Equity and cost-effectiveness of multilateral adaptation finance – are they friends or foes?

Submitted by Ruth Butterfield | published 21st Jun 2012 | last updated 15th Aug 2012

A CIS discussion paper, published in Spring 2012 addresses two main questions:

1) Can multilateral adaptation finance both address equity and cost-effectiveness simultaneously? 
While the two goals are usually seen as incompatible with each other, the discussion paper provides theoretical and empirical arguments why equity and cost-effectiveness may be friends and not necessarily foes. A pure economic definition of cost-effectiveness will be in contradiction with many equity principles but trade-offs can be limited if relative economic savings, and other indicators closer to vulnerability, e.g. human health, are used as indicator for cost-effectiveness.

2) Has the AFB rather addressed equity or cost-effectiveness in its past approval decisions?
Empirical data from 16 project documents considered by the Adaptation Fund Board (AFB) in 2011 suggests that projects approved by the AFB rank high according to one cost-effectiveness indicator (absolute economic savings), while they rather rank low according to further cost-effectiveness and all equity indicators, including various vulnerability measures. These approval patterns seem to be in contradiction with the goal to support countries that are particularly vulnerable to climate change

Abstract

This paper analyses potential criteria to allocate international funding for adaptation to climate change, as a response to one of the main governance challenges of international adaptation funding - the prioritization of project proposals given scarce funding. Based on the review of the equity and cost-effectiveness literature and relevant policy documents, we identify three indicators for equity (vulnerability level, poverty, number of beneficiaries), and three indicators for cost-effectiveness (economic savings in absolute and relative terms, human lives saved). Applying these simple indicators to information provided in 16 project documents considered by the Adaptation Fund Board (AFB) in 2011, we find that projects approved by the AFB rank high according to one cost-effectiveness indicator (absolute economic savings), while they rather rank low according to all equity and further cost effectiveness indicators. Furthermore, we analyse whether ‘equity’ and ‘cost-effectiveness’ are two contradicting principles, or if ways can be found to reconcile both principles in multilateral adaptation finance. We conclude from both theory and the 16 analysed projects that a pure economic definition of cost-effectiveness is in contradiction with equity but tradeoffs between equity and cost-effectiveness can be limited if relative wealth savings, and other
indicators, e.g. human health, are used as indicator for cost-effectiveness.

Authors: Martin Stadelmann*, Åsa Persson+, Izabela Ratajczak-Juszko§, Axel Michaelowa*

* Center for Comparative and International Studies & Department of Political Science, University of Zurich.
Corresponding Author: martin.stadelmann@pw.uzh.ch, Tel. +41 44 634 50 91
+ Stockholm Resilience Centre, Stockholm University & Stockholm Environment Institute
§ Global Cities Research Institute, RMIT University, Melbourne

This report is published as a CIS working paper, No 73, 2012. Published by the Center for Comparative and International Studies, ETH Zurich and University of Zurich.

See Also

Full journal article in International Environmental Agreements