Dirty Work: The Environmental Impact of DAC and Non-DAC Donor Projects

The public release of the AidData Environmental Impact CodeDataset makes it possible to examine whether NDBs have “dirtier” grant and loan portfolios than DAC bilateral donors.

August 22, 2012

Steven Linett

The rise of non-DAC bilateral donors (NDBs) has forced development policy experts to rethink assumptions about the transparency and impact of development finance. The conventional wisdom [pdf] is that NDBs seldom condition their assistance on recipient countries meeting economic, environmental, and political standards, which undermines multilateral commitments made by members of the OECD’s Development Assistance Committee (DAC). However, this assumption rests largely on case study evidence and impressionistic accounts.

The public release of the AidData Environmental Impact CodeDataset makes it possible to examine whether NDBs have “dirtier” grant and loan portfolios than DAC bilateral donors. “Dirty” projects, such as projects that support resource extraction or electricity distribution, can cause environmental harm over the short, medium, or long-term. With a sample extending from 1992 to 2008, the most recent year in the PLAID 1.9 dataset, the graph below shows the proportion of donor commitments to each environmental impact code category.

non-c bilateral development assistance

The large chunk of red in the NDB graph (Figure B) indicates that, between 1992 and 2008, 45-80% of the NDBs’ annual development finance flowed to dirty projects. The DAC donors (Figure A) provided far less funding to dirty projects, at 11-43% annually. On the environmentally beneficial side, NDB and DAC donors have similar average flows at 6.6% and 8.8% of their total portfolios, respectively. The other large discrepancy between the two groups occurs in the neutral category, comprising projects without any perceived environmental impact. During this timeframe, DAC donors contributed 70% of their financing per year to neutral projects, while NDBs committed about 30%.

Are the fears about NDBs’ relative disinterest in environmental protection substantiated by these numbers? In my view, it's too early to say. Consider these facts:

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DAC donors as a whole provided approximately $61.7 billion a year in development finance,

         compared to the NDBs’ $1.05 billion. Therefore, even if NDB projects are “dirtier” on average,

         DAC donors contributed $200 billion more to “dirty” projects than NDBs from 1992 to 2008

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Existing NDB aggregate statistics may be misleading. For example, NDBs make significant    

         contributions through in-kind technical assistance or cooperation (TA/TC) programs that are

         difficult to monetize. Peter Kragelund [gated] cites a Brazilian official who estimates that its

         Technical Cooperation among Developing Countries (TCDC) program may be worth ten times

         its stated value because Brazil’s  implementation partners do not charge for TC. The PLAID 1.9

         dataset also lacks information on the most significant and controversial of all the NDBs: China.

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Donor countries that do not belong to the DAC are by no means an organized, coordinated, or

         homogenous group: Poland, Brazil, and Saudi Arabia have distinct motives, behaviors, and

         reporting mechanisms. Nor do they share a common definition of ODA with DAC (or other non-

         DAC) donors, quantitative comparisons of Non-DAC donors are inherently challenging.

         Therefore, one must be cautious about drawing inferences about "Non-DAC" donor behavior.

In summary, the hard numbers offer some evidence that NDBs engage in “dirtier” projects than DAC donors, but we lack sufficient evidence to make any decisive claims about this issue.

The rise of Non-DAC donors also poses an important normative question: given that NDBs have become a major source of development finance, and developing countries have calledfor an increase in infrastructure and agricultural projects, should NDBs necessarily be deemed "dirtier" and faulted for providing demand-driven assistance?

This is a continuation of the First Tranche’s look at the environmental impacts of development assistance. See here for related posts on the subject.