Bilateral and multilateral financial assistance for the energy sector of developing countries

This article examines trends in development assistance funding for energy and the implications for mitigating climate change. It presents financial data from bilateral and multilateral donors during 1997-2005, a period that begins with the agreement on the Kyoto Protocol under the United Nations Framework Convention on Climate Change. During this period, aid for energy totalled over US$64 billion or 6-10% of all development assistance. Annual energy assistance was virtually stagnant at approximately US$6-7 billion from 1997 to 2005, but preliminary evidence indicates that some efforts are being made to fill the resource gap and to mitigate climate change. Analysis suggests that there has been somewhat of a shift away from fossil fuel to lower greenhouse-gas-emitting projects. However, the increases in funding and shifts to low greenhouse gas technologies are fragile. Analysis also suggests that, unless development assistance for energy increases in the coming years, the influence of multilateral banks will diminish and their ability to encourage sustainable energy projects will decline. It should be noted that funding levels for projects do not tell the whole story. There is a continuing evolution of aid modalities under way, as development financing for project-based activities is supplemented with macro-economic and sector-wide assistance targeted at promoting policy reforms, institutional change and capacity building. Several challenges will need to be met in the future: to increase funding for the MDBs by finance ministers; to 'green' private sector funds to ensure that investments made today do not pollute tomorrow; and to overcome the lack of a common reporting format by standardizing the collection and reporting of data on investments for energy.