Financing for Adaptation to Climate Change: Ensuring the Most Vulnerable Are Covered

At next week’s global climate summit in Paris the mood is likely to be somber in the wake of the devastating terrorist attacks. Spirits won’t be raised by the fact that the national emissions reduction plans submitted so far are only half of what’s needed to keep global temperature increases within the agreed target of 2 degrees Celsius.  Also discouraging are the large gaps that remain between how much climate finance developing countries need to cover the costs of mitigation and adaptation and the commitments put forward by developed countries.

The gaps are especially acute for adaptation finance to help the poorest and most vulnerable countries cope with sea-level rise, drought, disease spread, more intense hurricanes, and other features of a warming planet. Part of the difficulty with negotiating adaptation finance comes from debates about who pays and how much and from concerns about the ability of recipients, often weak states, to effectively manage the finance. In a 2012 paper, Nancy Birdsall and I proposed principles for reaching such decisions, namely that rich countries should be obligated to pay on the basis of their historical emissions, that recipients should be guaranteed finance on the basis of their vulnerability, and that transfers should be made regardless of the recipients’ institutional strength (since there are ways to manage or work around that). It’s time to revisit those principles.

Who Pays for Adaptation and How Much

At the 2009 climate summit in Copenhagen, a group of advanced economies promised to mobilize $100 billion per year in climate finance for developing countries by 2020.  The $100 billion was meant to cover investments in both mitigation and adaptation.  However, the cost of adaptation alone is thought to be at least a $150 billion per year. And a recent OECD study reported that in 2014 only $62 billion in climate finance had been mobilized for developing countries.

How much funding is likely to be available to poor and vulnerable countries with limited capability to withstand the impacts of climate change? Not enough — and it may not reach the most vulnerable people.  Low-income developing countries have not been the source of historical emissions but are most likely to suffer severe damages from climate change. The OECD report estimates that 77 percent of the 2014 climate finance is allocated toward climate change mitigation objectives, 16 percent toward climate change adaptation (less than $10 billion) and 7 percent to activities that target both. The Green Climate Fund has committed to provide half of its funding for adaptation and to prioritize the most vulnerable countries.  This is good.  But the GCF so far only has $10 billion in total capital, and not all of this has been paid in (the shortfall is mainly from the United States). The UN Adaptation Fund has committed $331 million since 2010.  The Pilot Program for Climate Resilience of the Climate Investment Funds has $1.2 billion for investment in adaptation and resilience.  Sure, it’s complicated, and some mitigation is adaptation and some adaptation is just good development investment, but the bottom line is that the poorest countries that are most vulnerable to climate change are once again the last in line.

Negotiators are debating principles for providing financing for poor countries to adapt to climate impacts, based on the polluter-pays principle: that the countries that are most responsible for the bulk of historical greenhouse gas emissions, mainly rich countries, should pay to compensate countries for the damages inflicted by the pollution, mainly poor countries. 

In our 2012 paper, Nancy Birdsall and I suggested that (primarily) rich countries that have been the source of the largest share of historical emissions should have an obligation to provide funding for poor countries most vulnerable to climate impacts.  This principle is reflected in the discussion of “loss and damage” in the negotiations.  Unfortunately, the loss and damage debate is among the most contentious issues in the negotiations.

The second principle we suggested was that countries vulnerable to climate impacts should be guaranteed an allocation of adaptation finance based on the extent of their physical vulnerability and their economic and institutional vulnerability.  A number of vulnerability indices provide an assessment of physical vulnerability, including an index developed by CGD’s David Wheeler.  For economic and institutional vulnerability we proposed income per capita as the indicator.  So far only the Green Climate Fund and the Adaptation Fund earmark funding specifically for adaptation.

Managing Adaptation Finance in Weak States

Our third principle was that vulnerable countries and people should receive their adaptation finance allocation regardless of their past performance in managing development projects and regardless of their fiduciary competence.  This may sound counterintuitive. Although adaptation investments will look a lot like development investments, adaptation finance is not development assistance, which is a form of charity.  Nevertheless, since most adaptation funding comes from development assistance budgets, funders — polluting countries — follow aid practices and prefer to allocate their funds where they are expected to be most effectively implemented. However, the countries with the weakest institutions and the most dubious governance ratings are often the most vulnerable to climate change. In principle their citizens ought to have access to support because of their vulnerability, independent of their government’s capability to manage support.   

How should this quandary be managed? Countries that need adaptation transfers most are often least able to manage them. In our 2012 paper we proposed that governments with inadequate fiduciary capabilities should have the option to choose a third party to manage adaptation funds and to implement adaptation investments.  The third party could be a national NGO such as the ones that are accredited for “direct access” by the Green Climate Fund.  Or the country could choose an international NGO, a consulting firm, a multilateral development bank, a bilateral donor, a local or external policy research institute, or any other third party that had been accredited via the GCF, the UNFCCC or some other agreed accreditor.

A simpler and possibly more equitable and efficient solution would be to provide simple cash transfers directly to people in vulnerable countries with weak governments.  This is now being done in several low-income countries through mobile phones. In Niger, for example, households in targeted villages received monthly cash transfers as part of a social protection program in response to a devastating drought. Cash transfer programs could also make use of biometric identification, as Pakistan did after severe floods.

Whatever the transfer mechanism is, it will be important for negotiators to ensure that adequate adaptation finance can be raised (for new ideas on how to raise adaptation finance, see a recent proposal by Lucas Chancel and Thomas Piketty), that poor countries hard-hit by climate change receive the support they need and that it actually reaches the vulnerable people that need it most, even in weak or poorly governed countries.