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3.	Incremental Costing
	Transfers of money between nations are frequently among the most politically-sensitive of transactions. All the more surprising, then, that an analytical methodology known as 'incremental costing' has come to dominate calculations of international financial assistance on environmental matters like climate change and species conservation. Incremental costing calculates financial transfers based on the cost difference between what a country would spend in the normal course of development and the additional costs required to pay for extra benefits to the global environment. While most development costs are covered by domestic budgets, incremental costs carry a powerful rationale for being covered by the international community. Incremental costing is not a new concept – the term was coined in the early part of this century as part of the academic and technical vocabulary of economics, accounting and finance. But the methodology has gained wide acceptance, among donor and recipient nations alike, as a fair way of sharing global environment-related costs. Financing for both the biological diversity and climate change conventions is predicated on incremental costing. As the main international body for financing the conventions, the Global Environment Facility or GEF sets its professional staff the task of calculating the true incremental costs of its global environmental investments. Senior GEF staff say the approach can be used to 'leverage' investments in global sustainable development beyond the dollars actually provided. An average 3-to-1 multiplier means that the GEF's total investment of US$2 billion in the current three-year spending round should have a US$6 billion impact on the ground. Implementation for biodiversity losses is proving more complicated than for ozone depletion, if still worthwhile. Causes of ozone depletion are easier to pinpoint (e.g. factory emissions), but biodiversity losses are caused by a messier mix of variables ranging from population pressures to perverse policy incentives for destroying natural ecosystems. Beyond international environmental conventions, incremental costing is gaining acceptance in a growing number of arenas including a recent major conference on wetlands. But there is still cause for concern. The methodology has gained acceptance as a fair way of sharing environmental costs across nations just as international development assistance is declining. Two years of international talks on forests ended this February for instance, without donors and recipients agreeing on a new international regime for financing forest sustainability in the context of global environmental concerns. [a popular approach for calculating international community financial obligations]
	'Joint Implementation' -Financing for the Fight Against Climate Change Incremental costing methods are becoming so sophisticated for combating climate change that they have acquired names of their own like 'joint implementation' (JI) and 'activities implemented jointly' (AIJ). JI and AIJ mix international finance and cooperation for reducing greenhouse gas emissions worldwide. Incremental costing for climate change started as a fairly straightforward arrangement for richer donor countries to pay for and poorer countries to host projects for sequestering carbon, like tree planting and protection schemes. Now the USA is proposing to broaden the mechanism into a market of tradable quotas, credits and debits in greenhouse gas reduction, making financing at once more flexible and market-oriented. Some environmental groups are skeptical because the system could be exploited by more business-savvy governments keen on driving down the costs of their international commitments. But others see potential in moving away from a command-and-control approach and creating profit motives for responsible emissions behaviour. Watch for strong growth in the field of green-house gas accountancy in the years to come.
	Incremental Costing n. the additional development costs required to pay for global – as opposed to strictly national – environmental benefits. Joint implementation n. financial cooperation between donor and recipient countries to counter climate change.
	Ahuja, D. The Incremental Cost of Climate Change Mitigation Projects. Washington, D.C.: Global Environment Facility, 1993. 24p.
Virtual Ideas	The 'incremental costing' approach in more depth JI Online