AGRICULTURE

CHAPTER 6 FINANCING THE WAY FORWARD
associated with the production of agricultural
commodities such as palm oil, soy, paper and beef
products by 2020. Large institutional investors are
also redirecting investments to align them with
climate objectives, such as reducing emissions
from deforestation. For example, the Norwegian
Pension Fund has begun to divest shares in
companies associated with unsustainable palm oil
production, which can be viewed as an alignment
of private financing with global climate change
mitigation objectives.
Mainstreaming climate
change in domestic budgets
Domestic government budgets are a key source of
climate-relevant public finance. They constitute a
much more significant source of public investment
in agriculture than providers of international public
climate finance. No comprehensive assessment is
available to track climate finance from domestic
budgets, and there is no agreed classification
system for national climate budget tagging that
permits international comparisons or aggregation.
However, evidence from 11 countries indicates that
domestic resources are a significant and, in some
cases, even a dominant part of climate change
expenditure (UNDP, 2015). Furthermore, there may
be rural development funds that, strictly speaking,
would not fall under climate financing but are
“climate-relevant” in the sense that, through the
pursuit of other policy objectives, they may
influence climate change outcomes in areas such as
resilience or levels of GHG emissions.
For climate-related policy goals to be achieved,
domestic budgets for agricultural investments need
to reflect the systematic integration of climate
change considerations into policies and planning,
as outlined in Chapter 5. In this respect,
agricultural support policies need to be considered
in the broader context of climate policy. For
example, input subsidies may induce the inefficient
use of synthetic fertilizers and pesticides, and
increase the emission intensity of production.
A meta-analysis of climate-relevant public
expenditure and institutional reviews in 20
countries in Africa, Asia and the Pacific,
highlights the fact that agriculture is very
prominent, second only to public works and
transport, with water and irrigation being
another prominent expenditure area. Significant
shares of climate-relevant expenditures are
channelled through local governments. The
effective use of funds channelled this way
requires adequate coordination with national
policies and improved implementation capacities
at the local level. The review showed that, while
countries had made significant progress in
establishing national climate policies, there had
been limited integration with sector and subnational
policy, leading to a lack of coherence in
how climate change is addressed. Mechanisms to
ensure that policy priorities were reflected in
public expenditure programmes were also
lacking, as were (although some progress was
noted) frameworks that assessed the performance
of climate spending. As with international
funding mechanisms, capacity – both technical
and operational – remains an overarching
challenge in many contexts (UNDP, 2015).
To ensure the full mainstreaming of climate
change in public expenditure, the UNDP review
recommends the adoption of a comprehensive
climate financing or fiscal framework which
includes: planning and costing climate change
strategies and actions in the medium and longer
term; employing a whole-of-government
approach engaging all relevant stakeholders;
bringing public sources of climate finance
(domestic and international) into the national
planning and budgeting system, to be delivered
through country systems; and aligning private
sources of climate finance with the overall policy
framework. A number of countries have started
making headway in strengthening their
investment appraisal mechanisms to integrate
climate change (Box 27).
Country-study evidence highlights the need for
capacity development to allow governments to
move towards the systematic integration of
climate change action into their budgets (UNDP,
2015). Dedicated climate finance should support
the strengthening of national systems and
capacity for mainstreaming. This includes: »
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