Financing climate change adaptation in developing countries: Current picture and future possibilities

From its inception, the international climate policy effort has predominantly been focused on mitigation, i.e. on reducing greenhouse gas emissions to prevent climate change. The concept of adapting to climate change has, on the other hand, received less attention. This is partly due to the 'local' nature of adaptation, as opposed to the global scope of mitigation efforts. Moreover, the benefits of adaptation are not as easily measured – they can‘t be counted as CO2-equivalents, as in the case of mitigation. There has also been some reluctance towards giving attention to the adaptation issue, for fear that it would be seen as a signal of 'giving up' on combating climate change. 

At this stage, however, there is little doubt that climate change is happening and that it will pose significant challenges in many countries – irrespective of mitigation efforts. According to the most recent report of the Intergovernmental Panel on Climate Change (IPCC), there is agreement and evidence that with the current climate change mitigation policies, global GHG emissions will continue to grow over the next few decades. According to the United Nations Human Development Report  (UNDP 2007), mitigation will only start to make a difference from around 2030 onwards, and even under a best-case scenario, temperatures will continue to increase until around 2050. This means that at least until 2050, adaptation is a 'no-choice' option.
 
This choice is, however, easier for some than for others. The harm associated with climate change – and hence the need to adapt – falls unevenly between countries. The poorest countries will be hit the hardest. Africa, with a large majority of the Least Developed Countries (LDCs), is one of the most vulnerable continents to climate change. Also Small Island Developing States (SIDS) and countries in Asia and Latin America are at special risk. These are countries with few resources to adapt and with little historic responsibility for the climate change problem. As such, they have a strong case when calling for adaptation aid from more developed countries. This is also explicitly recognized in the United Nations Framework Convention on Climate Change (UNFCCC), which requires developed countries to assist developing countries ?that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse affects.

The funding of adaptation measures in developing countries is the key focus of this report. The report has been commissioned by Norwegian Church Aid (Kirkens Nødhjelp), with the aim of
(i) mapping the estimated needs for adaptation funding in developing countries,
(ii) presenting the status and =delivery‘ of the current financing efforts at the multilateral level, and
(iii) pointing to some of the possible alternative mechanisms that can be implemented in order to generate additional adaptation funding.

Of course, it should be acknowledged that mere financing represents only a part of what is needed in order to adapt to climate change. Effective adaptation measures also depend on a series of other factors such as information, institutional capacity, technology, transparency and political stability. In this report, however, we cannot go into all these issues. We will not discuss what constitutes =good‘ and =bad‘ adaptation measures, nor will we discuss the traditional issues of aid effectiveness. Instead, we will limit and concentrate our study to the mere issue of generating funding for adaptation, presupposing that the funding in any case represents an important prerequisite for successful adaptation in the world‘s most climate-vulnerable regions. Though much of the funding is still disbursed as official development aid (ODA) at the bilateral level, our focus in this report will be on the effort made at the international level – i.e. on the multilateral funds established under the UNFCCC and the Kyoto Protocol.
 
The report is organised as follows: first we describe the nature and scale of the adaptation challenge in developing countries, presenting the range of numbers that have been put on the table to estimate the developing countries‘ actual need for adaptation funding. Subsequently, we present the current status of adaptation funding – how much money is currently being channelled through the multilateral adaptation funds. We give particular attention to the Kyoto Protocol‘s Adaptation Fund, due to the potential size of this fund, and due to the political difficulties that have been hampering its functioning thus far. Thereafter, the report points to some of the possibilities that lie ahead in terms of generating additional adaptation funding. We present the main proposals that have been forwarded thus far: increasing the current CDM adaptation levy, or expanding it so that it also covers the other flexibility mechanisms such as the Joint Implementation mechanism (JI) and Emissions Trading (ET); applying adaptation levies on bunker fuelled transports; funding adaptation through carbon taxes; and using revenues from auctioning of emission permits. All of these alternatives are presented in brief, the purpose being primarily to give the reader a quick overview of some of the possible options that exist. The specifics or the feasibility of each proposal are left largely unexamined, as such assessments go beyond the scope of this report. Finally, in the last chapter we conclude and summarize the report‘s key findings.