https://dfid.blog.gov.uk/2011/05/06/why-we-need-to-test-cash-transfers-for-climate-change/

Why we need to test cash transfers for climate change

As a development economist, I’m itching to read Poor Economics, the new book by the amazing Esther Duflo and Abhijit Banerjee. Unfortunately, it's not yet widely available in UK bookshops.

Thankfully, there’s a wonderful visual web version of the book's key findings, and it’s been reviewed in The Economist and by several UK economists such as Diane Coyle and Tim Harford. These reviews mostly praise Duflo and Banerjee for demonstrating just how much development economics is now subjecting itself to more and more rigorous testing – something the medical profession, for example, is renowned for.

So, given my delay in reading the actual book, I decided to test for myself whether the reviews were right. I found a perfect DFID paper for the task. It was published just a few weeks ago by the team I work in, and synthesised evidence from all over the world on “cash transfers”.

Cash transfers can deliver many benefits
Cash transfers can deliver many benefits. Picture: Newbeatphoto

"Cash transfers" are when cash is directly handed to needy, often destitute, recipients. Some transfers are "conditional" – which means the recipient actually needs to do something to receive the money, such as making sure their child attends school or sees a doctor once a year, but other cash transfers can be "unconditional".

DFID is planning to work with 16 developing countries to design and implement cash transfer schemes, to help lift recipients out of poverty.

As I worked through the DFID paper, I realised that economists have found a great deal of evidence on how cash transfers help the poorest get food, education and assets, and therefore adapt to and become more resilient to climate change.

But my profession has, regrettably, not been testing two other climate change related questions.

First, we don't seem to have gathered much evidence on whether cash transfers might help the poorest access energy or transport. Together, according to the International Energy Agency, energy and transport currently account for almost 60% of CO2 emissions in developing countries, and their emissions are projected to grow fast – unless clean technologies become cheaper. But these sectors also make a huge difference to people’s lives. Without electricity and transport it’s hard for children to receive education, hard for clinics to run and maintain life-saving equipment, and for people to get to markets and set up new businesses.

If we were to collect evidence on whether cash transfers do help the poor access energy or transport, we could look at whether to design the transfers specially to accelerate the uptake of cleaner options. We could also check whether it's most cost-effective to help poor people get access to clean, low-carbon energy by creating new specific programmes, like Feed-In-Tariffs or Advance Market Commitments, or by simply using cash transfers. In this way, more evidence could help us broaden the range of development tools that help address climate change – perhaps.

Second, we've not yet systematically examined the experiences that developing countries have had with using cash transfers to grow and take action on climate change. Our paper didn't mention that Indonesia, Yemen and several other developing countries have been using cash transfers to compensate poor communities at the same time as removing expensive and harmful fossil-fuel subsidies – such as on oil, coal and kerosene. Without cash transfers, the removal of these subsidies could have stimulated fuel riots – of the kind currently being experienced in Uganda and China. If HSBC's Chief Economist is correct in saying fossil fuel prices will continue to rise, subsidy reform will become even more crucial globally over time.

Cash transfers are clearly crucial for solving a lot of problems in developing countries. My hope is that we will be more creative and experimental in gathering more climate-related economic evidence from cash transfers and other popular development tools. This will help developing countries plan even better for the long-term, and seek stronger complementarities between climate change, growth and poverty reduction – what many are calling "green growth".

I hope too that top development economists like Duflo and Banerjee will join us in doing so – the climate just won't wait!

5 comments

  1. Toyin Ajidele

    Hannah, love this article. It is a really important.

    I am not sure however that the DFID evidence paper clearly makes a distinction between current external cash transfers going on already and internal to internal transfers. It seems be a bit confused about the clarity of this distinction from the beginning and this is really important if it wants to really understand how effective this type of scheme this can be for some countries. It also does not really tackle the elephant in the room substantially, which is the fact that in the end for this to really work, you need to build up incredible relationships and trust on the ground between donors, all local stakeholders, local agencies and all implementing actors. Without this trust building, the transfer system could seriously undermine government making them in turn even more reliant than they already are to donor handouts. Therefore, there also needs to be a massive collaboration with private sector partners in developing match funding.

    I saw first hand how M-Pesa, a DFID & Vodafone, collaboration in Kenya is not only dynamic in its make up of stakeholders but profoundly forward thinking in the way it encourages very local internal aggregated outputs. This is quite revolutionary as M-Pesa combines mobile technology with software applications that reaches millions. In turn these people are using the technology to develop very interesting ways to tackle poverty themselves i.e. working cooperatively to develop local share holding businesses without needing to rely or qualify for a bank account. This reminds me of how social and mobile media and hardware changed the way people used Internet tools for instance to take action resulting in The Arab Spring.

    What DFID and other bilateral agencies and governments must caution before going full head on is to work very closely with private sector investors and national governments on setting local conditions up to help steer the way an even more open market cash transfer system can be used to benefit local people better. Local people/service users will need to be educated to understand risk and incentivized to invest otherwise the system could end up developing a massive false economy.

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  2. Tissa Wellappili

    I looked closely at a cash transfer scheme available in UK and I imagine similar schems will be rolled out to the third world. It was for the sale of Sol;ar Panels. I was told my roof can carry 6 solar panels that could produce 1.5 KW at peak at a cost of £ 9K. Electricity suppliers gurantee to buy what is produced at 43 p a KwH - or more as they promised to raise that in line with energy prices. Outwardly it seems a bargain if Solar panels keep on working for at least 20 years.
    However the contractors providing the installation who collect the money from the householders like me cannopt guarantee the long term performance of the panel. I have to accept the guarantee of the solar panel manufacturer.

    I could not find results of accelerated testing of solar panel performance at the temperature range, weather range it would be subject. Such accelerated testing to provide consumer confidence is an area DFID can move.

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  3. Cash For Everyone « Bulldozers and Sustainable Development

    [...] DFID blogger Hannah Ryder, found that the evidence from its Cash Transfers Evidence Paper still needs a bit more research. [...]

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  4. Tom de Veer

    Conditional Cash Transfers - Not a golden bullit, but ....
    As a small Dutch NGO we are specializing in community development in combination with low cots technologies for water and sanitation (e.g. hand drilling, Rope pumps, Tulip water filter, Twin pit latrines, Tippy Tap hand washing device, etc.). The local companies we train to produce these solutions suffer as people have difficulty to pay the price, even while the price is tenfold lower than most conventional solutions. In case people would have a conditional cash transfer that has the condition that people need to improve their own watsan facilities, beside a number of other conditions (including sending children to school, sleeping under mosquito nets etc. and a bonus for families with few children) this will give ample business to local companies, lead to smaller families (the best way to reduce pressure on the environment), stimulate female literacy and achieve basically most of the MDG's at the household level. The cost: 10 Euro (sorry I am from mainland Europe) per family per month, the cash being paid out (through e.g. M-Pesa, the mobile cash transfer system of Vodafone in Tanzania) to the female heads of household. We would very much like to pilot this in a small program in a couple of villages in Mozambique, Tanzania, Zambia or Uganda, reaching 1.000 households during three years (total cost: 550.000 Euro). We have a very well developed system for training and guidance of beneficiaries (which is good and int he same time very inexpensive as it is based on self learning and self action), auditing of households (including reduction of the transfer in families that are unmotivated to fulfill the conditions) and measurements of the effects and impacts. However, in the Netherlands this subject is not int he picture yet and we have a lot of difficulty to find funding for it. Does anybody know whether we can apply for such funding with DFID or any other donor? Please see for further info our website: http://www.connectinternational.nl/english/aboutconnect/news/CCTs
    Best regards,
    Tom de Veer (t.deveer@connectinternational.nl)

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  5. Simon Davis

    Hi Tom,

    Many thanks for your comment - you can find details of funding opportunities on the website: http://www.dfid.gov.uk/Work-with-us/Funding-opportunities/

    - Blog Moderator

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