Climate Change Mitigation and Adaptation: The Role of Overseas Development Assistance - Paper

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Climate Change Mitigation and Adaptation: The Role of Overseas

Development Assistance
Kaliappa Kalirajan
The Australian National University
Kanhaiya Singh
National Council of Applied Economic Research
Shandre Thangavelu
National University of Singapore
Anbumozhi Venkatachalam
Asian Development Bank Institute
Preamble
It is now recognised around the world that climate change will affect about all aspects of lives
on earth. The negative influence of climate change on livelihoods, particularly of the world’s
poorest population is alarming, which would slow down the pace of poverty reduction across
the globe. The United Nations Framework Convention on Climate Change (UNFCCC)
recommends important policy measures to address climate change. Firstly, mitigation
of climate change by reducing greenhouse gas emissions and secondly to increase the
adaptation to the impacts of climate change. Though climate change mitigation measures
are being promoted in many developing countries at different levels, effective mitigation
would be feasible only in the long run as ‘old habits die hard’. This means that climate change
adaptation, which provides benefits in the immediate future, becomes crucial for the
livelihoods of several million people living below the poverty line. The concept of climate
change mitigation is well understood, but climate change adaptation needs elaboration. What
is climate change adaptation? In simple terms, adaptation refers to the willingness and ability
to manage risk and disasters. Parry et al. (2009) argued that due to the underestimation of
current climate targets, policies of adaptation and recovery need urgent attention from
policymakers around the world. Adaptation should be based on sustainable development
principle in which the needs of the present population are met without sacrificing the ability
of future population to meet their needs (Anbumozhi, 2010). The G8 Heiligendamm Summit
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2007 held in Germany highlighted the need for an effective commitment to strengthen the
adaptive capacity in developing countries through cooperation in achieving sustainable
development. Unfortunately, a country’s adaptive capacity is highly dependent on the
country’s available resources including human capital, efficient functioning of institutions,
and adequate infrastructure (Klein, 2002). Further, successful adaptation to climate change is
likely to be increasingly important towards poverty reduction (Sperling, 2003). Thus, the need
for mainstreaming not only climate change mitigation, but also climate change adaptation into
developmental planning has been argued by several researchers recently (for example see,
Huq et al., 2003; and Agrawala et al., 2005). Mainstreaming is seen as making more
efficient and effective use of financial and human resources in implementing and
managing climate change policy holistically with sustained development than
undertaking piecemeal activities. This involves building mitigation and adaptation
capacity at both micro and macro economic development level.
This implies that climate change mitigation and adaptation need to be tailored and managed
through coordination and cooperation across the three pillars of the economic system -
different levels of governments, private sector, and community. Of these, government and
private sector play crucial roles to climate change mitigation, while community plays a major
role with respect to climate change adaptation, as the impacts are local and contextual.
Though community and local governments assume responsibility, these institutions depend
more on the support of international resources, which are necessary for effective disaster risk
reduction for the most vulnerable population. For example, it is observed that less
developed countries rely more on ODA than private funds to support most of the
climate change activities. During 1998-2000, ODA accounts for nearly 92% of
financial flows to the less developed countries to finance their development activities
(van Aalst, M. and Agrawala; 2005). It was observed that less than 1% of the ODA is
directed to climate change adaptation activities (World Bank, 2006).
The Copenhagen Accord 3 clearly states the following:
About mitigation, developed countries (Annex I Parties) would "commit to economy-wide

emissions targets for 2020 and the Parties to the Kyoto Protocol would strengthen their
existing targets. Delivery of reductions and finance by developed countries will be measured,
reported and verified (MRV) in accordance with COP guidelines. Developing nations (non-
Annex I Parties) would implement mitigation actions (Nationally Appropriate Mitigation
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Actions) to slow growth in their carbon emissions. LDS and SIDS may undertake actions
voluntarily and on the basis of (international) support”.
“Adaptation to the adverse effects of climate change and the potential impacts of response
measures is a challenge faced by all countries. Enhanced action and international cooperation
on adaptation is urgently required to ensure the implementation of the Convention by
enabling and supporting the implementation of adaptation actions aimed at reducing
vulnerability and building resilience in developing countries, especially in those that are
particularly vulnerable, especially least developed countries, small island developing States
and Africa. We agree that developed countries shall provide adequate, predictable and
sustainable financial resources, technology and capacity-building to support the
implementation of adaptation action in developing countries”.
Thus, it is imperative to mobilize sufficient financial support for developing countries to

address the negative influence of climate change on a sustainable basis. Current financing for
climate change adaptation and mitigation is clearly insufficient. For example, Marcia
Levaggi, manager of the Adaptation Fund’s board secretariat, informed that “the Fund had
about $150 million - far short of the sum required, according to various estimates. UNFCCC
estimates that by 2030 poor countries would need $60-180 billion a year to just adaptation
only; the World Bank puts it at $20-100 billion; the European Union Commission puts it at
$10-24 billion a year by 2020; and the African Group of climate change negotiators estimate
more than $67 billion a year by 2020” (IRIN Global, 2010). Also, UNFCCC has estimated
the need to invest additional US$ 200-210 billion by 2030 for emission cuts. It is
important that these amounts should be new funding and not a part of the existing ODA.
The Copenhagen ‘Deal’ is expected to introduce various innovative financing mechanisms to

help developing countries address the challenges of climate change. Nevertheless, it is argued
that overseas development assistance (ODA) will be crucial in the short to medium-term, until
these mechanisms become fully operational. A recent report by the International Commission
on Climate Change and Development (CCCD, 2009) noted that the total amount of ODA
stood at $104 billion in 2007. The report further informed that as per the estimate of the
Organisation for Economic Co-operation and Development (OECD) about 60 percent of
ODA could be considered as relating to climate change adaptation. The report insisted,
"Obviously, increasing ODA would both provide funds for climate-proofing development
assistance and increase funding for adaptation. The appropriate role of ODA in supporting
climate adaptation needs to be articulated." The UN Framework Convention on Climate
Change (UNFCCC) has estimated that between $50 billion and $170 billion ODA per year (in
current values) will be needed by the year 2030."
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Given that international development fund accounts for the large international flows
to less developed countries, ODA could play an important role in increasing the
linkage between climate change and sustainable development in less developed
countries. In fact, international agencies could account for the climate change
activities in their funding criteria thereby mainstreaming climate change into ODA
activities. It is expected that private funding for adaptation and mitigation activities
will be limited and only focused on activities that are “bankable”. In developing
countries, the lack of awareness of climate change and lack of resources are the key
reasons for not incorporating climate change activities in the planning and
development strategies of domestic government. In this case, ODA could play an
important role in internalizing the climate change issues in the mainstream activities
of the government.
Analytical Questions
The objective of this study is to answer the following important questions concerning the
relationship between climate change mitigation/adaptation and ODA:
1. Whether ODA can be used successfully towards promoting climate change mitigation
and adaptation?
2. How effective is the poverty reduction-mitigation/adaptation-ODA nexus across
countries?
3. What policy measures can be effective to strengthen the poverty reduction-
mitigation/adaptation-ODA nexus across countries?
The following section presents a brief critical review towards answering the first question of
how much ODA has been directed towards climate change mitigation and adaptation and
whether ODA has been successful. Poverty reduction-mitigation/adaptation-ODA nexus is
analysed in the next section in a simultaneous equation framework involving climate sensitive
sectors, such as water and CO2 emissions, as major variables using cross-country panel data.
Few case studies are presented in the following section to examine the climate change-ODA
nexus a bit more closely. A final section brings out the policy conclusions to make climate
change mitigation/adaptation and ODA nexus effective across nations.
Financing Climate Change Mitigation and Adaptation: A brief critical review

It is rational to argue that developing countries definitely need both financial and technical
support to reconcile sustained economic development with climate change mitigation and
adaptation. Has the argument been taken seriously by policymakers around the globe? One of
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the outcomes from the Kyoto climate change conference of nations is the recommendation of
clean development mechanism (CDM). Though as on July 2010, 2,303 CDM projects had
been registered, countries involved are very few – Brazil, China, India, and Mexico). The
World Bank’s Carbon Fund (CF) is a public-private partnership, which operates within the
CDM. The climate investment funds (CIF) are the initiative of the World Bank group in terms
of two different funds namely clean technology fund (CTF) and strategic climate fund (SCF)
to help developing countries pilot-low emissions and climate-resilient development. These
funds channeled through the African Development Bank, Asian Development Bank,
European Bank for Reconstruction and Development, Inter-American Development Bank,
and the World Bank Group. CIF has helped so far 44 developing countries with pilot
programmes in clean technology, sustainable management of forests, increased energy access
through renewable energy, and climate resilient development. As of 2010, 13 donor countries
pledged about US$10 billion to finance the two CIF with the mandate that the funds will be
distributed as grants, highly concessional loans, and/or risk mitigation instruments. The
European Commission has pledged a total of US$206.9 million between 2010 and 2012 for
climate finance, while Australia has pledged US$582 million for the fiscal year 2010-2011.
Japan’s pledging of US$7.2 billion is for ODA and of US$7.8 is for official collaboration
with private sector for 2010-2012. The U.S. has pledged for US$3 billion for 2010 and 2011
(WRI, 2010). The interesting question in this context is whether these pledges would achieve
the goal of limiting the increasing of global warming to 2 degrees Celsius.
Several studies have attempted to find an answer to the above question. The Pew
Center’s review of most of these analyses finds that “most show the pledges are
inadequate to achieve a 2-degree goal, and instead imply a global emissions pathway
leading to 3 to 3.9 degrees of warming” (Source: http://www.pewclimate.org/copenhagen-
accord accessed on 1 November 2010). One of the implications of such reviews is that both
technical and financial support to developing countries are not sufficient, which initiated
arguments in favour of using ODA to target climate change related issues. An important
question that arises in this context is whether the amount of ODA going into other socio-
economic development related issues under the Millennium Development Goals (MDGs)
would be affected by ODA targeted at climate change issues. In this context, the
announcement of the developed countries in the Copenhagen Accord to provide US$30
million between 2010 and 2012 in addition to the 0.7% of the ODA target towards Climate
finance is worth noting. The EU has agreed to raise ODA levels, which include climate
change finance limited to a specified percentage. Nevertheless, it agreed to increase in
climate change financing that is not concerned with ODA too. Thus, the main concern
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is that climate change funding from ODA should not come at the cost of funding to
other important MDGs.
The World Bank and United Nations have been developing carbon funds to support
climate change projects. The World Bank has 13 different carbon funds (see Annex
Table I) that serve to fund climate change projects, increase private sector investor
confidence and also act as an important vehicle for capacity building for climate
change. The United Nation’s Adaptation Fund is capitalized by a 2% tax on Clean
Development Mechanism (CDM) projects. The Least Developed Countries Fund
developed by UNFCCCC framework with US$115 million commitment from 14
donor countries focuses on the climate change adaptation needs of World’s poorest
countries. The World Bank initiative of the Forest Carbon Partnership Facility and
Community Development Carbon Fund is to assist less-developing countries in
managing carbon emissions in their domestic economy. The Forest Carbon
Partnership Facility is to provide assistance in reducing emissions from deforestation
and forest degradation; and the Community Development Carbon Fund with a
funding of US$128.6 million is to support poor countries in adapting to climate
change. Although there are several mechanisms for ODA funds for climate change, it
is important to emphasize the importance of enabling conditions for the successful
outcomes of these ODAs in adaptation and mitigation of climate change in developing
countries. The institutional structure such as good governance, supporting policies and
institutions, clear property rights for land tenure, stable macroeconomic environment,
and well-established agricultural and forestry policies are crucial for ODA to achieve
successful outcomes in less-developed countries.
Several development cooperation agencies are involved in climate change projects in

Bangladesh, Nepal, Fuji, Tanzania, Uruguay and Egypt. Several agencies are working
with national governments in programmes from energy efficiency and GHG
mitigation to adaptation and costal management. However, several studies highlight
the lack of serious consideration of climate change in the mainstream activities of the
developing countries. For instance, in Bangladesh, the World Bank report
“Bangladesh: Climate Change and Sustainable Development” highlighted that neither
the development activities account for climate change impacts or adaptation in their
key strategies nor the priority of climate change activities is cited in the national
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planning and development assistance activities (World Bank, 2000). On the other
hand, in some countries climate change activities receive priority in terms of
development strategy. For example, in Fiji, several donor agencies actively participate
on programmes focused on sea level monitoring and impact assessments. AusAid’s
climate change and sea level rise monitoring programme and the coastal zone
management project by the Environmental Agency of Japan are some key
programmes in Fiji.
Several reports highlight the lack of coordination between the Aid agencies and the
national government in addressing the climate change activities. For example, there is
lack of coordination among the donor agencies in Nepal with respect to the Tsho
Rolpa project, lowering the level of the lake through drainage of the most dangerous
glacial lakes in Nepal. Also, the lack of domestic capacity to response to the needs of
the donor agencies is also cited as the other reason for not accounting for climate
change activities in the government policy strategies (Agrawala, 2006). This raises the
issue of training and capacity building of the human capital in the developing
countries to address climate change activities.
Thus, it is imperative that the ODA component of climate change need to concentrate
on technology transfer and capacity building for mitigation and adaptation. However,
this ODA component should be new funding and not a part of already existing ODA
given to achieve MDGs. As institutional arrangements are important for achieving
mitigation and adaptation goals, it is vital to mainstreaming not only mitigation, but
also adaptation in the national developmental programmes. In order to avoid
overlapping and lack of coordination between donor agencies, ODA component of
climate change funding needs to be individually project-specific, and program-
specific. Further, given the differing size of climate change issues, the funding needs
to be demand driven rather than quota based.
Poverty Reduction - Climate Change Mitigation/Adaptation-ODA Nexus: An

Empirical Testing
ODA is provided to developing countries to increase the pace of poverty reduction

directly through various socio-economic programmes. The recent trend and emphasis
of using a part of ODA, which is added to the existing ODA without reducing it, to
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climate change issues is expected to contribute to poverty reduction indirectly.

Whether such a perception is a reality or myth across countries is examined in this
section by using developing country level data from the World Bank data set
including World Development Indicators over different years.
The concern for environmental protection through carbon mitigation has global
developmental costs. Distressed poverty in this study is measured by the headcount
ratio of people surviving on less than 1.25 dollars. The pace of reduction in this head
count requires faster development in terms of GDP growth; and efficient and cost
effective use of energy and natural resources.
We start this analysis with an a priori selection of variables that are most likely to
reduce poverty. Given the objective of this study, we conjecture that CO2 emission,
ODA per capita, poverty ratio in the earlier period, and growth rate to be important
variables in increasing the pace of poverty reduction besides several others discussed
later. All variables are described in Appendix II.
The decisive factors of production in improving the welfare of poor people are not
space, energy and cropland; but they are the improvement in population quality and
advances in knowledge (Schultz, 1981). Thus, low basic education attainment is an
impediment to strengthen the link between growth and poverty reduction because they
constraint the ability of the poor to participate in opportunities generated in
agricultural and industrial production. Therefore, the literacy rate (LIT0108-LIT9300)
defined as the annual change in the percentage of literate population in total
population of a country between 2001-08 and 1993-2000, is another potential variable
to explain variations in poverty reduction across countries through growth. ODA is
expected to influence poverty reduction directly and indirectly through structural
changes of the economy in terms of changes in environmental variables such as CO2
emissions and renewable water resources. ODA in this study is measured as the net
ODA received per capita in current US$. Other structural changes are proxied by
manufacturing growth (MFG) and the share of agriculture in GDP (AGRZ). However,
these variables are used as instrumental variables in the estimation process.
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CO2 emission is alleged to be generated from agriculture, industrial activities,

transports and other services. Therefore, we postulate it to a close proxy of such
activities. A positive relationship between CO2 emission per capita and pace of
poverty reduction has wide ranging implication for the global development plan and
the position of developed world towards their attitude in forcing the developing
countries to reduce emission.
CO2 emission is directly related to (1) Energy use per capita and therefore increases
in energy generation which results in well being of people and better living condition
cannot be undermined; and (2) change in available renewable water resource.
However, efficient energy generation and use is a precondition of faster growth. High
energy intensive countries grow slower due to higher input costs. Therefore, supply
and demand side management of energy is equally important. This is more important
with the fact that GDP growth does help in reducing poverty as do other activities that
generate CO2.
Depleting water resources is bigger problem than increasing CO2 emission. Positive
relationship between CO2 emission and depleting renewable water resource means
increasing pressure on agriculture and fresh drinking water. This brings the need of
better water management in forefront of poverty reduction program.
The impact of foreign direct investment (FDIZ) on poverty reduction depends on

many factors, such as the sector in which FDI is undertaken, the type of investment
(eg. export-oriented or import-substituting), links of foreign affiliates with the host
economy and on the socio-economic and political conditions in the host country.
Generally, the channel through which FDI would help reduce poverty is economic
growth. Drawing on the above arguments, the model that explains the variation in
poverty reduction between 1993 and 2005 across countries in a simultaneous equation
framework is given as follows. The details of the variables are given in Appendix II.
Model 1.
DPVT1D = C(1)+C(11)*PVT1DVIN+C(12)*ODAPC0105+C(13)*GY9305+C(15)*CO2PC9305
GY9305 = C(2)+C(21)*(LIT0108-LIT9300)+C(22)*ENGYPC9305+C(23)*POP15649305
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+C(24)*GGFCF9305+C(25) *GPOP9305+C(26)*ODAPC9300+C(27)*FDIZ9300
CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208

+C(34)*DWTRPC0208
DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42) *(FOREST9305)+C(43)*WTRPC02

+C(44)*YIELD9305
Model 2.
DPVT1D = C(1)+C(11)*PVT1DVIN+C(12)*ODAPC0105+C(13)*GY9305+C(15)*CO2PC9305
GY9305 = C(2)+C(21)*(LIT0108-LIT9300)+C(22)*ENGYPC9305+C(23)*POP15649305
+C(24)*GGFCF9305+C(25) *GPOP9305+C(26)*ODAPC9300+C(27)*FDIZ9300
CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208

+C(34)*ODAPC9300
DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42) *(FOREST9305)+C(43)*WTRPC02

+C(44)*YIELD9305+C(45)* ODAPC0105
The system of above equations contains endogenous regressors and correlations of
disturbance terms across equations, which necessitates the application of the three
stage least squares (3SLS) estimation. Also, our objective of examining the channels
through which ODA influences poverty reduction necessitates the use of three stage
least squares estimation in this study. The instrumental variables used for estimating
the above system of equations are given in Table 1 under each equation. These
instrumental variables are completely exogenous to the dependent variables including
DPVT1D, which is the per year deviation of poverty head count ratio between 1993
and 2005 for the country concerned; GY9305, which is the annual growth rate
between 1993 and 2005; CO2PC9305, which is the annual CO2 per capita generation
between 1993 and 2005; and DWTRPCO208, which is the per capita availability of
renewable ground fresh water in 2008. Also, none of the instrumental variables is
included in the equation for DPVT1D, which is consistent with econometric theory of
estimation. Model 2 differs from Model 1 in the sense that ODA appears in all
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equations in Model 2. Lagged ODA appears in relevant equations to capture the
reality. For example, annual growth rate between 1993 and 2005 (GY9305) is
expected to be dependent more on ODA between 1993 and 2000 rather than ODA
between 2001 and 2005.
Table 1 shows the 3SLS estimates of the above system of equations. The R-square of
individual equations are also presented in Table1, which shows reasonable good fits.
The results have several interesting findings with policy implications with respect to
the pace of poverty reduction- climate change mitigation- ODA nexus as discussed
below.
The interesting results from Model 1 and Model 2 that are similar and consistent are:
1. The pace of poverty reduction (equation 1) is positively related with ODA,

growth, initial level of poverty, and CO2 emission.
2. This means that higher the initial level of poverty, higher is the pace of
poverty reduction, which implies the ‘convergence’ hypothesis.
3. Growth influences poverty reduction directly and indirectly through ODA, as

the latter influences growth directly as shown in the estimates of equations (2).
4. CO2 influences the speed of poverty reduction positively through growth

because CO2 is significantly and positively influenced by energy consumption
(equation 3), which also influences growth directly (equation 2). This means
that reduction in CO2 emission has the potential to reduce growth and thereby
reduce the pace of poverty reduction.
5. ODA influences CO2 positively, though not very significantly (17%). As

ODA influences growth positively, it may be inferred that growth and CO2 are
positively related. When this result is combined with the positive and
significant association of energy consumption and growth, one can consider
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such a growth pattern not appealing to developing countries. What is needed

for sustained and green growth is growth with less energy consumption.
6. Thus, ODA aimed at direct climate change mitigation, such as reduction in

CO2 emission in developing countries may not increase the pace of poverty
reduction unless new technologies that consume less energy are introduced.
This highlights the urgent need for transfer of energy saving technologies from
developed countries and for investing more research and development on such
technologies across countries. Thus, ODA given to causes other than climate
change issues should not be reduced to developing countries.
7. The positive association between ODA and per capita availability of ground
fresh water (significant at 18%) indicates that ODA has the potential to
mitigate negative effects of climate change. However, it should be noted that
per capita availability of ground fresh water positively influences CO2
emission (equation 3). Thus, it is difficult to conclude that ODA can be
effectively used for climate change mitigation and further research with larger
data set is necessary.
It is imperative to examine whether ODA has been effective in the context of climate
change adaptation. As it is difficult to identify a proper measure for adaptation, we
have analysed a few case studies that are published.
Case Study 1: Ancient system of water conservation.

In TamilNadu in South India, the Gundur river basin that is drought- prone supplies
water to Madurai and its surrounding areas. Climate change has currently turned the
rains unpredictable and when it falls, it does it intensively leading to floods and
related disasters. To cope with this situation, villagers were recommended to follow
the old traditions system of tanks in which seasonal rain water is collected for use at
later needed times. TamilNadu’s granitic rock-base provides an ideal leak-proof base
for storage. The Dhan Foundation, which is an NGO ‘working in 12 Indian states, is
now working with local communities and the government to repair and reuse these
ancient storage systems that served for almost a millennium in drought mitigation and
water conservation’. ‘So far, 400 of Madurai district’s 2000 tanks have been repaired
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and are in use again’(http://www.bhoogyan.net/fromthegrassroots/rural-

communities-turn-to-traditional-climate-mitigation, accessed on 11 November
2010). To use all tanks would take 5-7 years and needs proper funding too. ODA will
be more appropriate along with other government schemes.
Case Study 2: Drought and Climate Change in Ethiopia
The project in Ethiopia partially supported by the Climate Change Fund of the Global
Environment Facility aims to develop range of projects that reduce the vulnerability
of farmers to climate shocks. The project aims to support the farmers in (a) assistance
is given to farmers to cope with drought, providing relevant information and early
warning systems for farmers to cope with climate change, drought preparedness and
adopting of best practices to management negative climate shocks.
Source: GEF. 2005. Medium-sized Project Proposal: Coping with Drought and
Climate Change, Washington, DC.
Case Study 3: Carbon Mitigation project with Solar Cooker

Solar cookers are replacing biomass-fuelled cookers in rural sectors, thereby reducing
emissions caused by biomass-fuelled cookers. The direct benefit of the above is the
saving on the traditional resources such as wood used in cooking in the rural areas.
The use of solar cooker has the potential to reduce carbon dioxide (CO2) emissions by
3.5 tons per year.
Source: UNCCD, 2008
Case Study 4: Verified Emission Reductions (VERs) from Carbon Sequestration in

Forestry Systems in Mexico
The VER project in the state of Chiapas in Mexico helps to sequester carbon in forest
and agricultural systems. The project is part of Mexico’s official Programme of Joint
Implementation to Reduce Climate Change. Farmers could use the carbon
management system to design their own sequestration projects for forestry system.
Such projects may include changing from pasture to plantations, or restoring degraded
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forest. The size and type of a project determine the quantity of emissions reductions.
Projects are independently assessed and verified.
VERs from this project have been sold to a variety of private and public sector
organizations.
Source: UNCCD, 2008
Case Study 5: Clean Development Mechanism (CDM) using Biofuels production in

Namibia
A CDM reforestation project established ca. 72 000 ha of Jatropha curcas plantations

on degraded lands along the Okavango River in northeastern Namibia. These trees
provide biodiesel as a renewable source of energy, and the project can claim carbon
credits from the substitution of fossil fuels, as well as from carbon sequestration in the
biomass of the planted trees. The project involves local communities in a region
affected by extreme poverty, and will provide sustainable incomes to some 3 500
families. The plantations have the potential to generate tCERs equivalent to ca. 8
million tCO2e by 2012. The project’s biodiesel production also has the potential to
generate emissions reductions by substituting fossil fuels.
Source: UNCCD, 2008
Case study 6: Small-scale biogas plants under the CDM in Nepal

A registered CDM project in Nepal involves the placement of up to 1.9 million small
anaerobic digesters to produce biogas in poor rural communities. The digesters
capture biogas from latrines and animal waste that can be burned to generate thermal
energy for cooking. The capacity of the installed biogas plants ranges from 1.16 to
2.32 kW. Emissions reductions result from the replacement of conventional fuel
sources for cooking, such as fuelwood, thus easing the pressure on local ecosystems
containing biomass. The project also mitigates nitrous oxide (N2O) and methane
emissions due to the waste management procedures and the remaining bioslurry in the
digesters may be used instead of chemical fertilizers. So far, 150 000 biogas plants
have been installed. The carbon revenue from the project goes into a fund that is used
by microfinance institutions in rural areas. These organizations can provide
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microcredit to cover the upfront cost of biogas plant construction, thereby enabling
the poorest households to access the technology.
Source: UNCCD, 2008
Conclusions
By 2100, the IPCC TAR forecast an increase in global averaged surface temperature
of 1.4-5.8 degrees Celsius over the period of 1990-2100 (Klein et at, 2005). The IPCC
TAR states that it is very likely that nearly all land areas will warm more rapidly than
the global average (Houghton et al., 2001).
The UNFCCC (United Nations Framework Convention on Climate Change) identifies
to key directions to address climate change. Firstly, mitigation of climate change by
reducing greenhouse gas emissions and secondly to increase the adaptation to the
impacts of climate change. Mitigation policy consists of all human activities aimed at
reducing the emissions of greenhouse gases such as carbon dioxide, methane and
nitrous oxide. Adaptation refers to any adjustments that take place in natural or human
systems in response to actual or expected impacts of climate change by moderating
the harm or exploiting the beneficial opportunities.
Increasingly the linkages between climate change and development are recognized as
important component to reduce poverty and improve the living standards of the poor.
There is a strong causality from human-induced greenhouse emissions that are driven
by socio-economic development patterns driven by economic growth, technology
adoption, governance, and population growth. These economic developments in turn
affect the vulnerability of the poor to climate change in terms of the greenhouse
effects and their capacity for mitigation and adaptation, thereby increasing the poverty
of the poor.
In developing countries, the other key challenges that take priority for the immediate
development such as food security, water supply, sanitation, education and health
care. Thus there is an urgent need to mainstream the key challenges of climate change
into the sectoral and development planning and decision making process to create
sustainable long-term development. Mainstreaming is seen as making more efficient
and effective use of financial and human resources in implementing and managing
climate change policy holistically with sustain development than undertaking
piecemeal activities. This involves building mitigation and adaptation capacity at both
micro and macro economic development level.
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Climate change is a global phenomenon that requires the participation of both public
and private sector. The importance of the private sector participation is given by a) the
magnitude of the investment to manage climate change; and b) market mechanism
seems to more effective in address climate change than public sector. In fact, the
private sector is perceived to adopt least-cost solutions to environmental problems that
are efficient and effective as compared to public sector. Given that there are potential
to generate revenue, there several climate change projects are not considered
“bankable”. In fact, market mechanism is essential part of the Kyoto Protocol that
serves as the basis for carbon trading.
Public sector involvement is equally important such as grants, overseas development
assistance (ODA) and funding from other countries are equally important in
mitigation and adaptation projects. There are several projects that provide strong
social returns but little private returns. Such projects are unlikely to be undertaken by
the private sector but have large social benefits. In such cases, the government, non-
profit organizations and donor agencies are required to lower risk of investment and
provide incentives for private sector investment. Communities do have a role to play
in adaptation, which can be seen from the case studies cited in this paper.
However, empirical results in this study emphasizes that more caution is needed in
directing ODA towards climate change mitigation and adaptation due to the
interlinkages between various macroeconomic variables related to growth, and
poverty reduction. This implies that ODA given to other important causes concerning
MDGs should not be reduced. The results show that energy-efficient transfer of
technology to developing countries should accompany any efforts of directing ODA
towards mitigation. Without that the impact of ODA on mitigation may have adverse
effect on the pace of poverty reduction across developing countries. Thus, the
involvement of private sector becomes crucial for energy-efficient technological
innovation and transfer. In this context, Japan’s approach of providing ODA and
funding for official collaboration with private sector is a good model for other
developed countries to emulate. This necessitates more and more empirical research
within and across countries.
17
Table 1. 3SLS Estimates of Poverty Reduction-Climate Change-ODA Nexus
System: Model 1.
Estimation Method: Three-Stage Least Squares
Total system observations 93

Linear estimation after one-step weighting matrix
Coefficient Std. Error t-Statistic Prob.
C(1) -2.006 0.438 -4.58 0.00

C(11) 0.027 0.007 3.72 0.00
C(12) 0.003 0.002 1.333 0.18
C(13) 0.298 0.076 3.91 0.00
C(15) 0.276 0.119 2.33 0.02
C(2) -29.499 11.017 -2.68 0.01
C(21) 0.240 0.162 1.49 0.14
C(22) 0.004 0.001 4.70 0.00
C(23) 0.577 0.161 3.59 0.00
C(24) 0.290 0.120 2.41 0.02
C(25) 0.895 0.982 0.91 0.37
C(26) 0.079 0.059 1.34 0.19
C(27) -0.410 0.400 -1.02 0.31
C(3) -0.838 0.338 -2.48 0.02
C(31) 0.002 0.000 10.78 0.00
C(32) 0.026 0.013 2.09 0.04
C(34) 0.001 0.000 1.86 0.07
C(4) 43.923 78.906 0.56 0.58
C(41) 18.953 19.811 0.96 0.34
C(42) -5.624 2.565 -2.19 0.03
C(43) -0.008 0.003 -3.05 0.00
C(44) 0.007 0.021 0.32 0.75
Determinant residual covariance 376.15

Equation: DPVT1D = C(1)+C(11)*PVT1DVIN+C(12)*ODAPC0105+C(13)*GY9305+C(15)*CO2PC9305
Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN
ODAZ9300 RNDZ9305 RDPAVZ9305 TEMOBL C
R-squared 0.66 Mean dependent var 0.61

Adjusted R-squared 0.59 S.D. dependent var 1.02
S.E. of regression 0.65 Sum squared resid 9.37
Equation: GY9305 = C(2)+C(21)*(LIT0108-LIT9300)+C(22)

*ENGYPC9305+C(23)*POP15649305+C(24)*GGFCF9305+C(25)
*GPOP9305+C(26)*ODAPC9300+C(27)*FDIZ9300


Equation: CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208


Equation: DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42)

18
*(FOREST9305)+C(43)*WTRPC02+C(44)*YIELD9305

R-squared 0.70 Mean dependent var -171.92

19
System: Model 2.
Estimation Method: Three-Stage Least Squares
Total system observations 93

Linear estimation after one-step weighting matrix
Coefficient Std. Error t-Statistic Prob.
C(1) -1.974 0.448 -4.402 0.000

C(11) 0.027 0.007 3.668 0.001
C(12) 0.013 0.008 1.625 0.150
C(13) 0.302 0.076 3.957 0.000
C(14) 0.265 0.120 2.208 0.031
C(2) -29.653 11.019 -2.691 0.009
C(21) 0.244 0.162 1.508 0.136
C(22) 0.004 0.001 4.667 0.000
C(23) 0.578 0.161 3.599 0.001
C(24) 0.290 0.120 2.414 0.018
C(25) 0.887 0.982 0.903 0.370
C(26) 0.078 0.059 1.316 0.193
C(27) -0.409 0.400 -1.021 0.311
C(3) -0.908 0.371 -2.451 0.017
C(31) 0.003 0.000 10.627 0.000
C(32) 0.026 0.013 2.034 0.046
C(33) 0.001 0.000 1.951 0.055
C(34) 0.003 0.002 1.333 0.172
C(4) 20.772 97.870 0.212 0.833
C(41) 18.342 20.248 0.906 0.368
C(42) -5.528 2.580 -2.143 0.036
C(43) -0.009 0.003 -3.055 0.003
C(44) 0.014 0.025 0.566 0.573
C(45) 0.263 0.203 1.310 0.182
Determinant residual covariance 381.1717
Equation: DPVT1D = C(1)+C(11)*PVT1DVIN+C(12)*ODAPC0105 +C(13)*GY9305+C(14)*CO2PC9305

RNDZ9305 RDPAVZ9305 TEMOBL ODAZ9300 C

Equation: GY9305 = C(2)+C(21)*(LIT0108-

LIT9300)+C(22)*ENGYPC9305+C(23)*POP15649305+C(24)*GGFCF9305+C(25)*GPOP9305+C(26)*OD
APC9300+C(27)*FDIZ9300


Equation: CO2PC9305 = C(3)+C(31)*ENGYPC9305 +

C(32)*INDZ9305+C(33)*DWTRPC0208+C(34)*ODAPC9300
20


Equation: DWTRPC0208 = C(4)

+C(41)*CO2PC9305+C(42)*(FOREST9305)+C(43)*WTRPC02+C(44)*YIELD9305+C(45) *ODAPC0105
Instruments: ARLANDPC9300 WTRPC02 PVT2DVIN RNDZ9305 RDPAVZ9305 TEMOBL

GY9300 MFGZ9300 AGRZ9300 FDIZ9300
ODAZ9300 C
R-squared 0.698 Mean dependent var -171.919
00
21
Appendix II
Variable List
LIT9300 Literacy rate, adult total (% of people ages 15 and above)
LIT0108
LIT9308
CO2PC9300 CO2 emissions (metric tons per capita)

CO2PC0105
CO2PC9305
CO2PPPGD9300 CO2 emissions (kg per PPP $ of GDP)

CO2PPPGD0105
CO2PPPGD9305
CO2PPPRGD9300 CO2 emissions (kg per 2005 PPP $ of GDP)

CO2PPPRGD0105
CO2PPPRGD9305
gSER9300 Services, etc., value added (annual % growth)

gSER0105
gSER9305
SERZ9300 Services, etc., value added (% of GDP)

SERZ0105
SERZ9305
GY9300 GDP growth (annual %)

GY0105
GY9305
Forest9300 Forest area (% of land area)

Forest0105
Forest9305
FDIZ9300 Foreign direct investment, net inflows (% of GDP)

FDIZ0105
FDIZ9305
ENGYPC9300 Energy use (kg of oil equivalent per capita)

ENGYPC0105
ENGYPC9305
CO2PGD9300 CO2 emissions (kg per 2000 US$ of GDP)

CO2PGD0105
CO2PGD9305
22
YIELD9300 Cereal yield (kg per hectare)

YIELD0105
YIELD9305
ARLANDPC9300 Arable land (hectares per person)

ARLANDPC0105
ARLANDPC9305
gAGR9300 Agriculture, value added (annual % growth)

gAGR0105
gAGR9305
AGRZ9300 Agriculture, value added (% of GDP)

AGRZ0105
AGRZ9305
INDZ9300 Industry, value added (% of GDP)

INDZ0105
INDZ9305
gIND9300 Industry, value added (annual % growth)

gIND0105
gIND9305
IRRZ9300 Irrigated land (% of cropland)

IRRZ0105
IRRZ9305
MFGZ9300 Manufacturing, value added (% of GDP)

MFGZ0105
MFGZ9305
gMFG9300 Manufacturing, value added (annual % growth)

gMFG0105
gMFG9305
POP15649300 Population ages 15-64 (% of total)

POP15640105
POP15649305
gPOP9300 Population growth (annual %)

gPOP0105
gPOP9305
R&DZ9300 Research and development expenditure (% of GDP)

R&DZ0105
R&DZ9305
23
RDPAVZ9300 Roads, paved (% of total roads)

RDPAVZ0105
RDPAVZ9305

SERZ0105
SERZ9305

gSER0105
gSER9305

CO2PPPRGD0105
CO2PPPRGD9305

CO2PPPGD0105
CO2PPPGD9305

CO2PC0105
CO2PC9305

LIT0108
LIT9308
TEMOBL9300 Mobile and fixed-line telephone subscribers (per 100 people)

TEMOBL0105
TEMOBL
TradeZ9300 Trade (% of GDP)

TradeZ0105
TradeZ9305
WBODCI9300 Water pollution, chemical industry (% of total BOD emissions)

WBODCI0105
WBODCI9305
DWTRPC0208 Renewable internal freshwater resources per capita (cubic meters)

WTRPC02
EnrollP9800 School enrollment, primary (% net)

EnrollP0105
PVT1DYI Poverty headcount ratio at $1.25 a day (PPP) (% of population)

PVT1DVI
24
DPVT1D
dLIFE Life expectancy at birth, total (years)

LIFE93
Life9305
dODAPC Net ODA received per capita (current US$)

ODAPC9300
ODAPC0105
gODAPC
25
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Risks of Climate Change. Proceedings of the Roundtable. Paris, OECD. 14–17
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28
Appendix I
Global Climate Change Adaptation and Mitigation Funding (Source: USAID,

Financing Climate Adaptation and Mitigation in Rural Areas of Developing
Countries, 2009)
Donor/ Initiative Countries Focus/Projects Website

African African In 2006, the AfDB initiated a climate http://www.afd
Development Bank countries adaptation and risk management (CRM) b.org/portal/pa
Group (AfDB) program with interventions in policy, ge?
capacity and project level _pageid=473,3
0670406&dad=
portal&schema
=PORTAL
Asian Development Developin ADB established a Carbon Market http://www.adb
Bank (ADB) - Asia g member Initiative (CMI) under which it manages .org/Clean-
Pacific Carbon countries three projects: Energy/cmi.as
Fund, Technical of ADB p
Support Fund and The Asia Pacific Carbon Fund (APCF)
the Credit provides upfront carbon co-financing http://www.adb
Marketing Fund against future carbon credits until 2012 to .org/Document
enable clean energy projects to meet their s/Others/Asia-
financing gap to implementation. The Pacific-
APCF also provides upfront cofinancing to Carbon-
CDM projects in ADB’s Developing Fund.pdf
Member Countries (DMCs) for future
delivery of certified emission reductions.
The Technical Support Facility (TSF)

provides support for CDM projects. CMI
will provide targeted technical support to
project developers and sponsors in the
following levels: 1) upstream support in
project preparation and 2) downstream
support in project execution and
commercialization.
The Credit Marketing Facility (CMF)

assists sponsors to market additional
credits generated beyond those that have
been sold upfront to APCF.
Australian Developin Climate Change adaptation: Australia will http://www.aus
Government g invest $150 million over three years to aid.gov.au/key
-AusAID countries meet high-priority climate adaptation aid/mitigation.c
near needs in vulnerable countries. The primary fm;
Australia; geographic emphasis of the program will
Indonesia be Australia’s neighboring island http://www.aus
and Papa countries, but targeted policy and technical aid.gov.au/key
New assistance will also be available for other aid/adaptation.
29
Guinea countries. cfm;
Climate Change Mitigation: Australia's http://www.clim

International Forest Carbon Initiative atechange.gov.
(IFCI) aims to demonstrate that reducing au/international
emissions from deforestation can be part /publications/fs
of an effective international response to -ifci.html
climate change. Total funding allocated for
the initiative to date is $200 million over
five years, focused on Indonesia and
Papua New Guinea. Within the framework
of the Indonesia-Australia Forest Carbon
Partnership, Australia will support
Indonesia in the development of its
national framework for avoided
deforestation and in the implementation of
the Kalimantan Forests and Climate
Partnership. Through the PNG-Australia
Forest Carbon Partnership, Australia will
assist Papua New Guinea to develop its
avoided deforestation policies, forest
carbon measurement system, and
demonstration activities to enable Papua
New Guinea’s participation in future
international forest carbon markets.
Credible accounting of changes in forested
areas is essential for such participation, so
as a first step Australia will support Papua
New Guinea in the development of a
rigorous forest carbon measurement and
accounting system.
Belgian On 10 September 2008, Professor Jean- http://www.dgcd
Development Pascal Van Ypersele submitted a report .be/en/topics/ind
Cooperation (BCD) with recommendations for Belgian ex.html
Development Cooperation to Minister for http://www.biodi
Development Cooperation Charles Michel. v.be/news/avoid
The report is entitled “Climate change and ed-deforestation-
the Belgian development cooperation dr-congo-
policy: Challenges and opportunities.” combat-climate/
On 7 March 2008, Belgian Development
Cooperation organized a conference on
“Climate Change, a new Challenge for
Development Cooperation?”
The BCD has also organized a panel
discussion on avoided deforestation in DR
Congo to combat climate change.
Canadian Developin In 2006, CIDA provided CAD$1,025,000 http://www.acdi-
International g in untied technical assistance to the Inter- cida.gc.ca/CIDA
Development countries American Development Bank (IADB) for WEB/acdicida.n
Agency (CIDA) a joint work program to promote sf/En/JUD-
30
renewable energy, energy efficiency, and 4189500-J8U;

carbon finance projects in Latin America http://www.cimh
and the Caribbean; .edu.bb/curprojs.
As of 2005, the Canada Climate Change htm
Development Fund had supported projects
in more than 50 countries, in addition to
making a $10 million contribution to the
Least Developed Countries Fund (LDCF)
managed by the United Nations and the
GEF.
The Adaptation to Climate Change in the
Caribbean project is funded by CIDA and
focuses on strengthening the technical
capacity of national and regional
institutions.
Caribbean Caribbean CDB provided financing for the Caribbean http://www.carib
Development Bank countries Community Climate Change Center ank.org/titanweb
(CFB) toward the establishment of an information /cdb/webcms.nsf
clearinghouse. The clearinghouse will /AllDoc/1586A
support the scientific research component BF7D17E68D80
of the Center’s work program and improve 42574E4004C64
access to scientific knowledge resources 92?
and tools necessary to support sound OpenDocument
decision making concerning climate
change and sustainable development.
Danish Development Vietnam Capacity Development for National http://www.amb
Agency (DANIDA) Climate Change Focal Point in Vietnam: hanoi.um.dk/nr/e
This project aims to strengthen human xeres/2fb21c2d-
resources and institutional capacity of d094-437f-af37-
Vietnam for effective negotiation, policy 245e5ffdd16b,fr
analysis, and coordination of climate ameless.htm?
change activities. The capacity for nrmode=publish
managing climate risks, including seasonal ed
forecasting, early warning systems,
disaster preparedness, mitigation, and
relief, needs to be improved for the region
as a whole.
Deutsche Developin The current objective of the Climate http://www.gtz.d
Gesellschaft fur g Protection Program is to mainstream e/en/themen/um
Technische countries climate protection activities within welt-
Zusammenarbeit German Development Cooperation. This infrastruktur/um
(GTZ) – Climate includes measures to reduce and prevent weltpolitik/4158.
Protection Program greenhouse gas emissions, and measures to htm
foster adaptation to the adverse effects of
climate change. The Climate Protection
Program thus assists developing countries
in meeting their commitments under the
UNFCCC, and involves these countries in
Kyoto Protocol implementation.
Activities focus on building and expanding
31
institutional and human resource

capacities, and on carrying out individual
projects to serve as models in the field of
climate protection. The Climate Protection
Program provides ongoing support to a
range of individual projects through:
1) National and regional climate studies.
2) Training measures and workshops.
3) Conceptual and methodological studies
on fundamental issues of climate
protection in developing countries.
4) Policy studies on long-term climate
protection.
European Bank for Developin EBRD’s Climate Investment Funds will http://www.ebrd.
Reconstruction and g enable a dynamic partnership between com/country/sec
Development countries multilateral development banks and tor/energyef/car
(EBRD) - Climate developing countries to undertake bon/index.htm
Investment Funds investments that achieve a country’s
development goals through a transition to
a climate-resilient economy and a low
carbon development path. The EBRD has
also established the following carbon
funds:
Netherlands Emissions Reductions Co-
Operation Fund: buys Joint
Implementation Carbon Credits from its
13 countries of operations eligible for this
mechanism
Multilateral Carbon Credit Fund: is
designed to develop the carbon market in
countries in transition and to help EBRD
and European Investment Bank
shareholders and other parties to meet their
mandatory or voluntary emission reduction
targets. Became operational in 2006. The
fund will buy carbon credits from
investments under the European Union
scheme as well as the Protocol’s JI and
CDM. It will also aim to facilitate the
direct trading of carbon credits between
some of its shareholders (so-called Green
Investment Schemes).
Donor Funding: The Bank can help
governments and companies in its region
of operations overcome obstacles in
emission trading by providing technical
advice funded by donor governments. For
example, as part of the Bank’s Early
Transition Countries Initiative for its
poorest countries of operation, donors
32
have approved funding to help in

development of complex CDM projects.
European Developin The EU action plan on climate change and http://ec.europa.
Commission (EC) – g development ensures that climate change eu/development/
EU Action Plan on countries is incorporated into all aspects of EU policies/9interve
Climate Change and development policy. It will help ntionareas/envir
Development developing countries implement the onment/climate/
UNFCCC and the Kyoto Protocol, and climate_en.cfm
support more research into tackling
climate change. Its four priorities are
raising the political profile of climate
change, support for adaptation in
developing countries, support for
mitigation and sustainable development
paths, and developing administrative
capacity in vulnerable countries. The
action plan is funded through the
Commission’s geographical programs for
countries and regions, and its program for
the environment and sustainable
management of natural resources.
Global Climate Change Alliance (GCCA)
- will spend €60m in 2008-10 to create
awareness and jointly address climate
change between the EU and the most
vulnerable developing countries (typically
least developed countries and small island
developing states). The alliance will be
based on improved dialogue on addressing
climate change, feeding into the
discussions on a post-2012 agreement
under the UNFCCC; concrete support for
adaptation and mitigation measures and
the inclusion of climate change in
development strategies and programs.
Support will be given to five priorities: 1)
adapting to climate change; 2) reducing
emissions from deforestation, while
preserving livelihoods and ecosystems; 3)
enhancing participation in the global
carbon market through the Clean
Development Mechanism; 4) promoting
disaster risk reduction; and 5)integrating
climate change into poverty reduction
efforts. Existing funding for climate
change and environmental issues will also
contribute to the goals of the alliance – and
EU governments have been asked to
provide more funds for it.
Coordination with other donors - The
33
Commission participates actively in the

vulnerability and adaptation resource
group. This is a forum for debate,
consisting of a core group of bilateral and
multilateral donors, with a broader range
of groups (academia, research institutes,
and other interest groups) invited to join
the discussions, depending on the issue.
The group has produced two papers:
1) 2003 Poverty and Climate Change:
Reducing the Vulnerability of the Poor
through Adaptation in 2003
2) 2006 Synthesis Report
European Developed Global Authorization Mechanism: a http://www.eib.o
Investment Bank and simplified and accelerated process for the rg/projects/topic
(EIB) developin financing of small- and medium-scale s/environment/cl
g projects (public or private) outside the EU imate-change/
countries aimed at promoting climate change
mitigation and adaptation investments,
with special emphasis on carbon credit
generating projects. The €5 million
Climate Change Technical Assistance
Facility (CCTAF) provides advance
funding for activities associated with the
development of project-based carbon
credits under the JI and CDM mechanisms
of the Kyoto Protocol on a conditional
loan basis.
Carbon Finance:
1. Multilateral Carbon Fund (see EBRD)
2. Carbon Fund for Europe: co-managed

by the World Bank, the fund has at its
disposal €50m. It is designed to help
European countries and companies in the
EU ETS meet their Kyoto commitments. It
helps developing countries achieve
sustainable development by fostering
investment in clean technology projects.
The fund can also buy carbon credits
generated after the end of the Kyoto
commitment period in 2012 – up to a limit
of 40%.
3. The EIB/Kreditanstalt für Wiederaufbau

(KfW) Carbon Programme, a risk sharing
arrangement between the EIB and KfW,
focuses on helping EU-based small- and
medium-sized enterprises to access carbon
34
credits for voluntary or statutory

compliance purposes.
4. The Post 2012 Carbon Credit Fund is

designed to support environmentally
beneficial projects from 2012 onwards and
is the first dedicated facility of its kind.
The fund will exclusively purchase and
trade Post 2012 credits, thereby supporting
the development of projects that help the
environment by extending their carbon-
based revenue stream. A consortium
composed of Conning Asset Management
(Europe) Limited and First Climate has
been selected as fund manager.
Fonds Français pour The FGEF encourages projects that reduce http://www.ffem
l’Environnement the consumption of fossil or organic .fr/jahia/Jahia/sit
Mondial (FFEM) carbon through: e/ffem/lang/en/p
1) Improved energy efficiency. id/3569
2) Renewable energy and substitution by
energy sources producing fewer CO2
emissions.
3) Carbon sequestration in forests and
soils.
Global Environment Less- Climate change adaptation: GEF supports http://www.gefw
Facility (GEF) developed projects that reduce or avoid greenhouse eb.org/interior.as
countries gas emissions in the areas of renewable px?id=232
energy, energy efficiency, and sustainable
transport. Recently, the UNFCCC asked
the GEF to support pilot and
demonstration projects in the field of
adaptation. Under its strategic priority,
Piloting an Operational Approach to
Adaptation, the GEF supports projects that
provide real benefits and may be
integrated into national policies and
sustainable development planning. In
addition, the GEF supports adaptation
activities through the Least Developed
Country Fund and the Special Climate
Change Fund.
Climate change mitigation: GEF supports
interventions that increase resilience to the
adverse impacts of climate change and
vulnerable countries, sectors, and
communities.
Inter-American Developin Adaptation for Climate Change and http://www.iadb.
Development Bank g Disaster Mitigation in the Caribbean: a org/projects/proj
(IADB) countries study to evaluate the possibilities and ect.cfm?
35
comparative advantages for the countries id=TC0002034

of the region of carbon sequestration and &lang=en
renewable energy development, with the
aim of taking advantage of the innovative
financial mechanisms of the protocol of
the CDM and the Global Environment
Facility, which can lead to new
development and capital flow
opportunities.
France - France finances grants to specialized http://www.effet
Interministerial funds, various multilateral organizations, -de-
Taskforce on or within a bilateral framework. It serre.gouv.fr/lac
Climate Change increases its development assistance every ooperationintern
year in the field of climate change. On the ationale
whole, French development assistance for
climate change reached €400 million in
2006. Beyond research, France also
supports actions including adaptation,
biological sequestration of carbon, and
climate monitoring. France also supports
Kyoto protocol mechanisms, specifically
through the signature of bilateral
agreements aiming at the promotion and
completion of projects under the CDM or
JI.
International IFC’s Carbon Finance Unit (CFU) http://www.ifc.o
Finance Corporation develops new products for the carbon rg/ifcext/sustain
(IFC) - Carbon market, including a Carbon Delivery ability.nsf/Conte
Finance Unit Guarantee and monetization of forward nt/CarbonFinanc
contracts, both for qualified sellers of e
Certified Emission Reductions (CERs).
The Unit advises on investments to
provide flexible financing, including
equity, to carbon-rich projects, and is
considering targeting debt facilities with
local banks that will lend to sponsors of
emission reduction projects. CFU products
and services include:
1) Carbon Delivery Guarantee. 2)
Monetization of future cash flows from
sales of carbon credits. 3) Debt and equity
for carbon-rich products and businesses. 4)
Work with Financial Intermediaries and
municipalities to help aggregate carbon
credits from their various investment
operations.
International Fund Developin Mitigation: IFAD currently supports http://www.ifad.
for Agricultural g reforestation projects in the Himalayas and org/climate/ifad.
Development countries Yemen. An IFAD-supported program in htm
(IFAD) China is setting up solar power systems to
36
help poor households get energy from the

abundant sunlight in the area. A biogas
project in China is turning human and
animal waste into a mixture of methane
and carbon dioxide gases that can be used
for lighting and cooking.
Finance: IFAD is expanding its grant and
loan portfolio for projects that reward poor
people for ecosystem services. Since 2001,
IFAD has supported a grant program in
Southeast Asia that has had a significant
impact on secure access to land, watershed
protection and biodiversity conservation.
A grant program focusing on Africa will
address carbon emissions and avoided
deforestation.
Technology: IFAD supports research
institutes and other bodies to test, adapt
and disseminate technology to help
climate-proof agriculture.
International Member The IMF can provide advice, through its http://www.un.o
Monetary Fund countries discussions with member countries, and rg/climatechang
(IMF) through its technical assistance work, on e/pdfs/bali/imf-
appropriate fiscal and other bali07-11.pdf
macroeconomic policies to mitigate
climate change and adapt to its
consequences. In addition, the Fund can
provide financial assistance to member
countries in response to a range of
macroeconomic disturbances, including
natural disasters, for example through the
exogenous shock facility for low-income
countries.
Japan Bank for Developin JBIC provides proactive support for http://www.jbic.
International g environmental conservation and go.jp/en/about/ro
Cooperation (JBIC) countries; improvement projects, offering favorable le-
Asia loan terms for such projects. In April function/pdf/JBI
2008, JBIC established the Facility for CRole%20and
Asia Cooperation and Environment %20FunctionE.p
(FACE) to enhance its support for climate df
change mitigation measures in developing
countries, as well as to provide assistance
for Asia.
Japan: Ministry of Developin Starting this year, Japan will provide funds http://www.mofa
Foreign Affairs g amounting approximately to US$ 10 .go.jp/policy/eco
(MOFA) – Cool countries billion (¥1,250 billion) in aggregate over nomy/wef/2008/
Earth Partnership the next five years. Assistance will be mechanism.html
provided to developing countries that are
making efforts to reduce GHG emissions
and achieve economic growth in a
37
compatible way, on the basis of policy

consultations between Japan and those
countries.
Assistance for adaptation to climate
change and improved access to clean
energy (~ US$2 billion): Grant aid,
technical assistance and aid through
international organizations will be
provided to address the needs in
developing countries. A new scheme of
grant aid, "Environment Program Grant
Aid,"will be created as a component of
this package. In the context of improved
access to clean energy, feasibility study on
rural electrification projects with
geothermal energy and "co-benefit"
projects that address climate change will
be conducted.
Assistance for mitigation of climate
change (~ US$ 8 billion): "Climate
Change Japanese ODA Loan" with
preferential interest will be created to
provide loans amounting to ¥500 billion
for the purpose of implementing programs
to address global warming in developing
countries. Through capital contribution
and guarantee by JBIC (JBIC Asia and
Environment Facility), trade and
investment insurance by NEXI, and
government support (projects to be
implemented through NEDO), together
with private funds, up to ¥500 billion will
be provided for projects to reduce GHG
emissions in developing countries. In this
context, the Asian Clean Energy Fund (at
ADB) will also be used to promote energy
conservation in the Asian-Pacific region.
Japan aims to create a new multilateral
fund together with the United States and
the United Kingdom, calling for
participation from other donors as well.
Japan International Developin JICA assists capacity development http://www.jica.
Cooperation Agency g programs through technological go.jp/english/pu
(JICA) countries cooperation under ODA (Japanese blications/report
Government’s Official Development s/study/topical/cl
Assistance) for sustainable development in imate1/pdf/cli02.
developing countries. JICA uses a "co- pdf
benefits approach," which includes both
adaptation and mitigation measures. Types
of activities include:
38
Mitigation measures: Cooperation

activities which contribute to reduce
emissions and enhance removals of GHGs,
such as cooperation in rural electrification
using renewable energy, prevention of
deforestation, and
afforestation/reforestation.
Clean Development Mechanism (CDM):
Cooperation such as capacity development
and support to the implementation of
CDM.
Adaptation measures: Cooperation that
leads to improving adaptation capacity,
such as improvement of water supply and
irrigation facilities, introduction of crop
varieties for arid regions, and disaster
management.
Cooperation that is effective for both
adaptation and mitigation measures, such
as mangrove afforestation/reforestation
activities, which both enhance CO2
removals and address sea-level rise.
Kreditanstalt feur Developin KfW Entwicklungsbank is responsible for http://www.bmz.
Wiederaufbau g financial cooperation with developing de/en/issues/ener
(KfW) countries countries The KfW group has instituted a gie/klimaschutz/
climate protection fund on behalf of the kyotoprotokoll/i
German government that should make it ndex.html
easier for business enterprises to acquire
Certified Emission Reductions (CERs)
generated by CDM projects. As a result,
private financial resources will be
mobilized for sustainable development in
partner countries.
The EIB/Kreditanstalt für Wiederaufbau
(KfW) Carbon Program: see EIB
Multilateral Developin MIGA focuses on supporting green http://www.miga
Investment g infrastructure investments in developing .org/documents/
Guarantee Agency countries countries that build renewable energy MIGAclimatech
(MIGA) capacity, encourage resource conservation angebrief07.pdf
and distribution efficiency, improve
sanitation, and offset GHG emissions.
Since FY90, MIGA has provided
guarantees for 59 green infrastructure
projects in all regions of the world. These
guarantees represent half of MIGA’s
cumulative issuance in the infrastructure
sector – or $2.5 billion. MIGA’s added
value in green infrastructure development
includes:
1. Mitigation of risks and dispute
39
resolution, often at the subsovereign level,

keeping investments on track.
2. Support for projects that address
resource scarcity and waste issues in
middle-income countries such as China,
where the prospect of working with
untested local governments often inhibits
investment.
3. Longer loan tenors and reduced costs,
including for projects in frontier markets.
Netherlands The Netherlands’ development policy aims http://www.minb
Development to: uza.nl/en/themes
Cooperation 1. Help countries offset climate change ,environment/en
(adaptation). This is necessary because vironment-
negative effects of climate change, such as themes/environ
hurricanes or droughts, can seriously affect ment-
economies. Equally, climate change makes themes/climate/
poverty reduction more difficult and more What-is-the-
expensive. Netherlands-
2. Take climate hazards into account in doing-.html
terms of development programs and
projects in order to avoid investments
being damaged, yielding less than planned
or, even unintentionally increasing
people’s vulnerability.
3. Give more people in developing

countries access to modern energy
(electricity, gas, sustainable energy such as
solar and wind power). This generally
reduces the emission of GHGs.
4. Build up developing countries’ capacity
to use the CDM. The objective is to help
formulate projects that produce less CO2
while also contributing to poverty
reduction and sustainable development.
5. Pursue active involvement in the
international climate debate, for example
at UN and EU level. The objective is to
exchange adaptation experiences with
other donors, look for coherence and,
where possible, act in concert.
New Zealand AID Pacific The Pacific Regional Environment and http://www.nzai
(NZAID) region Vulnerability Program currently allocates d.govt.nz/progr
NZ$6.5 million a year for regional ammes/r-pac-
programs designed to protect and enhance environment.ht
the Pacific region’s natural resource base ml
for sustainable development and poverty
elimination.
40
Separate assistance of approximately

NZ$10 million a year is provided to
Pacific Regional Organizations that also
deliver on sustainable natural resource
management, disaster risk reduction,
renewable energy, and climate change.
Nordic Development Honduras In 2004, Honduras and the NDF signed a http://www.port
Fund (NDF) €6 million loan to support Pro-Bosque, a ofentry.com/sit
multiphase sustainable development e/root/resource
program aimed at increasing the economic, s/industrynews
social and environmental benefits /2223.html
generated by the Honduran forestry sector.
Nordic Investment Post 2012 Carbon Credit Fund: see http://www.eib.
Bank (NIB) European Investment Bank org/projects/to
pics/environme
nt/climate-
change/
Norway Ministry of Tanzania Norway granted NOK 500 million to http://www.regj
Foreign Affairs Tanzania over a period of five years, for a eringen.no/en/
(ODIN) partnership agreement to enhance forest dep/smk/Press
and climate efforts. -Center/Press-
releases/2008/
nok-500-
million-to-
forest-and-
climate-
ef.html?
id=508504
Norwegian Agency To contribute to reaching the goals of the http://www.nor
for Development CDM, NORAD has established a support ad.no/default.a
Cooperation mechanism to enable eligible entities to sp?
(NORAD) prepare the necessary documentation for VITEMID=1750
submission of CDM projects to the
Designated National Authority and the
CDM Executive Board. Developing new
CDM methodologies or adapting existing
methodologies can also be supported. The
guidelines for support to CDM project
development give an overview of criteria
for support, eligible costs, and projects,
and describe how to apply for support.
Organization of the Developin The OPEC fund provides public sector www.opecfund.
Petroleum Exporting g financing, private sector financing, grant org
Countries (OPEC) Countries operations, and trade finance operations.
Fund for In 2001, OPEC released a landmark http://www.ope
International environmental report that provides cfund.org/proje
Development international investment agencies and ctsoperations/c
investors with data indicating baseline ommitments20
41
carbon dioxide emissions needed for 08.aspx

responsible economic development to
protect the global environment. Entitled
"Climate Change: Assessing our Actions,"
the report urges investors to report
emissions from their projects and
encourages the use of renewable energy
sources.
The OPEC fund also provides research
grants to groups such as the International
Dryland Development Commission for
climate change research.
Swiss Agency for Vietnam Sustainable forest management in Vietnam http://www.deza
Development and - contribution to mitigation of climate .ch/en/Dossiers/
Cooperation change: In view of the challenges of DossierAnnualD
sustainable forest management, SDC has evelopmentCoop
been supporting the Forest Sector Support erationConferen
Partnership in Vietnam since 2001, with ce2008/Climatec
the aim to maximize the efficient and hangeintheMeko
effective use of all resources applied in the ng_Region
forest sector. In addition, a Trust Fund for
Forests has been created that prioritizes
poverty alleviation, sustainable forestry
management, and economic growth.
Through this support, Switzerland gives
long-lasting and important support to a
sector that is crucial for mitigation of
climate change, and thus contributes to the
global agenda.
United Kingdom Developin International Environmental http://www.dfid.
Department of g Transformation Fund: DFID with the UK gov.uk/news/file
International countries Department for Environment, Food and s/climate-etf.asp
Development Rural Affairs (DEFRA) will work to ;
(DFID) support development and poverty http://www.dfid.
reduction through better environmental gov.uk/default.a
management, and help developing sp ;
countries respond to the realities of climate http://www.idrc.
change. The UK is providing £800 million ca/ccaa/
(announced in 2007 budget). DFID will
also expand and diversify its research as
part of a wider effort to tackle climate
change across the UK government.
DFID’s research strategy report also states
that DFID will research climate science,
especially in Africa; how to tackle climate
change in national and international
policy; strategies for adapting to climate
change; and mitigation and low carbon
growth. DFID will establish an
International Climate Change network to
42
provide in-country research and advisory

services.
Climate Change Adaptation in Africa
(CCAA) research and capacity
development program: a joint program of
the International Development Research
Centre, Canada, and DFID. The program
aims to improve the capacity of African
countries to adapt to climate change in
ways that benefit the most vulnerable.
Building on existing initiatives and past
experience, the CCAA program works to
establish a self-sustained skilled body of
expertise in Africa to enhance the ability
of African countries to adapt. A number of
the first projects seek to increase the
resilience of agricultural systems
United Kingdom 22 The Strategic Programme Fund (SPF) https://fco-
Ministry of Foreign countries program directly supports delivery of the stage.fco.gov.uk/
Affairs: Strategic objective to promote a low-carbon, high- en/about-the-
Programme Fund growth global economy. It is the result of a fco/what-we-
merger of the old Climate Change and do/funding-
Energy and Economic Governance programmes/stra
programs. The program supports delivery t-progr-
of the following outcomes: 1) A visible fund/strat-prog-
and accelerated shift in investment fund-climate
initiated in the major economies toward
low carbon; 2) Political conditions created
for an equitable post-2012 agreement at
the UNFCCC COP in Copenhagen in
December 2009 of sufficient ambition to
avoid dangerous climate change; 3) Risks
to UK and EU energy security managed
through more diverse and reliable external
sources of supply and more efficient
global consumption; and 4) Increased
international commitment to an open,
stable and equitable low carbon global
economy delivering higher standards of
living.
United Nations Developin UNDP offers project development http://www.undp
Development g services, including performing due .org/mdgcarbonf
Program - countries diligence, providing technical assistance acility/index.htm
Millennium for CDM or JI project approval, and l
Development Goal establishing the monitoring system for the http://cdm.unfcc
Carbon Facility project’s emission offsets. As a c.int/NairobiFra
(The "Facility") development organization, UNDP does not mework/index.ht
seek to generate profits from the Facility, ml
however UNDP will apply a flat-rate cost-
recovery fee in order to recover its direct
43
costs. In providing its services, UNDP will

leverage its proven expertise in
environmental project development, its
extensive local presence and its in-depth
understanding of each country’s
sustainable development goals.
Nairobi Framework: Initiated by the
United Nations Development Programme
(UNDP), United Nations Environment
Programme (UNEP), World Bank Group,
African Development Bank, and the
Secretariat of the United Nations
Framework Convention on Climate
Change (UNFCCC) with the specific
target of helping developing countries,
especially those in sub-Sahara Africa, to
improve their level of participation in the
CDM.
United Nations Developin The Adaptation Fund was established to http://unfccc.int/
Framework g finance concrete adaptation projects and cooperationands
Convention on countries programs in developing countries that are upport/financial
Climate Change - that are parties to the Kyoto Protocol. The Fund is mechanism/adap
Adaptation Fund parties to to be financed with a share of proceeds tationfund/items/
the Kyoto from CDM project activities and receive 3659.php
Protocol funds from other sources. (The share of
proceeds amounts to 2% of CERs issued
for a CDM project activity.)
Agency for Developin USAID’s Global Climate Change Program http://www.usai
International g and is active in more than 40 countries and, d.gov/ourwork/e
Development transition since 2001, has dedicated more than $1 nvironment/clim
(USAID) – Global countries billion to promote: ate/
Climate Change 1) Clean energy technology.
Program 2) Sustainable land use and forestry:
USAID is not only promoting activities
that preserve carbon stocks but is also
helping to develop methodologies for
measuring changes in carbon stocks in
USAID’s land use and forestry projects.
3) Adaptation to climate change.
4) Climate science for decision-making.
USAID places particular emphasis on
partnerships with the private sector and on
working with local and national
authorities, communities, and
nongovernmental organizations to create
alliances that build on the relative
strengths of each. Bringing together a
diverse range of stakeholders helps avoid
unnecessary duplication and lays the
foundation for a sustained, integrated
44
approach. Through training, tools, and

other means of capacity building, USAID
helps developing and transition countries
address climate-related concerns as a part
of their development goals.
USAID has recently published, “Adapting
to Climate Variability and Change: A
Guidance Manual for Development
Planning, Aug 2007.”
World Bank - Middle- The Carbon Finance Unit (CFU) uses http://carbonfina
Carbon Finance income money contributed by governments and nce.org/Router.c
Unit (CFU) and and low- companies in OECD countries to purchase fm?
Climate Investment income project-based greenhouse gas emission ItemID=3&Page
Funds countries reductions in developing countries and =Funds
countries with economies in transition. www.worldbank
The emission reductions are purchased .org/cif
through one of the CFU’s carbon funds on
behalf of the contributor, and within the
framework of the CDM or JI. The CFU
does not lend or grant resources to
projects, but rather contracts to purchase
emission reductions similar to a
commercial transaction, paying for them
annually or periodically once they have
been verified by a third-party auditor.
Climate Investment Funds: agreement
between multilateral development banks
(MDBs) and countries to bridge the
financing and learning gap for climate
change efforts. MDBs will provide
additional grants and concessional
financing to developing countries to
address urgent climate change challenges.
45
Appendix II
Variable List
LIT0108
LIT9308

CO2PC0105
CO2PC9305

CO2PPPGD0105
CO2PPPGD9305

CO2PPPRGD0105
CO2PPPRGD9305

gSER0105
gSER9305

SERZ0105
SERZ9305
GY9300 GDP growth (annual %)

GY0105
GY9305
Forest9300 Forest area (% of land area)

Forest0105
Forest9305
FDIZ9300 Foreign direct investment, net inflows (% of GDP)

FDIZ0105
FDIZ9305
ENGYPC9300 Energy use (kg of oil equivalent per capita)

ENGYPC0105
ENGYPC9305
CO2PGD9300 CO2 emissions (kg per 2000 US$ of GDP)

CO2PGD0105
CO2PGD9305
46
YIELD9300 Cereal yield (kg per hectare)

YIELD0105
YIELD9305
ARLANDPC9300 Arable land (hectares per person)

ARLANDPC0105
ARLANDPC9305
gAGR9300 Agriculture, value added (annual % growth)

gAGR0105
gAGR9305
AGRZ9300 Agriculture, value added (% of GDP)

AGRZ0105
AGRZ9305
INDZ9300 Industry, value added (% of GDP)

INDZ0105
INDZ9305
gIND9300 Industry, value added (annual % growth)

gIND0105
gIND9305
IRRZ9300 Irrigated land (% of cropland)

IRRZ0105
IRRZ9305
MFGZ9300 Manufacturing, value added (% of GDP)

MFGZ0105
MFGZ9305
gMFG9300 Manufacturing, value added (annual % growth)

gMFG0105
gMFG9305
POP15649300 Population ages 15-64 (% of total)

POP15640105
POP15649305
gPOP9300 Population growth (annual %)

gPOP0105
gPOP9305
R&DZ9300 Research and development expenditure (% of GDP)

R&DZ0105
R&DZ9305
47
RDPAVZ9300 Roads, paved (% of total roads)

RDPAVZ0105
RDPAVZ9305

SERZ0105
SERZ9305

gSER0105
gSER9305

CO2PPPRGD0105
CO2PPPRGD9305

CO2PPPGD0105
CO2PPPGD9305

CO2PC0105
CO2PC9305

LIT0108
LIT9308
TEMOBL9300 Mobile and fixed-line telephone subscribers (per 100 people)

TEMOBL0105
TEMOBL
TradeZ9300 Trade (% of GDP)

TradeZ0105
TradeZ9305
WBODCI9300 Water pollution, chemical industry (% of total BOD emissions)

WBODCI0105
WBODCI9305
DWTRPC0208 Renewable internal freshwater resources per capita (cubic meters)

WTRPC02
EnrollP9800 School enrollment, primary (% net)

EnrollP0105
PVT1DYI Poverty headcount ratio at $1.25 a day (PPP) (% of population)

48
PVT1DVI
DPVT1D
dLIFE Life expectancy at birth, total (years)

LIFE93
Life9305
dODAPC Net ODA received per capita (current US$)

ODAPC9300
ODAPC0105
gODAPC

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The views expressed in this paper/presentation are the views of the author(s) and do not necessarily reflect the

Climate Change Mitigation and Adaptation: The Role of Overseas

The Copenhagen Accord 3 clearly states the following:

About mitigation, developed countries (Annex I Parties) would "commit to economy-wide

Thus, it is imperative to mobilize sufficient financial support for developing countries to

The Copenhagen ‘Deal’ is expected to introduce various innovative financing mechanisms to

Financing Climate Change Mitigation and Adaptation: A brief critical review

Several development cooperation agencies are involved in climate change projects in

Poverty Reduction - Climate Change Mitigation/Adaptation-ODA Nexus: An

ODA is provided to developing countries to increase the pace of poverty reduction

climate change issues is expected to contribute to poverty reduction indirectly.

CO2 emission is alleged to be generated from agriculture, industrial activities,

The impact of foreign direct investment (FDIZ) on poverty reduction depends on

CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208

DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42) *(FOREST9305)+C(43)*WTRPC02

CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208

DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42) *(FOREST9305)+C(43)*WTRPC02

The system of above equations contains endogenous regressors and correlations of

instrumental variables are completely exogenous to the dependent variables including

equations in Model 2. Lagged ODA appears in relevant equations to capture the

between 2001 and 2005.

1. The pace of poverty reduction (equation 1) is positively related with ODA,

3. Growth influences poverty reduction directly and indirectly through ODA, as

4. CO2 influences the speed of poverty reduction positively through growth

5. ODA influences CO2 positively, though not very significantly (17%). As

such a growth pattern not appealing to developing countries. What is needed

6. Thus, ODA aimed at direct climate change mitigation, such as reduction in

Case Study 1: Ancient system of water conservation.

and are in use again’(http://www.bhoogyan.net/fromthegrassroots/rural-

Case Study 2: Drought and Climate Change in Ethiopia

Case Study 3: Carbon Mitigation project with Solar Cooker

Case Study 4: Verified Emission Reductions (VERs) from Carbon Sequestration in

Case Study 5: Clean Development Mechanism (CDM) using Biofuels production in

A CDM reforestation project established ca. 72 000 ha of Jatropha curcas plantations

Case study 6: Small-scale biogas plants under the CDM in Nepal

Table 1. 3SLS Estimates of Poverty Reduction-Climate Change-ODA Nexus

Total system observations 93

Coefficient Std. Error t-Statistic Prob.

C(1) -2.006 0.438 -4.58 0.00

Determinant residual covariance 376.15

R-squared 0.66 Mean dependent var 0.61

Equation: GY9305 = C(2)+C(21)*(LIT0108-LIT9300)+C(22)

Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN

R-squared 0.75 Mean dependent var 4.83

Equation: CO2PC9305 = C(3)+C(31)*ENGYPC9305 + C(32)*INDZ9305+C(34)*DWTRPC0208

R-squared 0.93 Mean dependent var 2.03

Equation: DWTRPC0208 = C(4) +C(41)*CO2PC9305+C(42)

Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN

R-squared 0.70 Mean dependent var -171.92

Total system observations 93

Coefficient Std. Error t-Statistic Prob.

C(1) -1.974 0.448 -4.402 0.000

Determinant residual covariance 381.1717

Equation: DPVT1D = C(1)+C(11)*PVT1DVIN+C(12)*ODAPC0105 +C(13)*GY9305+C(14)*CO2PC9305

Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN

R-squared 0.659 Mean dependent var 0.611

Equation: GY9305 = C(2)+C(21)*(LIT0108-

Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN

R-squared 0.745 Mean dependent var 4.832

Equation: CO2PC9305 = C(3)+C(31)*ENGYPC9305 +

Instruments: ARLANDPC9300 GY9300 MFGZ9300 AGRZ9300 FDIZ9300 WTRPC02 PVT2DVIN

R-squared 0.929 Mean dependent var 2.035

Equation: DWTRPC0208 = C(4)

CO2PC9305 = C(3)+C(31)ENGYPC9305 + C(32)INDZ9305+C(34)*DWTRPC0208

DWTRPC0208 = C(4) +C(41)CO2PC9305+C(42) (FOREST9305)+C(43)*WTRPC02

CO2PC9305 = C(3)+C(31)ENGYPC9305 + C(32)INDZ9305+C(34)*DWTRPC0208

DWTRPC0208 = C(4) +C(41)CO2PC9305+C(42) (FOREST9305)+C(43)*WTRPC02

Equation: CO2PC9305 = C(3)+C(31)ENGYPC9305 + C(32)INDZ9305+C(34)*DWTRPC0208

Equation: DPVT1D = C(1)+C(11)PVT1DVIN+C(12)ODAPC0105 +C(13)GY9305+C(14)CO2PC9305