Financing Adaptation

Submitted by Sukaina Bharwani 25th March 2011 19:17

This page gives an overview of some of the principles for effective adaptation funding, and gives a short overview of the Least Developed Countries Fund (LCDF) and the Special Climate Change Fund (SCCF). For the latest information on the status of international funding for adaptation, rules associated with different funds and projects funded, please see the Climate Funds Update website.

Principles for Adaptation Funding

For the funds to be successful in enabling effective adaptation, and for them to be acceptable to the recipient countries, they must meet a number of criteria that permeate right throughout the 'funding chain'. This chain is made of three stages, including; the raising of funds through various mechanisms, the institutional arrangements and the administration of the funds, and the disbursement of the funds.[4]

There are seven criteria;

  • Predictability: Article 4(3) of the UNFCCC states that the developed country Parties must take into account the need for predictability in the flow of funds to the developing country Parties.[5] Decision 1 (e) of the 'BAP' also calls for improved access to predictable financial resources and financial and technological support.[6]
    The main barrier to predictable funding is the psychological phenomenon coined the 'Domestic Revenue Problem' ('DRP').[7] This arises when money is raised domestically, for example through domestic taxation, and the taxpayers consider themselves to be entitled to the benefits of their contribution. The reluctance on the part of the citizenry to see their funds go elsewhere is automatically communicated to the national political forum, thus making countries less likely to donate in a regular and predictable fashion and reducing the likelihood that the funds raised will be adequate to support the adaptation measures needed.
  • Appropriateness: Article 3(1) of the UNFCCC enshrines the principle of 'common but differentiated responsibilities and respective capabilities'.[8] Under this principle, the UNFCCC recognizes that countries are responsible to different extents for the historical emissions which are the cause of climate change.
    There is consensus among developing country Parties that they are to receive financial support as 'compensation', and not as 'aid'.[9] Therefore, neither voluntary grants nor reimbursable loans are acceptable, which would be in line with the 'Polluter Pays Principle'. This principle is enshrined in customary environmental law, and holds that the polluting party must for the damage done to the natural environment.
  • 'New and Additional': Both Article 4(3) of the UNFCCC[10] and Decision 1(e) of the 'BAP'[11] call on developed country Parties to provide 'new and additional' financial resources to support developing countries. This means that the funds donated must be over and above ODA.
  • Equitable: In accordance with the principle of 'common but differentiated responsibilities and respective capabilities', the burden to finance adaptation must be equitably shared amongst the Parties. Equity, or fairness, is to be considered in terms of the respective payments required from different countries.[12]
  • Democracy and Efficiency: The institutional and administrative arrangements surrounding the the management of the funds must exhibit both of these characteristics.[13]
  • Effectiveness: In order for the funds to meet their needs and contribute to successful adaptation, they must be effectively disbursed.[14]
  • Adequacy: The funds must have the potential of amounting to the tens of billions needed per year to finance adaptation throughout the developing world (see table below) [15]

The SCCF

This is a fund established by the UNFCCC that addresses the special needs of developing countries under the regime. The Fund finances a number of different activities, top among them being adaptation. Resources for adaptation program currently amount to $65 million.[18]

Adaptation funds under the SCCF go towards activities that increase resilience to the impacts of climate change by establishing pilot or demonstration projects to show how adaptation planning and assessment can be translated into practical projects and mainstreamed.

Water resources is a major focus area and the SCCF is financing a project that is addressing the key impacts of glacier retreat in the Andean region. This involves management plans for potable water systems in urban areas and other measures designed to counter the negative impacts it will have, including a shortage of fresh water.

LCDF

The LCDF finances the 'additional costs' imposed on the Least Developed Countries (LDCs) to address their immediate adaptation needs under the UNFCCC. It prioritises adaptation and enables the countries to develop National Adaptation Plans of Action (NAPAs), submit concrete adaptation projects to the GEF and thus qualify for assistance in addressing the immediate and urgent adaptation needs as identified by the NAPA.[19]

The LDC in question must complete a NAPA before it can access LDCF funds to finance the implementation of the adaptation actions identified.

The fund's procedural issues - including principles, modalities and criteria to access the funds - were developed in conjunction with the LDCs themselves, allowing for a streamlined procedure that has enabled twenty-one LDCs to submit NAPAs and ten to also submit adaptation projects.

$115 million has been contributed by donor countries to implement the urgent and immediate adaptation actions identified by the NAPAs. This will increase as donor countries continue to make voluntary contributions to the Fund.[20]

 

Related Pages

The Adaptation Fund and Board
World Bank Climate Investment Funds
Private sector funds

 

References

  1.  http://unfccc.int/resource/docs/convkp/conveng.pdf
  2.  http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf#page=3
  3.  http://www.gefweb.org/interior.aspx?id=232
  4.  http://www.dgvn.de/fileadmin/user_upload/DOKUMENTE/Vortraege/HDR_Klima_Workshop/Kowalzig.ppt
  5. http://unfccc.int/resource/docs/convkp/conveng.pdf
  6. http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf#page=3
  7. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach
  8. http://unfccc.int/resource/docs/convkp/conveng.pdf
  9. Oxfam Briefing Note - Financing Adaptation: Why the UN's Bali Climate Conference must mandate the search for new funds
  10. http://unfccc.int/resource/docs/convkp/conveng.pdf
  11. http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf#page=3
  12. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach
  13. http://www.dgvn.de/fileadmin/user_upload/DOKUMENTE/Vortraege/HDR_Klima_Workshop/Kowalzig.ppt
  14. http://www.dgvn.de/fileadmin/user_upload/DOKUMENTE/Vortraege/HDR_Klima_Workshop/Kowalzig.ppt
  15. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach
  16. http://www.gefweb.org/projects/focal_areas/climate/documents/adaptationFAQs.pdf
  17. http://www.gefweb.org/projects/focal_areas/climate/documents/adaptationFAQs.pdf
  18. http://www.gefweb.org/interior.aspx?id=192&ekmensel=c57dfa7b_48_60_btnlink
  19. http://www.gefweb.org/interior.aspx?id=194&ekmensel=c580fa7b_48_62_btnlink
  20. http://www.gefweb.org/projects/focal_areas/climate/documents/adaptationFAQs.pdf
  21. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach
  22. Climate Change and Development: Reinforcing Synergies
  23. Oxfam Briefing Note - Financing Adaptation: Why the UN's Bali Climate Conference must mandate the search for new funds
  24. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach
  25. Human Development Report 2007/2008 - Fighting Climate Change: Human Solidarity in a Divided World
  26. UNFCC Climate Change: Impacts, vulnerability and adaptation in developing countries.
  27. Climate Change and Development: Reinforcing Synergies.
  28. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach.
  29. Benito Muller - International Adaptation Finance: The Need for an Innovative and Strategic Approach