in articles 3 and 4 of the United Nations Framework Convention on Climate Change (UNFCCC), which refer to countries’ duty ‘to protect the climate system to the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capacities’.

Taking these provisions into consideration, the AIV believes that the Netherlands is right to feel a sense of responsibility for the future of the planet and its inhabitants. Bearing in mind this responsibility, the disproportionate responsibility of wealthy countries for the climate problem, and the difference in prosperity between this country and the developing world, the AIV believes that the Netherlands should be prepared to undertake certain obligations with regard to funding adaptation in developing countries. The actual amounts involved will have to be specified in the course of future negotiations. This does not alter the fact that emerging economic powers like India and China are also responsible for a substantial and rapidly growing proportion of global greenhouse gas emissions and should therefore also be involved in the new climate agreement.

With respect to financing adaptation in developing countries, there is reason for concern, given that ‘[…] the multilateral aid response to adaptation financing in developing countries […] has been characterised by chronic under-financing, fragmentation and weak leadership’. Recent financial and economic developments in the industrialised countries are unlikely to improve the situation. With this in mind, the AIV would advise the Minister for Development Cooperation to concentrate on not only pushing for more clarity about financial burden sharing in this area, but also making an appropriate contribution to the financing.

Estimating adaptation costs and raising funds
Adaptation costs include not only expenses pertaining to new activities but also additional expenses for existing processes and infrastructure. (Here the word ‘additional’ refers to the relationship to baseline costs, i.e. spending that would already be occurring if there were no climate change.) The World Bank is currently working on a systematic projection for adaptation costs. Until this projection is complete, we will have to make do with existing estimates, which vary from USD30 to 70 billion annually.

It is expected that industrialised countries will make a serious financial or in-kind contribution to the international Adaptation Fund linked to the Bali Action Plan. Given the magnitude of the estimated cost of climate change in the developing world, the annual contribution for each committed party could mount up over time to a proportional share (on the basis of as yet undetermined criteria). In the opinion of the AIV, the Netherlands should also strive towards this goal, provided there is sufficient international support and commitment.

On the basis of the Netherlands’ share in global CO2 emissions, Oxfam has estimated that this country would be responsible for just under 2% of the aforementioned costs. This is only an approximation, and a slightly high one at that. It is based on orders of magnitude, in the absence of internationally accepted formulas. If the costs are spread evenly over public and private sources, the public-sector contribution would fall somewhere between EUR200 and 450 million annually, drawn from the Homogeneous Budget for International Cooperation (HGIS) (ODA and non-ODA). Adding this amount to the private-sector contribution results in a total of between EUR400 and 900 million a year. These non-public funds will be raised mainly through extra taxes and other regulations imposed on companies and consumers. For the most part, these funds are not expected to come from private investment in adaptation projects, whether domestic or foreign. Indeed, in the view of the AIV, this component will make up only a tiny share of the total private contribution.

Mitigation
The AIV would observe that, regardless of the scale of the mitigation measures taken and the resources spent over the next few decades, adaptation measures (and thus a significant financial outlay) will remain necessary, due to the manifestations of climate change that are already taking place. Over time, however, mitigation can halt far-reaching changes to the climate system, rendering adaptation measures less urgent. Although mitigation and adaptation are often seen as two independent strategies in the fight against climate change, they are actually complementary. In a number of areas, such as optimising land use, they behave synergistically, reinforcing each other to the greater good. Obviously, this interaction has implications for overall costs: if mitigation efforts fall short, the costs of adaptation will rise. For that reason climate policy should always consist of both mitigation and adaptation.

Developing countries, where there are major opportunities for mitigation, must also be involved in mitigation policy. Many of these opportunities are in the agricultural sector. The transition from traditional farming techniques to more advanced ones could significantly reduce various types of emissions, including methane. This could be achieved by improving land management, introducing supplementary irrigation and reorganising existing farmlands. Better management of livestock and manure could also reduce emissions. Of course, regardless of what is decided next year in Copenhagen, the Dutch government could amend its development cooperation policy to reflect these considerations, by investing more in advanced agricultural methods in developing countries.

Policymaking in industrialised countries: various components
It is time for the industrialised countries to be more specific about their future adaptation policy for developing countries. The AIV would like to see the Netherlands take the initiative in clarifying these plans. This standpoint is based on a number of factors: the Netherlands has traditionally played an important role in international climate policy and, more generally, development cooperation as a whole. Given the country’s low elevation, it will have to implement quite a few adaptation programmes of its own. The Netherlands also has several comparative advantages in typical adaptation sectors like agriculture, infrastructure, water management and coastal defences.

With regard to shaping adaptation policy, the AIV is in favour of distinguishing between three components of adaptation support, depending on the nature of the climate change processes.

Component 1:
One of the principal manifestations of climate change will be an increase in extreme weather conditions: floods, hurricanes, sudden extreme drought, heat waves, unusually heavy rainfall, etc. These conditions can give rise to natural disasters that require an immediate humanitarian response. Efforts designed to provide such a response are typically part of the development programmes of bilateral and multilateral donors, and for that reason require no new policy frameworks. It may, however, be advisable to restructure existing budgets so as to direct more resources towards humanitarian aid. This will have to be done on a case-by-case basis, depending on the climatological situation. The AIV would note that extensive budget restructuring will have to be financed with traditional development cooperation resources or in some other way. Better international coordination is also crucial in this connection.

Component 2:
The second component has to do with the gradual changes in the average values of the main climate variables (e.g. temperature, rainfall or wind force). This means that while certain regions will gradually become drier, others will grow wetter, and so on. The AIV assumes that, barring certain exceptions, the impact of slow climate shifts can be accommodated by a development cooperation policy which is already designed in part to help societies that are undergoing dramatic (and sometimes quite rapid) changes in many other areas.

Component 3:
New adaptation initiatives are most clearly visible in the third component. The most important such initiative is climate-proofing current and future development cooperation activities, and the sum total of all measures aimed at building adaptation capacity (component 3).

The AIV feels the new initiatives designed to build up current and future adaptation capacity (component 3), preferably in the context of the Bali Action Plan, should be seen as a new, supplementary area of development cooperation policy and indeed foreign policy in general, including international security and reconstruction policy. These international obligations can have major consequences for the Netherlands. For instance, such initiatives may result in a further increase in total HGIS expenditure, depending on the political decisions made. Deciding whether such an increase is advisable will entail consultation with international partners. It will also require a significant measure of support from the Dutch public. It is important to allow for the possibility that a failure to tackle adaptation promptly could cause many resources that had been earmarked for adaptation support to be swallowed up by emergency aid, which could in turn jeopardise other parts of the ODA budget.

The choice of channel with regard to possible adaptation support
In building up adaptation capacity and climate-proofing existing development efforts by way of both the public and private sectors, the Netherlands should not act alone, but rather direct its efforts via incipient EU, Bali and post-Bali channels, depending on the degree of progress made in international negotiations.

Setting priorities
The AIV believes that any action taken by the Netherlands to influence the adaptation agenda should be informed by the following considerations, particularly point (a):

  1. meeting the needs of the relevant developing countries themselves, as expressed in (independently reviewed) National Adaptation Programmes of Action (NAPAs) and elsewhere;
  2. the relevance of these needs with respect to the poorer segments of the population, the number of citizens involved and the economic values to be protected;
  3. the impact on poverty reduction (MDG1);
  4. the absorption capacity of the relevant developing countries or regions;
  5. the relevant priorities in international cooperation and development cooperation policy, in terms of not only sectors and countries/regions, but also human rights;
  6. the relative expertise of and/or within Dutch society.

Bilateral adaptation support should, in the opinion of the AIV, be limited in principle to the 40 existing partner countries (36, plus four in post-conflict situations).

Global and national adaptation programmes
NAPAs identify developing countries’ most urgent needs in relation to the current threats posed by climate change. These programmes of action also include responses to current climate variability based on existing knowledge.

The AIV believes that NAPAs should be used to address developing countries’ future adaptation needs as well. The Netherlands should actively work to develop NAPAs or similar policy plans in the most vulnerable of the 40 development cooperation partner countries. The AIV is therefore in favour of establishing an international think-tank that can take the lead in devising the necessary ‘Delta plans’ (comprehensive master plans with a long-term horizon). In addition to national NAPAs, a global adaptation master plan for developing countries (a kind of worldwide NAPA coordinated by the UN) should be drafted for developing countries to offer an integrated framework for: defining the extent and urgency of adaptation problems in the various developing countries, setting priorities for future actions, and facilitating the development and application of national NAPAs on the basis of technical and economic knowledge.

Climate and global energy supply
The AIV has identified a number of possible conflicts of interest at the intersection of climate and energy. These stem primarily from threats to the global energy supply. The current concerns associated with worldwide energy consumption thus centre on the following problems: energy supply security; access to energy; the increasing demand for energy; the high cost of essential investments in the energy infrastructure; and finally, environmental damage caused by fossil fuels.

It is the position of the AIV that meeting limited basic energy needs of approximately 50 kWh per person per year by means of renewable energy contributes next to nothing to achieving global climate objectives. It is therefore ineffective, in the short term, to use renewable energy on a large scale to meet the energy needs of the two billion energy poor, because that course of action does little to bring us closer to global climate change objectives. Nevertheless, depending on local conditions, there are still major opportunities in this area, not all of them involving renewable energy. In short, providing for the energy needs of the very poorest requires a differentiated approach, which will vary as to country and region.

The AIV takes issue with the suggestion that stabilising climate change and reducing poverty are somehow fundamentally incompatible, as a result of the increase in emissions that is thought by some to be an inevitable corollary of economic growth. To begin with, this increase in energy consumption is likely to be relatively minor. But even if it should turn out to be larger than expected and even if only a fraction of it consists of renewable energy, the AIV cannot imagine that this would lower poverty reduction objectives in the Millennium Development Project. The AIV supports the recent policy memorandum on the environment and renewable energy in development cooperation, with respect to promoting the introduction of renewable energy in the poorest countries in Africa. However, it is important to ensure that projects to promote the use of renewable energy do not derail efforts to improve energy access for the very poorest.

Biofuel: energy for the future?
The AIV finds it encouraging that Dutch and presumably also European targets for the use of biofuels are being lowered, as it is uncertain if the current target can be achieved without compromising sustainability requirements with respect to biofuel production. This concern relates primarily to the production of first-generation biofuels in vulnerable developing countries, given the drawbacks associated with this production process. For example, the emissions caused by cultivating and distributing biomass and biofuel can negate any environmental advantage of biofuel vis-à-vis fossil fuels (especially in the case of biodiesel and ethanol produced from maize). Biofuel production can also have an adverse effect on biodiversity, world food prices and food supplies. The potential contribution that first-generation biofuels can make to combating worldwide climate and energy problems is therefore limited, on both technical and social grounds.

Although the EU has recently made decisions and issued policy plans on biofuels, the AIV believes that the principles underlying Dutch and EU policy on biofuels should be re-evaluated. The first change should be a swift transition from the use of first- to second-generation biofuels.

It should be recognised, however, that the technical and economic feasibility of projects to promote second-generation biofuels depends on local circumstances. This is also worth considering when setting up demonstration installations and other kinds of experiments designed to introduce second-generation biofuel technologies. The AIV is in favour of expanding Dutch development cooperation policy to include support for these kinds of pilot programmes and demonstrations.

The AIV believes that taking additional measures (such as investment grants, risk-bearing cofinancing and accelerated depreciation) to increase the investment security of large-scale installations could benefit the development of second-generation biofuels.

The Netherlands could play a pioneering role by setting up logistics chains and production systems for the raw materials from which second-generation biofuels are derived. In part through its development cooperation policy, the Netherlands could also be a trendsetter in supporting the development of local processing, in developing countries and elsewhere.

The AIV feels that the policy, particularly with respect to developing countries, should focus primarily on supporting the production and use of second-generation biofuels. This should be one of the cornerstones of Dutch development cooperation policy, not only because it dovetails with the Netherlands’ strong position in this field, with respect to knowhow and trade, but also because it offers opportunities for strengthening the agricultural and forestry sectors in developing countries, sparking new economic development and reinforcing local energy supplies, mainly on a small scale.

As a result, the role of biomass production in first-generation biofuels and developing countries is no longer supported by Dutch development cooperation policy. This is the right course of action in the opinion of the AIV. There will also be less of an emphasis on sustainability requirements for biomass, as now being developed at European level. This is significant because the AIV foresees a number of problems with the large-scale imposition of these kinds of requirements in economic relations with developing countries. Such requirements necessitate monitoring, validation and certification systems, but experience shows that getting them off the ground is a slow and difficult process due to the need to acquire sufficient public support. Moreover, it is risky for importing countries to introduce sustainability requirements for only a certain segment of internationally traded goods and services. Such asymmetrical policy could be seen as provocative, prompting questions like: ‘Why is biomass subject to certification while food isn’t?’ Furthermore, the introduction of certification standards for imported biomass gives rise to the risk that exporting countries will not only call for worldwide enforcement, but also that they will demand the right to certify commercial flows going in the opposite direction, on the basis of their own criteria, or introduce certification requirements for other imported goods and services. The risks of escalating protectionism should be clear.

Considering the possible reproach that sustainability standards are being selectively and unilaterally imposed and considering that the CDM Executive Board has no facilities for monitoring the contribution of CDM projects to sustainable development, the AIV is in favour of introducing a sustainability test for credits to be acquired by means of CDM projects, parallel to the development of a similar test for biomass, preferably at EU level.

Having said that, the AIV believes that biomass does offer opportunities for a number of developing countries in specific circumstances, especially if it can be produced on a small scale and for the purpose of generating energy locally. In this way countries that are dependent on energy imports could meet some of their own energy needs and relieve their balance of payments. Large-scale biofuel production for export purposes, however, can pose a danger to local food security. Using crops for biofuel can give rise to competition with food cultivation: for land use, water and nutrients, etc.

Advice request

Mr F. Korthals Altes
Chairman of the Advisory Council
on International Affairs
P.O.Box 20061
2500 EB The Hague

 

Date     15 March 2008
Re         Request for advice on climate change, energy and poverty reduction

 

Dear Mr Korthals Altes,

I am writing to request an advisory report from the Advisory Council on International Affairs on the subject of climate change and sustainable energy, and how they relate to poverty reduction.

Background

Under the ‘polluter pays’ principle, the Netherlands bears a share of the responsibility for combating climate change in developing countries. Africa is a poignant example of a continent that has barely contributed to historical greenhouse gas emissions, but which is nevertheless facing the consequences of climate change.

The adaptation to climate change in developing countries is estimated to cost between 20 billion and 100 billion euros per year. The global development budget obviously will not cover costs of this magnitude. According to the polluter pays principle, those who are responsible for historical and future emissions should bear the cost of adaptation, as this provides an incentive for emissions reduction. Through the World Bank, the Ministry of Foreign Affairs and the British government have commissioned a study into the costs of climate policy. An AIV advisory report would complement this study by focusing on the distribution of costs among the different parties.

Climate change is a given. Although we do not yet have a complete understanding of the phenomenon, we cannot do nothing simply because more research is needed. This means, however, that some measure of uncertainty will be inherent in any adaptation policy. It is therefore crucial to establish priorities based on existing knowledge, incorporating new information as it becomes available, in order to ensure resources are used effectively. In addition, we must estimate the capacity of developing countries to adapt to climate change and find a way of embedding this information in instruments like PRSPs and the Paris Agenda. This builds on our previous analyses of the climate-related risks of programmes, supported by the Netherlands, in Bangladesh, Bolivia and Ethiopia. We need to gain insight into the entire process, from identifying effects and estimating the attendant risks to evaluating whether or not those risks are acceptable and – if not – devising adaptation options and calculating their cost-effectiveness.

The issue of climate change must be seen against the backdrop of the two billion poor who currently lack basic access to clean energy, in particular electricity and natural gas or biogas. The energy policies of most developing countries have failed to improve energy access for the poor in the last two decades. A certain percentage of the global poor have even seen their situation deteriorate: obtaining fuel has become more time-consuming and costly; burning low-quality fuels has caused severe air pollution, and the energy supply has become unreliable. This situation has a tangible impact on poor people’s opportunities for development.

Energy security has become a major geopolitical issue. Competition for limited energy resources has only recently become serious, now that China and India are enjoying robust economic growth. The high volatility that characterises the oil and gas market is also due to extreme weather events and regional political instability. Purchasing power and the ability to act quickly are evidently becoming essential on the energy market now and in the future, and may leave two billion poor people without energy access in the cold and in the dark.

A simple calculation reveals that using fossil fuels to meet these two billion people’s basic energy needs would increase global emissions by a mere 1%. The expedient choice might therefore be to opt for a ‘full menu of options’ rather than a strict focus on renewable energy, especially in view of the latter’s high investment costs.

Issues to be addressed by the AIV

The government would appreciate answers to three main questions.

  1. How could the Netherlands most effectively fulfil its responsibility in this matter? How could the polluter pays principle be applied to Dutch society?
  2. Climate change is a relatively new issue on developing countries’ political agenda. Until now, there has been little research into which segments of society will feel the effects of climate change most, and this forms an obstacle to effective adaptation policy. In view of the limited knowledge available on adaptation, what should be the Netherlands’ priorities in order to ensure an effective use of resources?
     
  3. What is the relationship between climate change and global energy security for the two billion people with limited energy access? How could the Netherlands find a good balance between possibly conflicting interests? To what extent should the Netherlands and other donors, driven by long-term environmental interests, restrict their energy sector support programmes for the two billion poor to renewable energy?

I look forward to receiving your advisory report as soon as possible.

Yours sincerely,

 

Bert Koenders
Minister for Development Cooperation

Government reactions

Mr F. Korthals Altes
Chairman of the Advisory Council
on International Affairs
Postbus 20061
2500 EB Den Haag

 

Date     30 April 2009
Re         Response to the AIV advisory report ‘Climate, Energy and Poverty Reduction’

 

Dear Mr Korthals Altes,

Thank you for your advisory report entitled ‘Climate, Energy and Poverty Reduction’, published by the Advisory Council on International Affairs (AIV) at the end of November 2008 in response to my request for advice of 15 March 2008. The Minister of the Environment and Spatial Planning and I hereby present the government’s response to the advisory report. Copies will be sent to the Presidents of the Senate and the House of Representatives.

International climate policy, adaptation and responsibility; potential costs and sources of funding for adaptation

The AIV observes that, besides reducing greenhouse gas emissions (mitigation),  adaptation to climate change is a matter of urgency. It also states that the funding available for adaptation measures in developing countries is far from adequate. Under international law, industrialised countries have a responsibility to aid vulnerable developing countries in their fight against the consequences of climate change. In this regard, the Council refers to article 4 of the United Nations Framework Convention on Climate Change (UNFCCC), which obligates developed country Parties to provide new and additional financial resources for this purpose. This has led to, for instance, the establishment of the Least Developed Countries Fund under the Global Environment Facility (GEF). The GEF assumes that the baseline costs that would have been incurred if there was no climate change will be covered by existing development budgets, but that additional facilities are required for the additional cost of coping with climate change. The principle of additionality also underpins the UNFCCC secretariat’s estimates for the Bali summit of the global cost of adaptation.

In the opinion of the AIV, the polluter pays principle cannot be regarded as binding in international law in the context of climate change. The Netherlands is right to feel that it shares responsibility for the climate problem and should be prepared to undertake certain obligations at international level. In this regard, the AIV refers to a study by Oxfam, according to which, on the basis of our CO2 emissions, the Netherlands would have to contribute almost 2% of the cost of adaptation in developing countries.

The government endorses the AIV’s analysis of the urgency of adaptation and industrialised countries’ obligation to combat the negative impacts of climate change. At international climate negotiations and other forums, we therefore strive to achieve a fair, effective and efficient international financial architecture –  in which an international carbon market would play a key role – which would provide adequate, reliable and additional financing for adaptation and mitigation efforts in developing countries.

Supplementary public resources are also required. At international level, these should be generated as much as possible from new and additional sources, to avoid the diminished availability of funding for the Millennium Development Goals. In the government’s view, every country should contribute according to its degree of responsibility (polluter pays principle) and its capacity to pay. This will ensure that the burden is shared fairly and help internalise the costs of greenhouse gas emissions, thus creating an extra incentive for mitigation. These principles should be fleshed out further in international negotiations, leading to a global burden sharing arrangement.1

The government therefore considers that providing indications of the Netherlands’ purported share in the costs of adaptation is somewhat premature at this stage. Moreover, we observe that estimates differ considerably from one study to the next. A recent study by the Institute for Environmental Studies (IVM)2 contains figures for the Dutch share ranging from 0.8% to 1.3%.3

The government shares the AIV’s view that the current global flow of funding for adaptation in developing countries is insufficient. The most recent estimates by the European Commission put the funding requirement at 23 billion to 54 billion euros a year. Agreement will need to be reached at the UN climate summit in Copenhagen on sharply raising the available funding as part of a coherent international financial architecture. The government will not venture to give an indication of the amount of funding required pending the outcome of a World Bank study into the estimated cost of adaptation, which is being financed by the Netherlands, the United Kingdom and Switzerland. International financing should primarily benefit the poorest and most vulnerable developing countries.

Mitigation

The AIV concludes that adaptation and mitigation policies should be complementary and that developing countries should also contribute to mitigation where such opportunities exist. It proposes that the Netherlands finance agricultural methods to reduce greenhouse gas emissions.

The government agrees with the AIV that developing countries, too, should contribute to mitigation in order to keep global warming below 2 degrees Celsius. By 2020, developing countries’ collective greenhouse gas emissions should be 15 to 30% lower than in a ‘business as usual’ scenario. Emerging economies such as China, Brazil and Indonesia will play a crucial role in this regard. Without efforts on their part, the objective to reduce global emissions by 50% compared to 1990 levels will be unattainable.

The Netherlands joins in the European Union’s commitment to support especially the poorest developing countries in building low-carbon economies. In the government’s opinion, emission reduction and support for developing countries should not be restricted to the agriculture sector, whose mitigation potential depends primarily on the soil’s capacity to store carbon. Most Dutch support to the agriculture sector goes to Africa, where there are opportunities through improved management for storing carbon in the soil, such as in agroforestry systems. Systems that integrate agriculture and forestry also enhance soil fertility, improve productivity and reduce the region’s vulnerability to the effects of climate change. It is on these grounds that the Netherlands supports the World Agroforestry Centre in Nairobi. We also provide support to Indonesia for preserving and maintaining its peatlands, in particular for peatland forest conservation, improved irrigation of peatlands that have already been cleared, and the use of appropriate agricultural methods on these lands. These interventions aim among other things to control greenhouse gas emissions from these areas.

Policymaking by industrialised countries: various components

The AIV advises dividing adaptation support into three categories. The first category is emergency relief to those affected by natural disasters brought on by climate change. This type of aid, like current emergency relief, should be financed from traditional development resources. The second category concerns adaptation to gradual changes in the climate and should, in the AIV’s view, also be financed from the development budget. The third category concerns climate-proofing current and future development activities and building developing countries’ adaptation capacity. The AIV believes that an agreement should be made as part of the international climate change negotiations to ensure that funding additional to existing development and foreign policy resources is provided for the third category.

The government agrees that, for the time being, emergency relief in response to climate-related natural disasters should be financed from the development budget. As it is next to impossible to determine at this time what part climate change plays in bringing about natural disasters, there is little point in distinguishing natural disasters by cause. What is most important is to ensure adequate assistance to the victims of these disasters. It will also be necessary to investigate the feasibility of establishing an international insurance system to provide cover for the risks of climate change that cannot be covered by market parties.

With regard to the other two components, the government proposes a different system of financing. Each country bears responsibility for adapting to climate change. In principle, countries should take account of the effects of climate change in their development policy, which would prevent avoidable expenditure on adaptation in the future. Some of the measures may not come at any additional cost, or may even generate income. Other measures, however, will be more expensive than following the ‘business as usual’ scenario. These are the incremental costs of adaptation: the additional investment costs for government, businesses and individuals in developing countries as well as the cost of climate-proofing development programmes. In the negotiations on a multilateral climate agreement, the government will call for a common commitment to financing adaptation strategies in the poorest and most vulnerable developing countries, to a great extent, through multilateral channels. The international community will need to earmark additional funding for this purpose. As the AIV points out, the Netherlands’ expertise in the area of water management could be useful in this regard.

The choice of channel for possible adaptation support

The government accepts the AIV’s advice that, in choosing channels, the Netherlands should link up with international initiatives. At the climate negotiations later this year, the government will press for the development of efficient mechanisms at multilateral level. These should build on the Adaptation Fund now taking shape under the Kyoto Protocol as it begins operations.

Setting priorities

The AIV identifies the following criteria for providing adaptation support:

  1. the needs indicated by the developing countries themselves;
  2. the relevance of these needs to the poorest segments of the population;
  3. the impact on poverty reduction;
  4. the absorption capacity of the countries or regions;
  5. the current criteria and priorities of international policy; and
  6. the relative expertise present in Dutch society.

Although the government agrees with the substance of the criteria, we prefer to use a more process-driven approach in setting our priorities. As argued above, the integration of climate change into national development policy is a major precondition for effective adaptation. The priorities for adaptation will thus be derived from current and future national policy, which should be guided by the Millennium Development Goals. The Netherlands will emphasise this point in the policy dialogue with our partners. Finally, adaptation can only be successfully integrated into existing policies if the country concerned has sufficient knowledge and expertise in this area. Priority should therefore be given to providing support for this type of ‘enabling’ capacity building. The government shares the AIV’s view that the Netherlands should offer its expertise where it can add value – as in the water sector – and that bilateral assistance should be focused on the partner countries. This is illustrated, for instance, by the Dutch government’s work to strengthen cooperation in sustainable water management and adaptation with developing delta regions that face challenges similar to those faced by the Netherlands.

Global and national adaptation programmes

The AIV is in favour of Dutch support for the development of National Adaptation Plans (NAPAs) in our partner countries and of a global think-tank to support developing countries and devise a global adaptation master plan.

Through its support of the Global Environment Facility and the Netherlands Climate Assistance Programme (NCAP), the government helps developing countries to devise their own adaptation strategies. The government agrees with the AIV that it is important to strengthen multilateral capacity to support developing countries as they shape their adaptation policies. In this process, regional expertise centres could play a key role. The government is not convinced at this time of the benefits of a global adaptation plan in view of major differences in local adaptation needs. Adaptation demands custom-made solutions, which would be undermined by a global master plan.

Climate and global energy supply

According to the AIV, improving access to energy for the two billion energy-poor and reducing greenhouse gas emissions are not conflicting aims, even if the basic energy needs of the poor were satisfied in part by fossil fuels. The AIV cautions the government that its support for renewable energy in developing countries should not be at the expense of increasing the energy security of the energy-poor.

While the government basically agrees with the AIV’s analysis, we also note that higher fossil fuel consumption inevitably leads to higher CO2 emissions, and we question the universal effectiveness of fossil fuels in providing energy security. The price of fossil fuels is subject to major fluctuations, and many countries must import fossil fuels because they have no supplies of their own or because local reserves are gradually being depleted. At the same time, many poor countries have a potentially large capacity for renewable energy generation. The recently lauched programme on the Environment and Renewable Energy in Development Cooperation is helping to develop this potential. The current energy supply is unsustainable and developing countries, too, must mitigate increases in greenhouse gas emissions. The Netherlands is prepared to support the poorest countries in particular in this undertaking.

Biofuel: energy for the future?

The AIV advises a strong focus on second-generation biofuels and an end to support for first-generation biofuels, primarily on the grounds that the latter have a negative effect on food security. It also questions the effectiveness of biofuels in reducing greenhouse gas emissions. It predicts that the introduction of certification procedures, aimed at guaranteeing the sustainability of first-generation biofuels, will create problems. Yet the AIV also acknowledges that the situation differs considerably in different countries. At the same time, it advocates the use of first-generation biofuels on a small scale to satisfy domestic energy needs in developing countries. It also advocates reducing blending targets and favours fiscal measures and demonstration projects to support and stimulate investment in second-generation biofuels.

The government agrees that the development and production of second-generation biofuels should be promoted. Second-generation biofuels are in fact being supported in the current policy framework, specifically the grants scheme for innovative biofuels (IBB). We will consult our partner countries about the possibility and means of stepping up support. The IBB scheme is currently being evaluated, and recommendations from the working group on modern biofuels are expected shortly. The outcome of the evaluation will be taken into account in the policy review. At the moment, the government has no intention of creating fiscal incentives for the production of second-generation biofuels in the Netherlands.

A recent study by the FAO has concluded that second-generation biofuels will not be commercially available for another ten years. The government believes we cannot afford to wait this long in view of the urgency of the climate problem. It is therefore encouraging the use of sustainably produced biofuels from developing countries, such as ethanol derived from sugarcane. Provided such biofuels are sustainably produced, they can effectively contribute towards reducing greenhouse gas emissions. Naturally, the government is aware of the negative effects that may be associated with first-generation biofuel production, and its policy is therefore aimed at making production more sustainable. At EU level, the Netherlands has successfully pressed for the inclusion of sustainability criteria for biofuels and liquid biomass in the Renewable Energy Directive. We also work actively at world level to make energy biomass production more sustainable, as set out in the government’s Global Action Plan which has been sent to the House of Representatives. Part of this policy involves building the capacity of developing countries to make informed decisions about the sustainable production of biofuels, through certification and by other means. The AIV correctly observes that the fact that the raw materials for biofuels are traded on international commodity markets and can be used for several purposes is a complicating factor in certification. An approach aimed at increasing the sustainability of production should thus have a broader scope than biofuels alone.

The government does not agree that the EU’s mandatory blending rates need to be amended. We are confident that the Renewable Energy Directive provides sufficient safeguards against the large-scale import of unsustainably produced biofuels. The interim national target, effective as of 2010, has now been reduced from 5.75% to 4%. The policy will be evaluated in 2014 and can then be revised, if necessary.

Yours sincerely,

 

Bert Koenders
Minister for Development Cooperation of the Kingdom of the Netherlands

_________________________

1 The Dutch government’s objectives for the UN climate change negotiations have been set out in the following letters to the House of Representatives: the government’s response to the interministerial policy review ‘Future international climate policy’, its response to the internationally oriented sections of the report ‘Climate Strategy – between ambition and realism’ by the Advisory Council on Government Policy (12 September 2007), its letter on future international climate policy (21 September 2007), its letter on international climate policy (29 April 2008), its letter on the International Climate Conference at Poznan (17 November 2008) and its letter on the outcome of the International Climate Conference at Poznan (13 February 2009).
2 Rob Dellink et al., ‘Sharing the burden of adaptation financing’, IVM (2008).
3 The difference with Oxfam’s calculation of the Dutch share is explained by the use of alternative methods to calculate a country’s capacity to pay and its contribution to global warming.
Press releases

AIV ADVISORY REPORT ON CLIMATE, ENERGY AND POVERTY REDUCTION

New and additional international financial resources urgently needed for climate change adaptation


The Hague, December 2008

In an advisory report on climate, energy and poverty reduction published today, the Advisory Council on International Affairs (AIV) concludes that for the ongoing international climate negotiations to succeed, international climate policy must be more responsive to the impact of climate change in vulnerable developing countries. The worldwide cost of adapting to the effects of climate change is expected to be between 30 and 70 billion dollars a year. The AIV says that the industrialised nations have a responsibility to support developing countries counteract these effects. The Netherlands must play a leading role. Given its low elevation, it will have to develop a considerable number of adaptation programmes of its own. It also has several comparative advantages in typical adaptation sectors like agriculture, infrastructure, water management and coastal defences.


Shaping adaptation policy
The AIV distinguishes between three components of adaptation support: 1) humanitarian or emergency aid in response to disasters such as floods and hurricanes; 2) programmes aimed at adapting to the effects of gradual changes in temperature and precipitation; and 3) new initiatives aimed at building adaptation capacity. The first two components are already part of Dutch development cooperation policy.

Financial consequences for the Netherlands
New initiatives to build adaptation capacity in developing countries should be regarded as new, additional components of development cooperation and foreign policy in general. Resources earmarked for the Millennium Development Goals must not be used to fund adaptation projects. If there is broad national and international support for these initiatives, this could have financial consequences. For the Netherlands the cost could amount to several hundred million euros a year, according to tentative estimates. But this is a matter for further political decision-making. The AIV is of the opinion that the Netherlands should not work alone but rather reroute its efforts to build adaptation capacity and make existing development efforts climate-proof through the EU and post-Bali channels that are currently in development.

Worldwide Delta Plan for developing countries
The AIV advocates the development of a worldwide Delta Plan, coordinated by the UN, to map the scale and urgency of adaptation problems in developing countries. In addition, national plans in developing countries need to be developed further.

Biofuels policy needs adjustment
The AIV agrees that the Dutch and European targets for biofuel consumption need to be reduced. Production of first-generation biofuels carries a risk of adverse effects. The emissions caused by the cultivation and distribution of biomass and biofuel have the potential to negate most, if not all, of the emission benefits of biofuels relative to fossil fuels, damage biodiversity and adversely affect world food prices and food supplies. The AIV urges the government to progress quickly to second-generation biofuels, as they are expected to make a much larger contribution to improving the world’s climate and increasing the share of renewable energy. There is enormous potential for producing 2G biofuels in developing countries. The Netherlands should incorporate support for biofuel pilot projects into its development cooperation policy.

Sustainability requirements for biofuels at EU level
The AIV recommends restraint in setting large-scale sustainability requirements for biofuels. It anticipates that they would be difficult to enforce in developing countries. Requirements of this nature make it necessary to implement monitoring, validation and certification systems, and experience shows that getting these systems off the ground is a slow and difficult process. The AIV recommends introducing a European-level test to assess the sustainability of credits acquired through Clean Development Mechanism (CDM) projects (the CDM is a flexible instrument from the Kyoto Protocol that enables industrial countries to meet part of their reduction obligations for greenhouse gas emissions in developing countries).