Published: Jun 2014

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Working Paper

Climate Change, Green Growth and Aid Allocation to Poor Countries

With serious impacts of climate change looming in a few decades, but currrent poverty still high in the developing word, we ask how to spend development aid earmarked for the poor.  Poverty reduction tends to be strongly linked to economic growth, but growth impacts the environment and increases CO2 emissions.  So can greener growth that is more climate-resilient and less environmentally damaging deliver large scale poverty reduction?  Can aid be used for effective poverty reduction now without affecting carbon emissions substantially?  We argue that there are bound to be trade-offs between emissions reductions and a greener growth on the  one hand, and growth that is most effective in poverty reduction.  We argue that development aid, earmarked for the poorest countries, should only selectively pay attention to climate change, and remain focused on fighting current poverty reduction, including via economic growth, not least as future resilience of these countries and their population will depend on their ability to create wealth and build up human capital now.  The only use for development aid within the poorest countries or explicit climate-related investment ought to be when the investments also contribute to poverty reduction now, including for increasing resilience to current impacts of environmental shocks, or when the investments done now have serious intertemporal 'lock-in' problems so that they have implications also for when climate change bites by 2050.  In our conclusions, we offer a series of concrete principles to judge development spending.

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Keywords: Green growth, poverty, environmental externalities