Tourism Industry Financing of Climate Change Adaptation: Exploring the Potential in Small Island Developing States

Published: 2nd November 2017 10:56Last Updated: 9th November 2017 11:41
Island beach scene

Several promising revenue mechanisms in the tourism industry of SIDS exist that can be tapped to fund the industry's CCA. © Hess and Kelman 2017.

Summary

In many small island developing states (SIDS), tourism is a principal driver of the economy and of infrastructure development. The SIDS’ tourism sector is, however, threatened by climate change impacts, which will likely incur high costs for climate change adaptation (CCA). Discussions are starting about who should pay for the costs of adapting to climate change, especially the balance amongst sectors such as between governments and the tourism industry.

Through the perceptions of selected industry stakeholders, this study* explores the potential of the tourism industry in SIDS in financing its own CCA. Fiscal and political mechanisms were examined, such as adaptation taxes and levies, adaptation funds, building regulations, and risk transference. The study’s exploratory method combines nine in-depth key stakeholder interviews from various SIDS and an extensive literature review to develop a schematic of suggested mechanisms. The results reveal a high overall potential for the tourism industry funding its CCA, but with significant challenges in realizing this potential. Consumer expectations and demands, governmental hesitation in creating perceived investment barriers, and assumptions about cost effectiveness could undermine steps moving forward. Varying incentive structures, the sector’s price sensitivity, and the differing abilities of tourism industry stakeholders to adapt are factors suggesting that government frameworks are needed to ensure effective and substantive action.

This paper was originally published in the jounral Climate, Disaster and Development (Volume 2, Issue 2) in July 2017: https://www.cddjournal.org/article/view/vol02-iss2-4

*Download the full article from the right-hand column.

Adaptation Financing Options (abridged)

This exploratory study is based on a mixed methods approach and brings together findings from the literature and a stakeholder approach comprising nine semi-structured, in- depth interviews. A detailed review of the literature was conducted in tandem with interviews, revealing five relevant and feasible means by which the tourism industry could finance its adaptation:

1) Public Private Partnerships (PPPs):

  • Arrangements between the private and public sectors in order to pool resources towards a common aspiration.
  • PPPs appear to be a promising mechanism to realize adaptation projects, particularly of large infrastructure interventions.

2) Adaptation taxes and levies:

  • Taxation or levy systems could generate additional funds to finance adaptation measures.
  • At the moment, no such specific adaptation taxes or levies for the tourism industry are implemented in any of the islands represented by interviewees.

3) Adaptation funds:

  • Adaptation funds are funds that are created to pool finance to incentivize action or invest in adaptation measures, projects, or programmes.
  • Adaptation funds could be set up at any governance level: global, regional, national, or local.

4) Water use management:

  • Sustainable water management practices for both demand and supply, including the treatment of wastewater to avoid health impacts and the reduction of overall water use.

5) Risk transfer mechanisms:

  • The most common risk sharing and transfer mechanisms in the tourism sector are insurance-related schemes, in which investments could easily be tracked.
  • Particularly in the context of climate change, they could play a key role for tourism firms in managing risk and enabling investments and operations despite uncertainties under climate change.

Lessons Learnt

  • Several promising revenue mechanisms exist to fund CCA in the tourism sector of SIDS.
  • Water Use Management and Risk Transfer Mechanisms are viewed especially favourably by industry stakeholders, as they can confer direct benefits to the company (in the form of resource efficiency or sustainability marketing) and reduce exposure of company assets to climate change.
  • Due to varying incentive structures and price sensitivity, adaptation financing options like adaptation funds or adaptation taxes will require government support to be effective.
  • Industry stakeholders face significant barriers to financing their own CCA, notably the government’s assumed economic dependency on tourism, consumer expectations and demands, and assumptions about costs and benefits.

Further resources