Adaptation Finance Under a Copenhagen Agreed Outcome

Research Report, Stockholm Environment Institute, 2009 Adaptation Finance under a Copenhagen Agreed Outcome Åsa Persson, Richard J.T. Klein, Clarisse Kehler Siebert, Aaron Atteridge, Benito Müller, Juan Hoffmaister, Michael Lazarus, Takeshi Takama Adaptation Finance under a Copenhagen Agreed Outcome Åsa Persson, Richard J.T. Klein, Clarisse Kehler Siebert, Aaron Atteridge, Benito Müller, Juan Hoffmaister, Michael Lazarus, Takeshi Takama Stockholm Environment Institute Kräftriket 2B 106 91 Stockholm Sweden Tel: +46 8 674 7070 Fax: +46 8 674 7020 Web: www.sei-international.org Publications Manager: Erik Willis Web Manager: Howard Cambridge Editors: Andrew Mash, Tom Gill Layout: Richard Clay Cover photo: © Aaron Atteridge This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes, without special permission from the copyright holder(s) provided acknowledgement of the source is made. No use of this publication may be made for resale or other commercial purpose, without the written permission of the copyright holder(s). Copyright © October 2009 by Stockholm Environment Institute ISBN 978-91-86125-13-4 Contents List of tables, figures and boxes v Abbreviations vi Acknowledgments viii Executive summary 1 1 Introduction 6 1.1 Background: adaptation under the UNFCCC 6 1.2 Objective and scope of this report 9 1.3 The structure of the report 10 2 Key questions on adaptation finance for Copenhagen and beyond 13 2.1 Adaptation finance in a broader development policy context 14 2.2 Relevant legal and moral principles 16 2.3 Adaptation finance under the UNFCCC 22 2.4 Contentious issues in the negotiations on adaptation finance 23 3 Assessing, costing and planning for adaptation needs 30 3.1 Introduction 30 3.2 Definitions and typologies for adaptation 31 3.3 Assessing and prioritising adaptation needs 35 3.4 Costing adaptation needs 43 3.5 Planning for adaptation 47 3.6 Summary and conclusions 56 4 Delivery of adaptation finance 59 4.1 Introduction 60 4.2 Public sector delivery 60 4.3 The role for civil society and private sector delivery 79 4.4 Criteria for eligibility and prioritisation of adaptation projects and programmes 84 4.5 Summary and conclusions 89 5 Governance of adaptation finance 91 5.1 Current governance of adaptation finance 91 5.2 Views on the current governance of adaptation finance 94 5.3 Proposals for future governance of adaptation financing 94 iii 5.4 Discussion 104 5.5 Summary and conclusions 107 6 Sources of finance 109 6.1 Introduction 109 6.2 The adaptation funding gap and existing funding commitments 110 6.3 Levels of financing under a Copenhagen Agreed Outcome 112 6.4 Proposals for new sources of adaptation finance 115 6.5 Summary and conclusions 125 7 The role of the private sector 126 7.1 Introduction 126 7.2 The rationale for engaging the private sector 128 7.3 The private sector as source of new finance 129 7.4 The private sector as provider of risk-sharing mechanisms 137 7.5 The private sector as supplier of innovative goods and services 142 7.6 Climate proofing private sector investment 143 7.7 How can a new climate agreement stimulate private sector contribution to adaptation? 145 8 Equity, justice and trust issues 151 8.1 Introducing the “fairness imperative” in adaptation funding 151 8.2 Defining equity and justice, and their relevance in the context of adaptation financing 152 8.3 The equity problem in delivery, governance and generating adaptation financing 154 8.4 Summary and conclusion 156 9 Conclusions and recommendations 158 9.1 Key messages of the individual chapters 158 9.2 Six overarching messages 163 References 168 ANNEX I Summary of Party positions on adaptation up to April 2009 177 ANNEX II Scenarios for carbon market options 187 iv List of tables Table 2.1: Overview of funds available and disbursed for adaptation under the GEF-managed financial instruments, as of November 2008 23 Table 2.2: Summary of selected proposals by parties for future adaptation financing arrangements under the UNFCCC 27 Table 3.1: Adaptation activities as expressed in the NAPAs to meet the urgent and immediate needs of the least developed countries, by sector 37 Table 4.1: Overview of approved adaptation projects in terms of size, region and scale 65 Table 4.2: Approved adaptation projects, by sector 67 Table 4.3: Overview of countries receiving financial support for one or more adaptation 70 Table 4.4: Application of principles to delivery agents of public adaptation finance 76 Table 4.5: Summary of adaptation work conducted by selected international NGOs 80 Table 6.1: Current adaptation funding gap, million USD 112 Table 6.2: Summary comparison of options against criteria 124 Table 7.1: Public private partnership roles in adaptation 146 Table 10.1: Summary of party positions on adaptation up to April 2009 177 Table 10.2: Carbon Markets - scale of funding 187 List of figures Figure 1.1: Stages of the adaptation finance chain and the structure of this report 11 Figure 2.1: The adaptation-development continuum 16 Figure 3.1: Characterisation of adaptation projects according to objective 40 Figure 3.2: Projected climate impact by sector of temperature increases 42 Figure 5.1: Current governance system of adaptation finance under the GEF 93 Figure 5.2: Institutional architecture of the G77+China Proposal 96 Figure 5.3: Institutional architecture of the Reformed UNFCCC Financial Mechanism (RFM) 98 Figure 5.4: Institutional architecture of the Compact Model 101 Figure 5.5: Different finance regimes 105 Figure 6.1: Range of estimated funding levels created by various revenue options, 2012 119 Figure 6.2: Range of estimated funding levels created by various revenue options, 2020 120 Figure 9.1: Channels for adaptation finance to developing countries 165 v List of boxes Box 1.1: Text of the BAP on enhanced action on adaptation (Decision 1/CP.13, para. 1.c.i–v) 7 Box 1.2: Text of the BAP on enhanced action on the provision of financial resources and investment for mitigation and adaptation (Decision 1/CP.13, para. 1.e.i–vi) 8 Box 2.1: UNFCCC articles relevant to adaptation finance 20 Box 3.1: The Nairobi Work Programme on impacts, vulnerability and adaptation 49 Box 7.1: Case study in private sector financing: World Bank-SEB Green Bonds 134 Abbreviations AAU Assigned amount unit AFB Adaptation Fund Board AOSIS Alliance of Small Island States AWG-KP Ad-Hoc Working Group on the Kyoto Protocol AWG-LCA Ad-Hoc Working Group on Long-term Cooperative Action BAP Bali Action Plan CBDR Common but differentiated responsibilities CCSAP Climate Change Strategy and Action Plan (Bangladesh) CDM Clean Development Mechanism CER Certified emission reductions CM Compact Model (of the UK’s Future Financial Architecture for Climate Change) CMP Conference of the Parties serving as the Meeting of the Parties COP Conference of the Parties DAC Development Assistance Committee (of the OECD) EU European Union FDI Foreign direct investment GCCA Global Climate Change Alliance GDP Gross domestic product GEF Global Environment Facility GFDRR Global Facility for Disaster Risk Reduction and Recovery GNP Gross national product GNI Gross national income IET International emissions trading vi IPCC Intergovernmental Panel on Climate Change IPCC AR4 Intergovernmental Panel on Climate Change, Fourth Assessment Report JI Joint Implementaion LDC Least Developed Countries LDCF Least Developed Countries Fund LEG Least Developed Countries Expert Group MAF Multilateral Adaptation Fund MCCF Multilateral Climate Change Fund (Mexican) MCII Munich Climate Insurance Initiative MDG Millennium Development Goals MDTF Multi-Donor Trust Fund for Climate Change MIE Multilateral implementing entity MRV Measurable, reportable, verifiable NAP National Adaptation Plan NAPA National Adaptation Programme of Action NC National Communication NGO Non-governmental organisation NIE National implementing entity ODA Official development assistance OECD Organisation for Economic Co-operation and Development PPCR Pilot Programme for Climate Resilience PPP Polluter-pays principle PRSP Poverty Reduction Strategy Paper RBM Results-based management RFM Reformed Financial Mechanism SBI Subsidiary Body for Implementation SIDS Small Island Developing States SCCF Special Climate Change Fund SPA Strategic Priority “Piloting an Operational Approach to Adaptation” (of the GEF) TNA Technology Needs Assessment UNDP United Nations Development Programme UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change UN BOA UN Board of Auditors UN OIOS UN Office for Internal Oversight Services USD United States dollars WBCSD World Business Council for Sustainable Development WWF World Wildlife Fund vii Acknowledgments The preparation of this report was supported by the Swedish Foundation for Strategic Environmental Research (Mistra), through its research programme Clipore (Climate Policy Research). The authors thank editors Andrew Mash and Tom Gill for their excellent support, and a number of external reviewers for their generous input. viii Stockholm Environment Institute EXECUTIVE SUMMARY dopted at the thirteenth session of the Conference of the Parties to the United ANations Framework Convention on Climate Change (UNFCCC COP 13) in December 2007, the Bali Action Plan (BAP) raised the political status of adaptation and opened discussions on international adaptation finance. Since COP 13, financing has in fact proved to be a significant stumbling block in climate change negotiations under the UNFCCC. This report provides a comprehensive reporting and analysis of the issues and principles underlying this impasse, as well as the most current proposals and options on adaptation financing available to Parties. In so doing, this report presents options for overcoming obstacles and reaching an agreement on adaptation financing as part of a Copenhagen Agreed Outcome at COP 15 in Copenhagen in December, 2009. It submits that such an agreement on adaptation financing is in fact vital to reaching a post-2012 international agreement on climate change.

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