The International Climate Change Financing Regime

By Rear Admiral (Rtd.) Gary A. R. Best,
Presidential Advisor on the Environment

LAST week, in Part 2: Section 1, we looked at quantifying climate change adaptation funding

(CCAF), sufficiency of climate adaptation funding and generating options, new and additional funding and the adaptation-funding mechanism. In Part 2: Section 2, we will examine coordination and integration, high transaction costs, and determining adaptation costs. In order to maintain cognitive consonance, we repeat the problematic.

The Problematic
Notwithstanding decades of conferences and summits, embedded financial provisions in conventions and pledges, SDS, as a whole, have been unable to access sufficient CCAF to meet their CCA needs. In the result, their nation states and economies have become more susceptible to sea-level rise and vulnerabilities exacerbating their economic, social and environmental development.
The International Climate Change Financing Regime, cont’d

Coordination and Integration
After COP 18, developing countries remained disappointed in funding flows. They anticipated funding for the period 2013-2020, but no agreement was reached on this issue. They are stuck with a promise of USD 100 billion by 2020 and according to Saleemul Huq, Senior Fellow with International Institute for Environment and Development’s (IIED) Climate Change Group, this is another vague promise of maintaining current levels of climate finance which approximates to USD 10 billion per year (IIED 2012).
Further, Oxfam (2009) in a briefing paper, Beyond Aid, stated that adaptation finance is channelled through a spaghetti bowl with multilateral and bilateral mechanisms. It argued that this has led to a current ad hoc approach built on inappropriate infrastructure, which in turn leads to underfunding and opaque complex results. The Oxfam paper also pointed out that adaptation funding is not demand-driven, but influenced heavily by donor countries. Consequently, adaptation plans are underfunded and there are too many empty pledges by the international donor community. The paper further posited that there must be predictability and reliability of pledged funds for climate adaptation

Smith et al (2011), argues for coordination and integration of development and adaptation funding. In their view, several ODA-funded projects that relate to climate-sensitive issues and development-oriented, privately funded projects that take climate risks into consideration contribute to the cost of adaptation. Therefore, coordination of development and adaptation funding could avoid duplication of efforts and cost savings.
Already, the need for coordination has been recognised in current climate negotiations. In a Policy Brief on the Adaptation Fund, Elsie Remling et al (SEI 2013) observed that a key purpose of the Fund under the Kyoto Protocol (UN 1998: Art 12) was to use a share of the proceeds of the clean development mechanism (CDM), now at 2%, to assist developing countries that were particularly vulnerable to climate change in meeting their costs of adaptation. The writers found that parties to the UNFCCC are yet to define the term ‘particularly vulnerable’. Instead, the project proponents define vulnerability, which in turn leads to difficulties in achieving efficiency and equity in the allocation of funds for adaptation.

High Transaction Costs
Developing nations have also expressed concerns over high transaction costs, burdensome rules and reporting, co-financing and unclear guidance when dealing with GEF-managed funds for adaptation. However, the situation is slightly better with the AF, which has an independent GEF Board. Horstmann (2011, 1086) while pointing out the process of direct access and independence of the GEF and ODA of the AF as positives, nonetheless stressed the need for the Adaptation Fund Board (AFB) to define terms such as ‘level of vulnerability’ and ‘adaptive capacity’ which, in turn, will enable a vulnerability- oriented approach to allocation of funds for adaptation projects. Horstmann also adds that the country- oriented driven process of the AF might itself hinder the AFB agreeing and accepting a scientific definition of vulnerability and instead should seek a political approach to find an acceptable definition.

Determining Adaptation Costs
Haites (2011, 963) submits that determining costs of adaptation is difficult because adaptation measures are yet to be defined. This lack of definition precludes any reasonable estimation of the associated capital and operating costs. As a result, scenario- based sectoral costing is done, which compares the cost under a scenario based on the current climate with the cost under a scenario based on the projected future climate, which in itself is unpredictable. Sectors include, ecosystems, coastal zones, forests, extreme weather, infrastructure, fisheries, water supply and agriculture.
According to Haites, costs are usually estimated for the ‘hard’ adaptation measures and rarely include ‘soft’ adaptation measures such as capacity-building and information systems. In spite of measures used, there will be ‘residual damage’ from adaptation measures. Whether such damage is an adaptation cost is yet to be determined. Further, determining whether ‘increased resilience’, achieved through development funding, is an adaptation cost is also uncertain. The close association between development assistance and adaptation funding compounds this uncertainty. Adaptation may well result in meeting development needs and development may assist in adaptation.

Smith et al, points to two approaches used to estimate adaptation costs. The first is a World Bank (WB) initiative, which estimates the costs of reducing vulnerabilities of climate-sensitive investments (such as foreign direct investment and development assistance) in developing countries through a ‘mark up’ factor. The second approach uses costs for projects identified for adaptation funding under the National Adaptation Programmes of Action (NAPAs) for a limited number of developing states and scales up the amount to cover all developing countries. Notwithstanding this initiative, Smith et al, identifies that the current approaches exclude the inability of present societies from fully adapting to climate change. This shortfall is called ‘adaptation deficit’, which is excluded from the estimate baseline and costs estimates. All these factors result in uncertainty and unpredictability in estimating costs of adaptation.
In the next article, I will examine Theories and paradigms that influence climate adaptation finance for Small Developing States.

Mr Gary A R Best is a retired Rear Admiral and former Chief-of-Staff of the Guyana Defence Force. He is an Attorney at Law and Presidential Advisor on the Environment. He is a PhD candidate at the University of the West Indies and holds a BSc in Nautical Science (Brazil) and Masters Degrees from the University of the West Indies and the University of London. He is also an alumnus of the National Defence University and Harvard Kennedy School. His research areas include, climate change governance, climate change finance, international relations and environmental law.

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