Oxfam Discussion Papers

Low-Carbon
Development
For Least Developed
Countries
Alex Bowen and Sam Fankhauser
GranthamResearchInstituteonClimateChangeandthe
EnvironmentandCentreforClimateChangeEconomicsandPolicy,
LondonSchoolofEconomicsandPoliticalScience
August 2011

This paper examines the rationale for Least Developed Countries (LDCs) to pursue low-
carbon growth paths, and identifies areas where such countries can contribute to
mitigation whilst retaining a focus on poverty reduction. It argues low-carbon growth
paths, appropriate to the needs of LDCs, ought to be explored now. Policies for low-
carbon development offer an opportunity to share in the benefits of green growth,
address a range of existing market and government failures in LDCs, and provide low-
cost options for global emissions reductions. Synergies between poverty alleviation and
emissions reduction exist in the forestry and agriculture sectors, as well as rural
electrification. But elsewhere there may be trade-offs, for instance in the transport and
industrial sectors. Where additional costs are involved, these should not be borne by
poor people, making it vital that an international framework is in place to assist LDCs,
with rich countries compensating them for measures they undertake that go beyond their
immediate development interests.

Oxfam Discussion Papers

Oxfam Discussion Papers are written to contribute to public debate and to invite feedback
on development and humanitarian policy issues. They are work in progress documents,
and do not necessarily constitute final publications or reflect Oxfam policy positions. The
views and recommendations expressed are those of the author and not necessarily those
of Oxfam.
For more information, or to comment on this paper, email Sarah Best
(sbest@oxfam.org.uk)

www.oxfam.org/grow
CONTENTS
EXECUTIVE SUMMARY ............................................................................................................................. 3

1. INTRODUCTION ..................................................................................................................................... 4

2. Climate change mitigation, adaptation, and development................................................................ 6

3. Low-cost options for greenhouse gas emission reductions in LDCs ............................................. 10

4. A low-carbon development path for poor countries ......................................................................... 12

5. Conclusions............................................................................................................................................... 15

REFERENCES ............................................................................................................................................... 16

NOTES ........................................................................................................................................................... 18

ACKNOWLEDGEMENTS ......................................................................................................................... 23

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EXECUTIVE SUMMARY
The global community has to act collectively to halt climate change. But such collective action must take into
account the development needs of Least Developed Countries (LDCs), which are likely to be hit earliest and
hardest while having the least capacity for adaptation. The priority of such countries remains poverty
alleviation and the achievement of the Millennium Development Goals, but the three challenges of limiting
climate change, adapting to its consequences, and reducing poverty have to be faced together.
This will require LDCs eventually to follow a development path that differs from those trodden by todays
industrial countries and emerging market economies. There is no room in the long run for high-emission
economies and high-carbon growth is unsustainable, given the possible consequences for fossil-fuel
supplies and climate change impacts. And there are some advantages for LDCs of low-carbon growth in
certain circumstances. For instance, in tackling broader market and government failures, which inhibit
productivity and well-being like inadequate incentives for appropriate technology development and
deployment or increasing energy security and addressing local health and environmental problems.
By far the most important sources of greenhouse gas emissions in LDCs derive from land-use change, in
particular deforestation. Since halting forest loss is also a major development and local environmental issue,
tackling land-use change is therefore a key priority of low-carbon development. Synergies between poverty
alleviation and emission reduction also exist with rural electrification, where renewable energy solutions are
often least costly. And strengthening the capacity of the public sector to provide public goods such as energy
infrastructure can help development in general, not just low-carbon development. But elsewhere there may
be trade-offs between development and low-carbon objectives, for instance as much-needed investment in
transport infrastructure leads to rising emissions.
Adoption of low-carbon development paths by LDCs, as appropriate to their needs, should be conditional on
the global costs of decarbonisation being shared equally. So, where reduction of emissions in LDCs
introduces costs, rich people not poor people should bear these. This makes it crucial that an
international framework is in place to assist LDCs and compensate them for measures they undertake that
go beyond their immediate development interests.

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1. INTRODUCTION
The threat that human-induced climate change poses to the Least Developed Countries (LDCs) is profound.
Greater dependence on rain-fed agriculture and forestry as sources of employment and income makes them
more vulnerable to climatic changes and variability. Many LDCs are already subject to climatic stress
because of their location in the Tropics and other areas subject to high incidences of weather-related shocks
such as storms, drought, flooding and extremes of temperature and to high temperatures. In poor
countries, but not middle-income or rich ones, higher temperatures are correlated with lower subsequent
growth of GDP per capita.1 Unusually high temperatures can raise mortality in rural areas sharply by
reducing agricultural incomes.2 Low incomes have made it more difficult to recover from past weather-
related challenges and to prepare for future disasters. Many poor countries have been caught in a poverty
trap due at least in part to weather-related disasters, with the high frequency of shocks eroding social and
physical capital.3
Climate change is likely to exacerbate these problems, entailing rising global mean temperatures and major
alterations in precipitation and increases in the incidence of storms, floods and drought.4 Recent scientific
evidence suggests that many of the threats are even worse than thought three years ago.5 The risks are
amplified by the fact that the precise climatic changes that will afflict particular locations, while often likely
to be considerable, are uncertain.
It is therefore essential for LDCs that the world puts in place effective policies to cut back drastically
greenhouse gas emissions. LDCs need a global deal. And a global deal will have to involve all countries
with substantial emissions, including some like India and China where large numbers of people still live in
poverty.
But why should a global deal mean that smaller and less-developed countries, especially those already
having difficulty sustaining per capita income growth, adopt low-carbon development strategies? The
contribution of LDCs to the greenhouse gas problem is, after all, very small. LDCs accounted for just over
4% of global greenhouse gas emissions in 2005 and only 0.3% of cumulative carbon dioxide emissions from
energy.6 While global emissions were 6.8 tonnes of CO2 equivalent per head in 2005, the average for LDCs
was only 2.4 tonnes per head; countries such as Ethiopia, Haiti and Afghanistan had average emissions of 1
tonne per head or less.7
Despite these contrasts between the world as a whole on the one hand and the LDCs on the other, we argue
here that LDCs should indeed seek to follow low-carbon development paths appropriate to their
development needs if certain conditions are satisfied. Why? First, tackling many of the market and
government failures that stand in the way of low-carbon development would enhance productivity and
well-being in LDCs themselves. Second, if a global deal is eventually achieved, technological progress
around the world will be redirected towards low-carbon options. If LDCs are ultimately to share in growth
from this source, their growth will have to be green too. Third, LDCs offer the world some relatively cheap
options for reducing emissions, particularly from agriculture, land-use change and deforestation. The rest of
the world has good reason, on efficiency grounds, to encourage LDCs to exploit these options to minimise
the global costs of decarbonisation.
However, there should be a quid pro quo for carrying out reductions in global greenhouse emissions where
it is cheapest to do so, so that the global costs of decarbonisation are shared equitably.8 Hence one condition
that should be satisfied is that, where reducing greenhouse gas emissions in LDCs entails costs, poor people
should not bear these costs. Rich people should pay towards LDC mitigation burdens, on top of any
assistance to help LDCs deal with the impacts of climate change. It must also be possible to switch towards
low-carbon growth cheaply in the first place. That depends on whether it is in practice possible to put in
place the right incentives to correct market and government failures and hence achieve the win-win
outcomes that in principle could be attained.
This paper considers these issues in greater detail. First, the advantages for LDCs of low-carbon growth in
certain circumstances are discussed, together with the reasons why early action is desirable. The case
sometimes advanced for LDCs to focus overwhelmingly on adaptation to climate change, including through

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the promotion of conventional growth, is rebutted. Second, the advantages for the world as a whole if
mitigation by LDCs is encouraged are rehearsed. Third, some possible and attractive low-carbon
development paths for LDCs are suggested. These can and ought to be consistent with a continuing focus in
the near term on the achievement of the Millennium Development Goals. Fourth, the paper concludes by
drawing out some implications for development policies and for the appropriate shape of a Global Deal to
halt human-induced climate change.

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2. Climate change mitigation, adaptation, and
development
Economic growth has in the past been associated with increases in energy use and energy-related emissions
per head. There has been a strong correlation over time between increases in GDP and increases in energy
usage and CO2 emissions; this relationship has tended to be stronger among lower-income countries.9 The
correlation can be obscured in data across countries at a point in time, given the variety of energy
endowments and energy needs (related, for example, to climatic variations across countries). The energy
intensity of GDP is broadly similar for LDCs and the world as a whole, although world GDP per head is
about eight times the average LDC GDP per head. However, LDCs energy usage is less carbon intensive on
average;10 excluding land-use change, LDCs average CO2 emissions intensity of GDP was 195 tonnes per
million dollars of GDP in 2005, compared with an average of 487 tonnes for the world as a whole.11
The need for some headroom in carbon use for LDCs to grow and overcome poverty lay behind the
acceptance under the Kyoto Protocol that poor countries need not adopt emission reduction targets. But
rapidly industrialising countries have been much more emissions intensive than typical LDCs. The
corresponding figures for India and China were 505 and 1052 tonnes per million dollars of GDP
respectively. If all poorer countries were to move up towards these levels of emission intensity in power,
transportation and industry as their economies grew, keeping global warming to 2C or less would be an
unobtainable objective. If China and India are to play their part in global emissions control and LDCs are to
follow them in achieving sustained economic growth and poverty reduction, the challenge is ultimately to
decouple emissions and output growth. Given the international division of labour and the migration of
more mature manufacturing industries to lower-income countries, that is also partly a challenge to
decarbonise consumption of imports by rich countries.
The key to decoupling is to recognise the malfunctions in economies that encourage greenhouse gas
emissions. These emissions create a huge adverse externality, the likely damages flowing from climate
change and the risks of even more catastrophic and irreversible climate outcomes. In the absence of carbon
pricing, firms and households do not factor these damages and risks into their decisions when engaging in
activities that lead to greenhouse gas emissions.
But that is not the only market failure involved in the battle against human-induced climate change. Perhaps
the most important ones for LDCs are:
1. Incentives that are inadequate to generate enough investment in research, development and deployment
of new technologies and processes, particularly those most relevant to the comparative advantages and
patterns of production in LDCs. The problem is that many new ideas give rise to benefits that do not
accrue to the people who thought them up.
2. Failure to understand and value ecosystem services properly for example, the role of forests in
regulating rain-water run-off in hilly areas.
3. The tragedy of the commons afflicting land-use in agriculture and forestry where property rights are
unclear or contested.12
4. Imperfect information about the costs and benefits of energy efficiency, with users and producers, and
landlords and tenants, having differential access to information (asymmetric information).
5. Under-provision by the market of public infrastructure goods (e.g. transport infrastructure).
Bad governance and conflict in societies can also distort economies,13 inhibiting growth and stimulating
greenhouse gas emissions and environmental degradation at the same time. Encouragement of land grabs
by agroforestry businesses, conflict over fossil fuel resources and subsidies for middle-class energy
consumption are three pertinent examples.14 And the provision of public goods public health, energy
grids, irrigation schemes, public transport and so forth in such circumstances is much more difficult.

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All these sources of malfunctioning economies are costly and warrant tackling even without the threat of
climate change. But our improved understanding of the latter increases the perceived costs of several of
these malfunctions and the urgency of correcting them. That requires improved collective decision-making,
which can generate other significant benefits, raising output directly and enhancing longer-run growth
potential. It can also improve the composition of output in economies, better reflecting the long-run costs
and benefits of different activities and thus helping to make development more environmentally sustainable,
as well as enhancing the life chances of the poor.
Action to reduce emissions is also likely to generate other valuable co-benefits. For example, developing
renewable energy sources can produce co-benefits such as reduced air pollution, greater energy security,
reduced foreign exchange needs and an improved quality of life. The World Health Organization (WHO)
estimates that 1.5 million premature deaths per year are directly attributable to indoor air pollution from the
use of solid fuels, implying more than 4,000 deaths per day, more than half of them children under five
years of age.15 More than 85% of these deaths (about 1.3 million) are due to biomass use, the rest due to coal.
Indoor air pollution associated with biomass use is directly responsible for more deaths than malaria, almost
as many as tuberculosis and almost half as many as HIV/AIDS. That improves the benefits in the cost-
benefit calculus for carbon emission reduction measures. Aunun et al (2007) estimated that, in China
reductions in CO2 emissions of 10-20% could generate reductions in air pollution and other benefits that
would more than offset the costs of action.
Another potential co-benefit is greater energy security. Developing renewable low-carbon energy sources is
likely to provide more countries with indigenous energy supplies, reducing dependence on fossil-fuel
imports and inadequate grid infrastructure, and giving them greater flexibility in energy supply. In several
cases, the technologies involved are likely to be less capital-intensive and more labour-intensive (hence the
advocacy of renewable technologies in proposals for green fiscal stimuli in developed countries, such as
Bowen et al., 2009).
Focusing on low-carbon growth will allow LDCs to benefit from the likely future bias in technological
progress towards renewable energy technologies. Learning-by-doing, together with carbon pricing, is likely
over time to induce significant cost reductions in renewable energy technologies compared with more
mature hydrocarbon-based power. The worldwide search for better biofuels gives some LDCs scope for
developing a new and valuable cash crop as well as a way of developing their own transport along low-
carbon lines. However, such a development needs to be undertaken in the context of a comprehensive low-
carbon growth strategy, so that new biofuel cultivation does not lead to accelerated deforestation and loss of
peatlands.16
There are a number of reasons why it makes sense for LDCs to adopt low-carbon growth paths appropriate
to their needs and capabilities immediately. First, that would avoid locking in high-carbon technologies in
long-lived plant, equipment and infrastructure or, alternatively, premature scrapping later on when low-
carbon policies were finally adopted. Second, it would be export friendly in a world in which rich countries
are likely to become more concerned about promoting low-carbon consumption. Third, it would allow LDCs
to benefit from any subsidies for low-carbon research, development and deployment deriving from future
international agreements on intellectual property rights and make it more likely that funds would be
directed towards technologies relevant to the industrial structure of LDCs (in particular, agriculture and
land-use). Fourth, it would enable LDCs to access the co-benefits discussed above as soon as possible.
Finally, it would facilitate an eventual Global Deal on climate change, with the agreements on carbon
financing and other flows of funds to LDCs that would have to be part of such a deal.17 These flows of funds
should be additional to current pledges of Official Development Assistance (ODA). But additionality in this
sense does not logically entail that the funds should all be earmarked for explicit climate change policies. As
argued above, some of the most effective policies against climate change may be policies with the proximate
target of better governance and the correction of pervasive market failures.18
The question of incremental development funding draws attention to one of the caveats about the benefits to
LDCs of adopting appropriate low-carbon growth paths as soon as possible. Globally, climate change
mitigation is likely to entail resource costs (discussed further below), although these costs are likely to be
much less than the benefits from avoided climate change. Also, these costs will be front-loaded relative to
the benefits. Developed-country support for these costs needs to be in place before they are incurred. And,

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in some cases, effective support may be very difficult to organise, for example, because of the inadequacy of
public-authority outreach in remote rural areas or of support mechanisms for the most poverty stricken.19
A second caveat is that a major share of mitigation costs will be due to the adoption of low-carbon
technologies before their marginal costs have been driven below those of fossil-fuel technologies. Early
adoption by developed countries is warranted by the returns to learning-by-doing and to reverse the bias
towards innovation in currently cheaper technologies (Acemoglu et al, 2009). But it is not so clear how much
LDCs should share in the necessary R&D and experimentation. In many industry sectors, the comparative
advantage in early-stage innovation and learning-by-doing lies with developed countries, and the challenge
will be to ensure rapid technology diffusion once new technologies become cost-competitive. Here, LDCs
may be well advised to delay related capital investments until the relevant technologies have travelled
down the learning curve (while avoiding locking in soon-to-be-obsolete carbon-intensive technologies).
However, there are still likely to be activities that will benefit from innovation and experience being
undertaken in LDCs (e.g. tropical forestry management, concentrated solar power). These may take longer
to bring down costs, particularly if adequate technical assistance is difficult to deliver.
Third, many of the benefits from early action should flow from the correction of market failures. This will
depend on appropriate public policies being put in place. But greater public involvement risks the sort of
rent-seeking and distortion of incentives identified by development economists such as Collier and Easterly
(Collier, 2008; Easterly, 2001). The pace at which low-hanging fruit can be harvested may be slower than in
OECD countries if improvements in governance and institution-building are required first.
Although research in this area is at an early stage, several efforts have been made to examine the practical
scope for low-carbon development, particularly among some of the larger, more rapidly growing
developing economies. Chandler et al (2002), for example, investigated climate change mitigation experience
and opportunities in Brazil, China, India, Mexico, South Africa and Turkey. They found that these countries
had already made substantial reductions in emissions relative to business as usual, motivated primarily by
economic, poverty, security and local environmental concerns. Erickson et al (2009) documented options
with high mitigation potential that would also promote development, particularly in the promotion and
development of renewable energy; the adoption, extension and enforcement of building and appliance
energy codes; and vehicle energy efficiency standards. Ellis et al (2009) has provided a review of a number
of case studies in high-, middle- and low-income countries, emphasising the advantages to developing
countries if they can gain access to climate-mitigation finance from abroad, but also the benefits of technical
assistance (a theme also present in Collier, 2008). Development agencies such as the World Bank and UK
DFID have been promoting low-carbon growth studies and helping LDCs develop Nationally Appropriate
Mitigation Action plans. Project Catalyst20 has been identifying low- and no-cost mitigation options in a
variety of countries. These studies suggest that the theoretical arguments for low-carbon development are
supported by empirical evidence. However, much more work tailored to the particular circumstances of
LDCs is needed, recognising that there are many obstacles to correcting market and policy failures, even if
the resource costs of effective and well-designed action is low.
A popular counter-argument to the emphasis placed on climate change mitigation by policy-makers
emphasises the need for traditional development to be encouraged. Schelling, for example, has suggested
that it would be better for rich countries to transfer resources directly to LDCs to speed up their
(conventional) growth and help the currently poor directly, rather than using those resources to develop
mitigation and to pay for poorer countries to mitigate.21 After all, the argument goes, it is not fair to ask the
currently poor to make large sacrifices on behalf of following generations that are likely to be much richer
than they are. The focus needs to be on raising people out of poverty in the near term, not least to make
societies more resilient in the face of climate change impacts growth (and changing industrial structure) is
the best form of adaptation and, if achieved, warrants a less demanding global goal for stabilising
greenhouse gas concentrations in the atmosphere.22
The problem with this line of approach is two-fold, as Shalizi and Lecocq (2009) have pointed out.23 First, it
does not take into sufficient account the benefits of accelerating mitigation actions globally, deriving from
induced technical change and the option value of early global action. Second, it does not place enough
weight on the risk that currently poor countries may stay poor if subjected to a higher incidence of climate-
related disasters (and even more so if any of the low-risk, high-impact global climate catastrophes discussed

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by climate scientists take place). We cannot be sure that developing economies will all converge towards the
average levels of income per head of industrial countries; the evidence for the long-run convergence of
average per capita incomes outside of the OECD and major emerging-market economies is not convincing24
and a number of development economists have drawn attention to the poverty traps afflicting many LDCs
despite receiving development aid.25 That has two implications. First, for a given distribution of income,
there will be more people in absolute poverty for longer, so that the resilience of LDCs to climate change in
the future will be exaggerated. Second, a lower discount rate for LDC investment projects, including in
climate change mitigation and adaptation, will be appropriate.
It is right, however, to stress that development is key to tackling poverty and making economies more
climate-resilient. Richer, more diversified economies are better able to deal with weather-related shocks.
Countries that have higher levels of socioeconomic development, as indicated by basic measures of factors
such as literacy, health and quality of governance, are hit less hard by extreme weather-related events and
are better able to recover from the damages they do suffer. Richer households can afford to take a less risk-
averse approach to innovation and adaptation to climate change. And, despite the synergies between
development and climate change mitigation identified above, there is a need for further research on the
interactions among policies aimed at these two objectives and at promoting adaptation to climate change.
Improving transport infrastructure, for example, is likely to be warranted on development grounds even
though it encourages carbon emissions from vehicles. But carbon pricing and adaptation policies should
influence the specific infrastructure choices made.

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3. Low-cost options for greenhouse gas emission
reductions in LDCs
The costs of climate change mitigation globally are uncertain and much debated. Stern (2007) concluded that
the expected annual cost of achieving emissions reductions consistent with stabilisation at around 500-550
ppm CO2e was likely to be around 1% of GDP by 2050, within a range of +/- 3%. Given the increasing
emphasis among policy-makers recently on the desirability of keeping the global temperature increase since
pre-industrial times to 2C or less, much subsequent analysis has focused on a more ambitious target of 450
ppm CO2e or similar.26 Several large-scale modelling exercises have suggested that such a target is both
feasible and not much more expensive.27 But other studies are more sceptical.28 Estimates depend on
assumptions about fossil fuel prices, the menu of technologies that will be available and the degree of
substitutability in production and consumption. Similarly, detailed engineering estimates of potential
energy and emission savings have pointed to policy measures with negative costs over time (but perhaps
negative cash flows initially), while some economists have been sceptical about the existence of free
lunches of this sort. At the moment, it seems reasonable to conclude that climate change mitigation is likely
to involve costs overall, but that well-designed policies and incentives could bring these costs down
substantially. Good policy entails implicit or explicit carbon pricing but also measures to tackle market and
government failures, not least underinvestment in low-carbon technological development, especially in
areas of greater relative importance for LDCs such as agricultural practices and forest management, where
technical assistance from countries with stronger research capabilities is important.
One aspect of good policy design is to ensure that there is what, where, when flexibility to keep costs
down, with firms and public agencies able to choose which greenhouse gas emissions to cut, the
geographical and industrial location of the cuts, and the timing of the cuts, subject to a credible and stable
long-term climate change policy framework. In the jargon of economists, minimising costs requires that the
marginal costs of additional emissions reductions are the same wherever they take place.29 With respect to
location, the 2010 World Bank World Development Report (World Bank, 2010) pointed out that if participation
by developing countries is delayed until 2050 or after, that could double the costs of hitting any given
atmospheric stabilisation target. An international agreement covering only the five jurisdictions with the
highest total emissions (accounting for two thirds of emissions) would triple the cost of achieving a target.30
Developing countries offer similar opportunities for zero- or negative-cost mitigation as do industrial
countries, but more options at low-cost, mainly in agriculture and forestry, as Chart 1 below indicates. These
estimates have to be treated with caution. They do not fully take into account the macroeconomic effects and
relative price changes likely to be induced by ambitious climate change policies; they may underestimate the
costs of surmounting barriers preventing the take-up of negative-cost options; and they do not reflect the
difficulties of financing investments for which the pay-offs arrive much later.31 But they are consistent with
the economic argument that the correction of market and policy failures can produce some very cheap
mitigation. And the rank ordering of options assessed on a consistent basis is helpful for policy-makers.

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Chart 1: Marginal mitigation costs in developing and high-income countries

Source: World Bank (2010), Figure 1.3(a), based on data from McKinsey & Company.
So, as far as the location of emission cuts are concerned, developing countries in general offer the world
several low- or no-cost options for emissions reductions. The narrower group of LDCs offers somewhat less
scope, given their low levels of energy- and industry-related emissions, but the opportunities in agriculture
and forestry are substantial, especially relative to their levels of GDP.
This is good news for two reasons. First, it means that some mitigation in LDCs (for example, by improving
forest management, introducing local solar power and reducing the use of unmanaged traditional biomass
for heating and cooking) could raise their productivity and employment while improving access to energy,
providing an incentive for LDC authorities themselves to adopt low-carbon growth strategies. Second, it
provides an incentive to industrial countries to pay for emissions reductions in LDCs, reducing their own
mitigation costs while providing a stream of finance and technology for LDCs.32 Such payments are essential
if minimising the global costs of mitigation is to go hand in hand with an equitable distribution of those
costs.33 The payments can be generated through agreements and mechanisms such as the Clean
Development Mechanism, Reduced Emissions from Deforestation and Forest Degradation and the proposed
Copenhagen Green Fund. Some of the burden to high-income countries will also be carried in the form of
higher prices for imports from developing countries of high-carbon-content products (which should be
subject to carbon pricing or taxation in the developing countries themselves, so that they benefit from the
resultant revenue) and their low-carbon replacements (which are likely to be more expensive initially than
high-carbon ones, in the absence of carbon pricing).
Some policy-makers have argued that a uniform global carbon price would entail much larger payments
than necessary to those providing cheap mitigation opportunities. They have, in effect, argued for price
discrimination, paying only just enough to get the mitigation done; that way, a given amount of climate-
policy expenditure can be leveraged to have a bigger environmental effect. But the implication is that the
carbon price implicit in various financing arrangements of potential benefit to LDCs would be lower than
elsewhere (for example, the EU Emissions Trading System), reducing the funds available to LDCs. There are
major dangers in this approach, in particular, the danger that the carbon price at the abatement margin that
is implicit in separate agreements for REDD or specific industries will not be high enough to achieve enough
mitigation particularly if it turns out that some supposed negative-cost options are in fact costly, because
of unanticipated transactions and implementation costs.

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4. A low-carbon development path for poor
countries
The main development objective for LDCs remains the achievement, and subsequent consolidation, of the
Millennium Development Goals (MDGs), which UN member states adopted in 2001. There has been
considerable progress on poverty alleviation since then, but as the 2015 deadline for the MDGs approaches,
it is clear that the performance in many areas is still badly off track. This is particularly the case for sub-
Saharan Africa (see Annex 1), and it is why the MDGs remain the top priority for low-income countries.
Climate change does not alter these fundamental objectives, but it may affect the way in which the MDGs
are reached. The objective is no longer just development, but development that is low-carbon and also
resilient to climate change. The three challenges of poverty alleviation, emission abatement and climate
change adaptation have to be considered together; there will be synergies but also trade-offs among them.
The previous section showed how these three issues are intertwined. In this section we try to give a sense
what low-carbon development might mean in specific sectors and for particular development issues. The
conclusions are, unavoidably, generic, given the short length of this paper. Actual low-carbon development
plans will have to be much more detailed and of course country-specific. They will have to take into account
the particular socio-economic circumstances of countries and their approach to economic growth,
employment, education, public health, social protection, energy security, trade and industrial development.
Many developing countries have already embarked on such plans: Brazil, China, India and South Africa are
perhaps the most prominent examples. Unlike traditional development plans, they do not necessarily have
the development needs of poor people at their centre and instead focus on identifying the cheapest emission
reduction options from a cost curve.34
But they tell us unequivocally that the low-carbon challenge in poor countries is fundamentally different
from that in rich countries. In high-income countries, decarbonisation is about changes to power generation,
the redesign of electricity grids, cuts in industrial emissions, residential energy efficiency and new
approaches to transport. Capital-intensive and technologically sophisticated options are available. In LDCs,
the decarbonisation challenges are in land-use change, electrification, private-sector development and access
to basic services, such as the provision of heat, light and water, as these are where emissions would be most
likely to rise initially in the event of high-carbon development. Labour is more plentiful relative to capital
and employment-creating opportunities are generally more valuable.
As low-income countries move beyond the MDGs, we will see the emergence of a middle class with middle-
class aspirations and consumption patterns. This will create pressure on emissions of the kind we already
see in developed countries and increasingly in middle-income countries like China. But, for the poorest
countries of the world this point is still a long way off; per capita incomes are still much lower and the
power, industry and transport sectors of their economies are much less important.35 When they reach it,
low-carbon technologies will hopefully be more developed and widely available, allowing them to realise
their development ambitions within the global carbon constraint.
In the meantime, the main link between climate change and development is through adaptation. Mitigation,
especially in agriculture and land-use, at least partly paid for by developed countries, and implicit or
explicit carbon pricing to give the right long-term signals are desirable, but the balance between spending on
mitigation and adaptation is likely to be much more skewed towards adaptation. Poor countries are more
vulnerable to climate change not only because they are exposed to more severe impacts although many are
but also because their institutional and socio-economic capacity to adapt is insufficient (Barr et al., 2010).36
Basic indicators of socio-economic development such as educational attainment, good health care, safe
drinking water, access to credit and competent government institutions are all associated with higher
resilience to and lower impacts from extreme weather events (see, for example, World Bank, 2010). Few, if
any, aspects of this agenda are associated with excessive greenhouse gas emissions.

12 For Least Developed Countries, Oxfam Discussion paper, Month Year

In contrast, access to energy is an obvious area of friction between development and carbon emissions.
Worldwide, some 1.6 billion people still do not have access to electricity, and 2.6 billion rely on firewood for
cooking (World Bank, 2010).
Although there is no MDG on energy, we know that access to modern forms of energy is central to
development and poverty alleviation (Modi et al, 2005). Electricity is essential to provide basic services such
as education, health care and safe drinking water, and for all entrepreneurial activity.
The World Bank reckons that providing modern sources of energy (predominantly from the primary use of
fossil fuels) to everybody would add no more than 2% to global CO2 emissions. It seems a small price to pay,
compared with the huge development benefits. Electric energy today makes up only 5% of carbon emissions
in low-income countries, compared with 38% in rich countries (World Bank, 2010).
Moreover, bringing electricity to LDCs need not necessarily incur excessive carbon emissions. A large part
of the challenge is rural electrification, and we know that, in remote areas with dispersed demand and low
levels of consumption, renewable energy sources, such as solar PV, can already compete with fossil fuel-
based solutions such as diesel generators or the extension of the electricity grid. Creating solar PV markets
in LDCs poses financial and institutional challenges (for example, to establish reliable dealerships and
provide finance for upfront costs), but experience with the technology is growing and it shows that solar PV
is cost-competitive. The World Bank is supporting projects in 30 countries that will bring electricity to 1.3
million households (IFC, 2007).
Where electricity grids exist, the key challenge often is to make them more reliable, reduce outages and cut
transmission and distribution losses. In other words, there is significant scope for energy efficiency
improvements in low-income countries as well, by improving infrastructure investment and management
usually involving public spending and regulation.
However, the institutional challenges, capacity gaps and financial barriers to realise this potential are
invariably large and will require effective assistance from the development community.
It is also clear that not all trade-offs can be avoided, as the controversy over the approval of South Africas
Medupi power station prospectively the worlds largest coal-fired power plant shows. There will be
(potentially substantial) demand for increased power generation capacity in low-income countries, much of
it probably from conventional hydrocarbon sources. The onus will be on rich countries to ensure that high-
carbon power plants can in due course be retrofitted with carbon capture and storage technology and to
pay the associated extra cost.
Until energy demand picks up, the most important source of greenhouse gas emissions in low-income
countries remains, by some distance, land-use change and forestry. Together it accounts for 50% of low-
income country emissions (World Bank, 2010). Reducing emissions from deforestation and forest
degradation is often seen as one of the cheapest options to halt global warming. Inclusive, sustainable forest
management is also a crucial, pro-poor development measure. Reducing forest loss is one of the indicators
for MDG 7 on sustainable development (Annex 1) and a key priority of global development assistance.
The importance of this goal is easy to see. Forests are critical sources of income and well-being for many
poor people. An estimated 735 million people live in or near tropical forests and depend on them for their
livelihood. The link between poverty and deforestation is, however, complex (Chomitz, 2007). Rich and poor
people alike contribute to forest loss, and deforestation can both increase and reduce poverty levels.
Even more complex than the deforestationpoverty link are the social, economic and institutional factors
that underlie deforestation. They include ill-defined property rights over forest assets, government capture
by vested interests, large-scale corruption and, crucially, the undervaluation of ecosystem services. Forests
create financial revenues as a source of food and timber, but not for the spiritual value, climate regulation
and biodiversity services they also provide.
The single most important cause of forest loss, though, is agricultural expansion. High-value activities like
palm oil production and cattle ranching can yield revenues in excess of $3,000 per hectare (Grieg Gran,
2008), much more than standing trees unless their carbon and ecosystem value can be factored in and
monetised.

For Least Developed Countries, Oxfam Discussion paper, Month Year 13

This is why proposals to pay for reduced emissions from deforestation and forest degradation (REDD)
under the emerging new global climate change regime are important. They might tilt the economic balance
between cutting trees down and leaving them standing. The renewed willingness to tackle deforestation and
to fund this effort internationally provides a unique opportunity to tackle this decades-old issue. However,
the intricate nature of the problem and the deep political and economic constraints should not be
underestimated, particularly if REDD creates attractive new opportunities for rent seeking.
Pressure to increase agricultural output is also putting increased stress on ecosystem and forest resources.
Agriculture contributes more than 20% to the gross domestic product of low-income countries and accounts
for about the same amount of their greenhouse gas emissions (World Bank, 2010). For many low-income
families, it is their main source of income and subsistence. Although the share of agriculture in GDP will fall
as nations grow richer and diversify, increasing agricultural productivity is an important development
challenge going forward.
It is essential to meet development goals on malnutrition and cater for a growing world population of
perhaps 9 billion by 2050. Unsurprisingly, UK DFID sees agricultural productivity as one of eight key factors
that underpin economic growth in developing countries (DFID, 2009).
The unprecedented increase in agricultural output and productivity needed over the coming decades may
be at odds with the demands of a low-carbon economy. The green revolution of the 1960s and 1970s
achieved its productivity boost largely on the back of mechanisation, irrigation and fertilisation activities
that could well increase the carbon footprint of agriculture. There is ample scope for productivity
improvements through better farming practices and efficient management. Nevertheless, tackling
agricultural emissions is an important challenge for low-carbon development, exacerbated potentially by a
growing demand for biofuels and reduced agricultural yields as a result of climate change.
Transport and industry make up a much smaller share of overall greenhouse gas emissions in LDCs, 11% of
the total compared with 38% in high-income countries. Private-sector-led growth is a cornerstone of
virtually all poverty reduction strategies (DFID, 2009), brought about by improvements in the business
environment, better access to finance, support for small and medium-sized enterprises (SMEs) and the
promotion of foreign investment. Better transport, communications and trade infrastructure is another
integral part of this general thrust. We should therefore expect (and accept) that emissions from these sectors
will rise. The challenge is to ensure that economically efficient production practices and standards are
adopted that are likely to promote energy and carbon efficiency too.37 There are industrial abatement
opportunities in all countries, including low-income countries.
Despite suspicions of a race to the bottom, foreign investment can often be associated with more efficient
production practices and the transfer of technologies.38 It may be more difficult to increase the
environmental performance of SMEs, which contribute most to economic activity and provide the bulk of
jobs in most countries. There is evidence that SMEs are often associated with inferior environmental
performance (see Blackman, 2006). For both small and large firms, targeted policy measures and financial
incentives will be crucial, including appropriate energy tariffs and particularly in the case of SMEs access
to finance and technical know-how. Similar policies will also be needed to ensure firms adapt to a changing
climate (Agrawala and Fankhauser, 2008).

14 For Least Developed Countries, Oxfam Discussion paper, Month Year

5. Conclusions
The poorest countries of the world are greatly threatened by human-induced climate change. It is vital for
them that the global community collectively acts to halt it.39 The new dangers make it all the more important
that collective action also takes into account the development needs of LDCs, which are likely to be hit
earliest and hardest while having the least capacity for adaptation. The three major challenges of limiting
climate change, adapting to its consequences and reducing poverty have to be faced together. That requires
financial support from rich countries to help promote LDCs resilience and adaptive capacity. It also
requires that LDCs eventually follow a development path that differs from both those trodden by todays
industrial countries and those being explored by emerging-market economies at present. That too will
require financial assistance from developed countries. There is no room in the long run for high-emission
economies and high-carbon growth is unsustainable, given the possible consequences for fossil-fuel supplies
and climate-change impacts.
The most important source of greenhouse gas emissions in LDCs is land-use change, in particular
deforestation. Halting forest loss is also a major development and local environmental issue and as such a
key priority of low-carbon development. Synergies between poverty alleviation and emission reduction also
exist in rural electrification, where renewable energy solutions such as solar PV are often cost-competitive
with fossil-fuel based solutions. Elsewhere there may be trade-offs between development and low-carbon
objectives, for example when it comes to transport and industrial development. Good transport links and a
thriving private sector are essential for growth and development. Emissions from these sources may
therefore increase, but it is important that the cleanest and most efficient technologies are deployed.
Low-carbon growth paths appropriate to the needs of LDCs ought to be explored now, even though, in the
near term, the emphasis must be on poverty alleviation and adaptation.
Moving on to such paths is likely to entail higher resource costs initially. On grounds of equity, those extra
costs should be borne largely by todays rich countries and by future generations, who if climate-change
policies are successful will be better off and subject to much less risk than they would have been otherwise.
That is why it is important that international negotiations focus on the financing needs of the LDCs. But low-
carbon growth for LDCs need not be solely a story about extra costs in the near term, with the promise of
more sustainable development in the long term. The threat of climate change has cast more light on the
importance of key failures in markets and governance and increases the urgency of tackling them in LDCs
as in other countries. The poorest countries can benefit immediately from a greater focus on this task with
a recognition of the need to correct underinvestment in appropriate technology development, a greater
emphasis on resolving undefined or contested land rights, the provision of networks for the delivery of
cleaner energy to the poor, and an appreciation of the co-benefits for health and the environment that could
flow from low-carbon development strategies.

For Least Developed Countries, Oxfam Discussion paper, Month Year 15

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NOTES

1SeeDell,JonesandOlken(2008).JonesandOlken(2010)alsofindthathightemperaturesinpoorcountrieshaveanadverse
effectontheirexports,especiallyagriculturalandlightmanufacturingexports.
2 SeeBurgessetal(2009)onIndia.
3 Hallegatteetal(2007).
4 Stern(2007)andIPCC(2007)describemanyofthelikelydevelopmentsandthenonnegligiblerisksofevenworseoutcomes.
5 Richardsonetal(2009).
6WRICAITdatabase,accessed12August2010.Internationalbunkersincluded.Cumulativedataarefortheperiod1850to2006.
LDCscompriseforthispurpose:Afghanistan,Angola,Bangladesh,Benin,Bhutan,BurkinaFaso,Burundi,Cambodia,CapeVerde,
CentralAfricanRepublic,Chad,Comoros,CongoDem.Republic,Djibouti,EquatorialGuinea,Eritrea,Ethiopia,Gambia,Guinea,
GuineaBissau,Haiti,Kiribati,Laos,Lesotho,Liberia,Madagascar,Malawi,Maldives,Mali,Mauritania,Mozambique,Myanmar,
Nepal,Niger,Rwanda,Samoa,SaoTome&Principe,Senegal,SierraLeone,SolomonIslands,Sudan,Tanzania,Togo,Uganda,
Vanuatu,YemenandZambia.
7Sourceasinfootnote6.DataonemissionsfromlandusechangeandforestryarenotavailableformanyindividualLDCs,butthe
differencebetweentotalemissionsperheadforLDCsasagroupandfortheworldasawholeisestimatedtobeverysimilartothe
differenceexcludinglandusechangeandforestry,eventhoughtheseactivities(togetherwithagriculture)aremoreimportantfor
LDCs.
8 Peopledifferaboutwhatwouldbeafairdistributionofthecostsofclimatechangemitigation.Thedegreeofaversionto
inequalityiscrucial.Stern(2007)offeredestimatesofthecostsofclimatechangeusinganassumptionthatimpliesthatpeople
shouldpaybroadlyinproportiontotheirpercapitaconsumptionforclimatechangemitigation.Carbonpricingwithoutincome
transferswouldbeunfairifcarbonintensiveproductssuchasenergyaccountedforalargershareofpoorpeoplesthanofrich
peoplesconsumption.Someeconomists,suchasDasgupta(2008),havearguedthatpolicymakersshouldbemoreaverseto
inequalitythanwasStern,implyingthatlargertransferstopoorpeopleareneededtopayfortheclimatemitigationcoststhey
wouldotherwisebear.
9
SeeBowenetal,2009.Therelationshipdoesnotdisappearathighlevelsofincomepercapitaifproperallowanceismadefor
pasttechnicalprogressandtechnologychoice.Inotherwords,theredoesnotappeartobearobustenvironmentalKuznetsCurve
phenomenonforCO2emissions(seethediscussioninStern,2004).
10
Butcarbonintensityvarieswidelyacrosscountries;in2006,thecarbonintensityofelectricityproductionvariedfrom1842.6
gCO2eperkWhinBotswanato1.4gCO2eperkWhinMozambique.
11
WRICAITdatabaseaccessed4May2010.
12
SeeHardin(1968).
13
Asdocumented,forexample,bytheresearchdiscussedinCollier(2008).Collierstresseshowsuchfactorsinhibitgrowthinmany
LDCs,hometothebottombillion,partlybypreventinggoodgovernance,institutionbuildingandprovisionofpublicgoods.
14
TheOECDandIEAhavedetailedthehighcostsofenergysubsidies(seethediscussioninBurniauxetal,2009).Thesemaybe
motivatedtosomeextentbyconcernsabouttheaccesstoenergybythelesswelloff(theissueofenergypoverty)butitisfar
fromclearthatthepoorarethemainbeneficiaries.Inanycase,directfinancialtransfersandmicroloanstothepoormaybemore
effectiveintacklingpovertyaswellasmoreefficientfromthepointofviewofthestructureoftheeconomy.
15
QuotedinWorldBank(2009).
16
Blanfordetal(2009)andWiseetal(2009)illustrateinaglobalframeworkthedangersofbiofuelproductiondisplacingforests
andfoodproductionindevelopingcountries,severelydistortinggloballanduse,intheabsenceofappropriateclimatechange
mitigationpoliciesinthosecountries.
17
Theseadditionalfundsarewarrantedtomaketheincidenceofmitigationandadaptationcostsfairer;theresponsibilityof
developedcountriesforthelionsshareofpastgreenhousegasemissionsstrengthensthecase.

18 For Least Developed Countries, Oxfam Discussion paper, Month Year

18
Similarly,thereisnoreasonwhytheusesoffundslabelledODAshouldbeentirelyunaffectedbytherealisationthatclimate
changeisamoreseriousthreatthanpreviouslythought.Inpractice,earmarkingseemstobeacrudewayoffacilitatingmonitoring
bydonorcountries,inparticulartoensurethatrecipientsdonotfreerideonemissionscutbacksbydevelopednations.
19
But,justasenergysubsidiessupportingfossilfuelusedonotnecessarilyhelpthepoorest,particularlyifadequateenergysupply
isnotforthcomingatsubsidisedprices,pricingcarbonneednotharmthepoorestifcombinedwithastrategytopromotelocally
generatedrenewableenergyandenergyefficiency.
20 AnNGOprovidingpolicyanalysisandadvicetopartiesinvolvedintheUNFCCCnegotiations(www.projectcatalyst.info)
21
See,forexample,Schelling(1997,2007).
22
ArelatedcritiqueofclimatechangemitigationpolicyhasemergedfromLomborgandthesocalledCopenhagenConsensus
(Lomborg(ed.),2009).Thisdrawsattentiontothehigherbenefitcostratiosfromseveralalternativedevelopmentpolicies.
However,theapproachtoclimatechangepolicytakentheremakesinsufficientallowanceforriskandinequalityaversionorthe
uncertaintiesaboutthedangersofclimatecatastrophes.Also,Lomborgisremarkablysanguineinassumingahighlikelihoodofa
zerocarbonenergytechnologysoondisplacinghydrocarbonswithoutaggressivecarbonpricing.
23
Schellinghimselfarguesfortheneedtoactimmediatelytomitigate,eventhoughheislesskeenontheideaofaglobal
greenhousegasatmosphericconcentrationtargetunchangingovertime.
24
Quah(1996).
25
SeeCollier,op.cit.Flowsofdevelopmentassistanceseemlowerthanwarrantedbythedegreeofinequalityaversionassumedby
Stern(andevenmoreDasgupta)incalculatingtheexpectedcostsofclimatechange,Equityconsiderationswouldseemtopointto
theneedformoreredistributionfromtherichtothepoorwithingenerations,butlessredistributionfromcurrenttofuture
generationsoncetheclimatechangeexternalityhasbeenaddressedthatis,lesssavingtobequeathcapitaltofuturegenerations.
Theimplicationforcapitalaccumulationincurrentlypoorcountriesisambiguous.
26
Therehasstillbeenremarkablylittleeconomicanalysisofwhethertheadvantagesofhavingatargetof450ppmCO2einsteadof,
say,550ppm,outweightheadditionalcosts.Someeconomistswhohavestudiedthisquestionremainsceptical,whileagreeingthat
appropriateactionismuchbetterthannoaction(e.g.Nordhaus,2008).
27
See,forexample,thereportsoftheADAMandRECIPEprojects,Hulmeetal(ed.s),2009,availableatwww.adamproject.eu/,and
Edenhoferetal,2009,availableatwww.pikpotsdam.de/,respectively.
28
Someofthepapersforthe22ndStanfordEnergyModelingForumsuggestthatitmaybeimpossibletostabiliseat450ppmCO2e.
SeethespecialissueofEnergyEconomics,Vol.31,Supplement2,December2009,availableviaemf.stanford.edu/
29
Themarginalcostsshouldriseovertime,inlinewitharisingcommonglobalcarbonprice.
30
WorldBank(2009),pp.5556.
31
Fightinghumaninducedclimatechangeentailssignificantinvestmentflows.Globally,thatmeansthateitherotherinvestment
hastobedisplacedorprivateand/orpublicconsumptionhastobereduced,throughfiscalormonetarymeasures.Thatislikelyto
addtothecostsofmitigationpolicycalculatedfrommarginalabatementcostcurves.
32
Carbonoffsetmarketsallowthistobedoneinadecentralisedway,buttheyarenottheonlyoption.Developedcountry
governmentshaveanincentivetogivefinancialsupporttofundsthatwillprovidehelpfordecarbonisationindevelopingcountries.
Buttargetsforemissionreductionsfinancedbydevelopedcountriesmustbestringentenough(togetherwithnationally
appropriateactionsamongdevelopingcountries)togeneratetheglobalreductionsnecessary.Forsomedevelopedcountries,that
mightentailfinancinglongrunreductionsgreaterthanthecurrentlevelofemissionsphysicallylocatedinthosecountries.
33
Seethediscussioninfootnote(8).Economistsoftenassumethatefficiencyandequitycanbetreatedseparately,butthisrestson
anassumptionthatsidepaymentscanalwaysbemadetocorrectanyadversedistributionalconsequencesofimprovementsin
efficiency.Thatassumptionisverystrong,particularlywhenpaymentsacrossbordersandacrosstimemaybenecessary.And
paymentscansometimesinducenewinefficienciesbychangingincentivesandencouragingrentseeking.
34
SeeProjectCatalyst(2009)forasummary.
35
AccordingtotheWorldBank(2009),power,transportationandindustryaccountedfor5%,4%and7%respectivelyoflow
incomecountryGHGemissions,comparedwith26%,7%and16%inmiddleincomecountries.Incontrast,landusechangeand
forestryaccountedfor50%,comparedwith23%.
36
Thedistinctionbetweenmitigationandadaptationisnotalwaysclearcut.Manyactivitiesdesignedtopromotedevelopment
couldandshouldpromoteboth.Inthiscontext,itisunhelpfultoinsistonrigidearmarkingoffinancialassistanceforoneorother
ortraditionaldevelopmentobjectives.

For Least Developed Countries, Oxfam Discussion paper, Month Year 19

37
Byeconomicallyefficient,wemeanthatproductioniscarriedoutatleastcostwhencostsarevaluedattheappropriateprices,
whichmaydifferfromactualpricesiftherearemarketandregulatoryfailuresofwhichthefailuretopricecarbonemissionsis
oneofthemostimportant.Thetermsenergyandcarbonefficiencyareusedintheloosersenseofloweruseofenergyandcarbon
forgivenoutput.
38
SeeEBRD(2005)andSmarzynskaandWei(2001).TheracetothebottomconcernwasexpressedeloquentlybyMabeyand
McNally(1998).
39
TheunfairdistributionofclimatechangeimpactswasanimportantreasonforconcernidentifiedbytheIPCCbackin2001
(McCarthyetal.,2001).

20 For Least Developed Countries, Oxfam Discussion paper, Month Year

Annex 1: Progress with the Millennium Development Goals

For Least Developed Countries, Oxfam Discussion paper, Month Year 21

22 For Least Developed Countries, Oxfam Discussion paper, Month Year
ACKNOWLEDGEMENTS
We are grateful to Oxfam GB for initiating this paper and to Robert Bailey, Kirsty
Hughes, Kate Raworth and their colleagues for their thoughtful and detailed comments.
We would also like to acknowledge support by the Grantham Foundation for the
Protection of the Environment, as well as the Centre for Climate Change Economics and
Policy, which is funded by the ESRC and Munich Re.

For Least Developed Countries, Oxfam Discussion paper, Month Year 23

 Oxfam International August 2011
This paper was written by Alex Bowen and Sam Fankhauser. Oxfam acknowledges the
assistance of Sarah Best, Robert Bailey, Kirsty Hughes, Kate Raworth and their colleagues in its
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The information in this publication is correct at the time of going to press.
Published by Oxfam GB for Oxfam International under ISBN 978-1-84814-812-3 in August 2011.
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Oxfam Quebec (www.oxfam.qc.ca)

The following organizations are currently observer members of Oxfam International, working towards full
affiliation:
Oxfam Japan (www.oxfam.jp)
Oxfam Italy (www.oxfamitalia.org)

Please write to any of the agencies for further information, or visit www.oxfam.org.
Email: advocacy@oxfaminternational.org

www.oxfam.org/grow
24 www.oxfam.org/grow, Oxfam Discussion paper, Month Year