Money Matters: Ramblings on Adaptation Finance
Posted by NYCA Blogger on October 5, 2009
Rishi, blogging from Bangkok
Funds are needed to make sure that people can adapt to the impacts of climate change. Of course, the most vulnerable are those with the least capacity to adapt The question is, how do we generate the necessary funds to support adaptation? Can we assess contributions from Annex 1 countries? Make them contribute 1.5% of collective Annex 1 GDP? Is this even possible given that countries have not even met their ODA targets of 0.7% of GDP?
At the other end of the climate finance spectrum, we have the carbon offset market. However, relying on the market for a large share of the proceeds for adaptation is not an effective way to generate funds and this has a number of reasons:
a. if we look at the distribution of CDM projects, they are mostly in India and China, they alone account for 60% of the projects. The most vulnerable countries do not even have CDM projects.
b. Revenue from CDM money is not predictable nor is it adequate. Furthermore, the transaction costs associated with CDM are simply way too high
c. The market will operate such that the money will go to the sectors where the largest amount of carbon offsets will be created with the least amount of money. This is the reason for the popularity of HFC reducing projects under the CDM
d. There is a perception amongst LDCs that CDMs and other market mechanisms are actually grant money. This is either a gross misunderstanding about the nature of CDM and its primary feature of it being a flexibility mechanism or developed countries have sold flexible mechanisms to developing countries as grants and have eschewed from their responsibility of making stringent emission reductions.
One option that is currently in place is through levies on CDM credits that go to the Adaptation Fund. Some have called on to include a levy on all offsets and not just the CDM to increase the base. However, as one might argue, why should we tax projects in developing countries to fund adaptation activities in developing countries? This is not in line with historical responsibility and climate and adaption debt at all.
An approach that has been incessantly highlighted in the negotiating text (INF.1 and INF.2) among other documents, is integrating adaptation into national policies, esp development ones. Any sort of development policy articulated must take into account climate change and incorporate climate risk management. LDCs, because they have a lot to achieve in terms of building infrastructure and other necessary pillars of development, have a unique opportunity to integrate climate risk into development projects. Besides, it just makes economic sense to prepare for climate risks now instead of paying much more later on by ignoring such risks.
However, if climate change policy is fully integrated into development, what does this mean in terms of funding? Will donors point to such integrations to make an excuse to provide funding that is not additional to ODA? How can we separate an independent pool of funds and call that adaptation oriented if developing countries are being pressurized to incorporate and align all development priorities with climate change?
What exactly is an adaptation action? Can there ever be a clear distinction between adaptation needs and development needs? Are countries now going to be asked to show enough scientific backing to be eligible for funds? Should we just ask for 2% of ODA and use that for adaptation as well? Questions, questions, questions.