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Climate Finance in Bangladesh: Lessons for Development Cooperation and Climate Finance at National Level

 

This is a working paper prepared by By Merylyn Hedger, Institute of Development Studies and published in March 2011. Executive summary of the paper given here.

Executive Summary 

Climate change is accepted as a major issue for Bangladesh due its extreme environmental vulnerability to climate hazards irrespective of climate change. It has a well-established scientific community addressing the issue, and was an early mover in the National Adaptation Program of Action (NAPA) process. Since then (1995) there have been a series of policy and institutional changes undertaken by the Government. There is a widespread awareness about the inter-relationship of climate change and development, and the dangers that climate change poses for its economic growth, with a study recently completed about the costs for critical coastal infrastructure and other key developments. Bangladesh has increasingly become a significant player in the United Nations Framework Convention on Climate Change (UNFCCC) negotiations as a Least Developed Country (LDC) with special status and with moral voice. It can expect additional funding as an LDC and has already received some EU fast start funds. This report presents the findings of the case study on Bangladesh within the European Development Cooperation to 2020 (EDC 2020) project, which investigates the links between development cooperation and climate change strategies in developing countries up to 2020. The objective of the case studies (the other being in Indonesia) is to understand the existing and future evolution of climate finance at the national level, and to provide insights on the synergies and conflicts which have been examined at EU and international levels in the project. The provision of funding is a major issue for the post Kyoto climate deal with many countries active on the matter, including Bangladesh. However, policy analysis has been focusing on the international level, and there has been very little knowledge and understanding shared about the particular situations in individual countries. Further, at country level it is possible to examine carefully how climate funding interacts with longer established development efforts. Two main sources of knowledge have been used to compile the detailed information base on Bangladesh: a review of existing information from written reports and other literature and web-based material, and primary information collected through individual meetings with key Government of Bangladesh (GoB) officials, donors, policy institutes and selected NGOs.

Delivery of climate finance in Bangladesh

Contested issues in the past three years between the GoB and NGOs on one side and donors and the World Bank on the other have meant there are now two trust funds, one funded by the GoB (the Bangladesh Climate Change Trust Fund – CCTF) and the other funded by several donors (the Bangladesh Climate Change Resilience

Fund – BCCRF). There are also two multi-donor programmes on climate change. One which is part of the World Bank‟s Pilot Programme for Climate Resilience (PPCR), the Bangladesh Special Programme for Climate Resilience (BSPCR). A second phase of the Comprehensive Disaster Management Programme (CDMP) has started (2010), which includes some activities on climate change. Each funding mechanism draws on different funding routes. Obviously, the proliferation runs contrary to the principles of harmonisation and alignment in the aid effectiveness agenda. For those who have created them, the mechanisms are perceived to have different functions, be closely aligned and be complementary. Organising the institutional arrangements and getting buy-in from key parties has taken considerable time. Considerable effort has been expended to get good matching. On the positive side there is now a strong base of resource commitment to get action going. And, there is a widespread expectation that there will be convergence by 2020, with climate change as an embedded development issue. From the outside it is not clear yet how each will be differentiated coherently in terms of action on the ground.

Whilst the Bangladesh Climate Change Strategy and Action Plan (BCCSAP) does provide an overall framework for action on adaptation, it is not a costed and sequenced delivery framework. That is why the integration of climate change into the annual five year and longer term development planning process is so vital to provide this planning framework.

This is especially important as external assistance is likely to be only part of the story. An important assessment has been made of the impact of climate change on the Annual Development Plan (ADP) of Bangladesh2. This shows that, in a typical year, the GoB spends nearly $4.7bn dollars in development projects in its eight sectors (including the block allocation for local governments). Of them, it has been estimated that around $2.7bn of investment is now at risk due to climate change. These figures dwarf what is currently being mobilised for climate funding by donors (c$230mn).

Interface between development cooperation and climate finance in Bangladesh

Climate change needs to be seen as part of the bigger picture on development at all scales, and it presents new challenges on coordination and capacity. It is very difficult to ascertain who is doing what and where, and databases will need to be improved to cope with new requirements for Monitoring, Reporting and Verification (MRV under the UNFCCC). Within the EU and some member states, climate change programmes are impacting on spending on the environment and there is some confusion about how far climate change should be handled separately in view of its close relationship with long-established investments on agriculture, food security and livelihoods, and Disaster Risk Reduction (DRR). Climate change is changing and modifying the development cooperation agenda in several ways: Evolutionary approaches – some donors are evolving their development portfolios to accommodate climate change Step change with response to international political developments: as a result of international developments and the increased visibility of climate change challenges, representatives of development partners in Bangladesh are stepping up activities Response to country drivers – increased activity by the GoB in addressing climate change is prompting donors to align their development work Response to donor country politics – the way that climate change is being handled by each development partner reflects the extent to which the donor Government works bilaterally or multi-laterally There are two main aspects of climate change that make it a challenge for governments and donors:

Scale of funding required and the innovation challenge Capacity and coordination challenges that relate to the cross-cutting dimension Yet, despite its increasing profile and visibility in some spheres, climate change still barely features on donors‟ websites and spend is generally low, with few development partners yet committing significant funds to the issue, the UK being one exception. As a cross-cutting issue, which is being resourced in a number of ways, handling the coordination demands is a challenge for all players. For the GoB, it is generally recognised that there is a need to increase awareness and understanding of climate change in all key ministries. Capacity constraints are also evident in donors and NGOs.

European development cooperation: issues for 2020

The European Union (EU) has stepped up and climate change has become an increasingly important component of its development cooperation effort. Its systems have shown signs of enabling flexibility in the case of Bangladesh where direct budget support on the environment is not taking place. However the EC itself is a relatively small player on climate change funding in the country, with few member states active in the country.

The next round of the international aid effectiveness process (Paris Declaration) is prompting policy renewal in Brussels. This is also recognising increased pressures from the United Nations Millennium Development Goals (MDG) process for more impact on policy alleviation at the same time as there is likely to be increased pressure on country aid budgets. Within Bangladesh there is currently a backlog of aid for disbursement. Capacity enhancement could further improve financial management systems, and could mean there would be greater confidence and less fiduciary risk for the EU. If increased investments are to be made for climate change it is vital that the EU further supports the GoB in these areas. This would be a medium term strategy to adopt, which would benefit the utilisation of climate finance in due course. Collectively, the EU is a major player in the Fast Start Funding (FSF). However, member states and the European Commission (EC) are interpreting what can be designated FSF in different ways, and this relates to the fundamental “new and additional” issue within the UNFCCC. Various analyses have probed on this issue and shown what a wide range of interpretations are possible. It is evident that there is a need for some consistency, so there is predictability for Bangladesh. It is vital this is pursued within the context of the MRV discussions in the UNFCCC. In the meantime the collective branding of different EC and member states approaches was effective at Cancun.

In summary, several policy drivers from within the country and external to it will impact on the way that climate change finance evolves: Changes in the way EU development and climate finance evolve and relate to each other What happens to the MRV of FSF and how the EU defines “new and additional”. Whether the aid effectiveness process in Bangladesh will take root with improvements to project management and financial management capacity and the coordination of effort on climate change Whether development partners, particularly the EU and its member states, seek to consolidate and rationalise their climate assistance

The extent to which the issue of poor people, as opposed to poor countries, increases in significance within the UNFCCC. The level of economic development in the country and progress towards Middle Income Country (MIC) status. Further, currently large MICs with many millions of poor people may start to capture new and additional funds generated for climate change to the detriment of the smaller countries.

Conclusions

For the government and development partners there is a now a combination of circumstances that means this is a pivotal moment to ensure that the financing of climate change adaptation in Bangladesh gets established institutionally and starts to deliver a coherent pipeline of projects that are implemented on the ground. But, unless the GoB and development partners step up together to act, there is a danger that momentum will dissipate and efforts continue to fragment. Implementation and delivery should be the new focus for effort. There are new sets of implementation challenges for Bangladesh to handle but there is already considerable experience to learn from within the country from NAPA work and the first phase of the CDMP. There are very weak records everywhere, including development partners, on current and past projects on climate change and no coherence on modalities for data collection. There is no clear storyline on what has been done so far and there is a need for a clearing house (and to include research).

If the monitoring, reporting and verification of climate finance is to work, it will be necessary to define what is climate funding and what is development funding to create a clear baseline during 2011 over which future effort can be monitored. This will be challenging.

 

2 Comments

  1. awal sarker says:

    Thanks for the post. Recently UNDP through Poverty, Environment and Climate Mainstreaming (PECM) conducted a study on ‘Climate Public Expenditure and Institutional Review’ to to identify major climate related expenditure by the government and financing process. The CPEIR study consisted of stakeholder consultation to (i) assess the current policy priorities and strategies as these relate to climate change; (ii) review institutional arrangements for promoting the integration of climate change policy priorities into budgeting and expenditure management; and (iii) review the integration of climate change objectives within the budgeting process, including as part of budget planning, implementation, expenditure management and financing.

    We had chance to work with Merylyn Hedger on that study. We found that our development projects might not directly financing on the climate change related components, but completing the projects and programme we do face climate change related issues and response or adjust accordingly.

    The outcome of the process produce a analytical report consist of seven (07) parts including Introduction, Climate Change Policy, Climate Change Institutional Analysis, Expenditure Review, Assessment of Climate Change Public Finance Management and Local Government.

    Under financial analysis, the budgets and expenditure over a three year period from 2008/09 to 2011/12 were reviewed. The main focus was on the Government budget. Among other matters the study reviewed the overall allocation of resources, the mechanisms delivering climate finance, the financing of climate spend, the main agencies involved, their processes and the nature of the budgets and the spend delivered. A methodology was also developed to identify climate finance within the Government budget. The methodology relied on qualitative and ultimately subjective judgements of spend as no universal international definition of climate change spend exists at this time. This approach produced an indicative outcome in absolute terms and a similarly indicative, although informative, analysis of spend and climate actions taken by the Government.

    The study also reviewed national and international policy and strategy in respect of Climate Change, but also reviewed sector policy in key areas of Government activity that influence the government’s response to climate change. The policy review used a framework that recognised supportive, non-supportive and neutral policy on a sectoral basis and also a review of direct climate change policy.

    The institutions reviewed in the study included a review of the international and national institutions involved in Climate Change in Bangladesh. This was a wide and complex constituency of interest that included Central Ministries, Line Ministries, Local Government, NGOs, the private sector and donor partners.

    The local government review shows the local stakeholders are not always able to distinguish between development expenditure and climate related expenditure, experiences of flooding, cyclones and other climate related impacts have raised significant awareness of the challenges that Bangladesh face. In general, local stakeholders identified climate impacts as cyclones, deforestation, tidal surge, salinity, water-logging, flooding and drought. The effects on people’s daily lives include loss of livelihoods, ground water depletion, irrigation problems, health problems and limited access to schools and health facilities. However, less is known about the causes of climate change and the need for mitigation.

  2. Kazi Forrukh Ahammed says:

    Thanks for your valuable comments.

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