Climate Change and Poverty Reduction—Where Does Official Development Assistance Money Go?

Kaliappa Kalirajan,, Kanhaiya Singh, Shandre Thangavelu, Anbumozhi Venkatachalam, Kumidini Perera
JEL codes: 
ADBI Working Paper Series

There is an urgent need to mainstream the key challenges of climate change into sector and
development planning and decision making processes to create sustainable long-term
development. Mainstreaming is seen as making more efficient and effective use of financial and
human resources. It is implementing and managing climate change policy holistically, which
sustains development, rather than undertaking piecemeal activities. This involves building
mitigation and adaptation capacity in both micro and macro economic development. Climate
change is not only a national phenomenon but also a global phenomenon that requires the
participation of both the public and private sectors. The importance of private sector
participation is highlighted by the magnitude of the investment needed to manage climate
change, and the fact that market mechanisms seem to be more effective in addressing climate
change than does the public sector. Public sector involvement—such as grants, overseas
development assistance (ODA), and funding from other countries—is equally important in
mitigation and adaptation projects.
Empirical results in this study emphasize that more caution is needed in directing ODA towards
climate change mitigation and adaptation due to the links between various macroeconomic
variables related to growth and poverty reduction. This implies that ODA given to other
important causes related to achieving the Millennium Development Goals should not be
reduced. The results show that energy efficient transfer of technology to developing countries
should accompany any efforts towards directing ODA towards mitigation. Without that, ODA
directed towards mitigation may have adverse effects on the pace of poverty reduction in
developing countries. Thus, involvement of the private sector becomes crucial for energy
efficient technological innovation and transfer.