Strengthening the Adaptation Fund: Review of Potential Sources

African Climate Policy Centre (ACPC)The Energy and Resources Institute

(TERI)

Estimates of adaptation costs for Africa

Adaptation funding for Africa (in US$ million, as on 28 March 2012)

Total pledged

Approved for Sub-Saharan Africa

Disbursed to Sub-Saharan Africa

Dedicated funds for adaptation

Adaptation Fund 116 34 6

Pilot Programme for Climate Resilience

1208 73 1

Special Climate Change Fund 217 20 16

Least Developed Countries Fund 415 107 75

Sub-total 1956 234 98

Other funds for adaptation

International Climate Initiative 851 12

Global Climate Change Alliance 226 60 3

GEF Trust Fund - climate change focal area (GEF5 2010-14)

1.5 1 1

Sub-total 1079 73 4

Total 3035 307 102

Source: Climate Funds Update website Note: GEF5 figure shows funding marked for multiple foci (not specifically adaptation).

The Adaptation Fund

• Financing concrete adaptation activities • A more inclusive governance structure • Direct and indirect access model • Innovative financing approach

Sectoral distribution of projects identified in African NAPAs

Source: UNFCCC (2012)

Sectoral and geographical distribution of projects funded by Adaptation Fund

Country Amount (US$) SectorEastern Africa 30,412,135

Djibouti 4,658,556 AgricultureEritrea 6,520,850 Agriculture and water

resourcesMadagascar 5,104,925 AgricultureMauritius 9,119,240 CoastalTanzania 5,008,564 Coastal

Northern Africa 6,904,318Egypt 6,904,318 Food securityWestern Africa 16,422,605Mauritania 7,803,605 Food security

Senegal 8,619,000 Coastal

Source: Adaptation Fund website (accessed on 9 August 2012)

The case for strengthening the Adaptation Fund through

Additional Revenues • The main source will be dwindling

– Price of carbon expected to decrease• 3 countries moving out of the Kyoto Protocol• Less ambition• Unilateral measures

• The demand for adaptation will increase– Parties start implementing projects after needs

assessment – Actual and expected changes become graver than

anticipated: improvements in prediction, less mitigation ambition

Potential sources

• Emissions levy • Extending the levy on CDM to JI and

International Emissions Trading • Extending the levy on CDM to the NMM and

various market-based approaches (including those operating nationally)

• Raising the levy on the CDM• An international air travel adaptation levy

Potential sources

• Redirecting fossil fuel subsidies • Carbon taxes • Auctioning emissions allowances

Requirements

• How much can be raised from a particular source?

• What are the incentives and disincentives to reduce emissions associated with a particular source?

• To what extent a particular source is consistent with equity, the principle of common but differentiates responsibilities?

Requirements

• Do we have (or can we quickly to establish) the right institutional framework to be able to mobilize resources from a particular source?

• How predictable is the flow from the source?• Additionality • Political acceptability

Preliminary assessments

• Emissions levy – Could potentially generate significant resources– Provides the right incentives to reduce emissions

and hence minimizing the costs of adaptation – Scope for lower or no levies on some regions and

countries– Political acceptability?

Preliminary assessments

• Extending the levy on CDM to JI and International Emissions Trading – Revenue depends on demands for credits and

allowances from JI and IET– Difficult relationship with the incentive to reduce

emissions – In terms of equity, better than the levy on CDM

Preliminary assessment • Extending the levy on CDM to the NMM and

various market-based approaches (including those operating nationally) – Very important, particularly considering the

potential to generate significant amount of credits and allowances (sectoral approach) and NMM could potential reduce the revenue from CDM to the AF

– Difficult relationship with the incentive to reduce emissions

– In terms of equity, mixed outlook

Selected proposals to generate climate finance

Predictability of revenueLOW HIGH

Like

ly re

venu

e (b

illio

n U

SD/y

ear)

1

100

Swiss proposal: global carbon tax

ET levy

Norwegian proposal: auction allocations

Bunker fuel emissions tax

Source: Adapted from Hof et al (2011) and others

Silverstein (2010): Rising global carbon tax

Border cost levelling

Brendenkamp and Patillo (2010): SDRs and green bonds

Ward (2010): 2-tier debt-equity model