Adaptation Fund

The Adaptation Fund finances "concrete adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol." The fund is overseen by the Adaptation Fund Board, which comprises 16 members and their alternates. The fund is the primary United Nations Framework Convention on Climate Change vehicle to finance projects to assist developing countries cope with the impacts of climate change that are already under way. The extent to which developed countries commit expanding the funding available will critically affect the willingness of developing countries to join a post-Kyoto Protocol agreement, let alone an agreement that requires developing countries to achieve substantial cuts in greenhouse gas emissions.

The Adaptation Fund Board proposed in its November 2007 report that funding be directed to "assist developing country Parties to the Kyoto Protocol that are particularly vulnerable to the adverse effects of climate change in meeting the costs of adaptation"; and "finance concrete adaptation projects and programmes that are country driven and are based on the needs, views and priorities of eligible Parties." It also added that "in developing projects and programmes, special attention shall be given by eligible Parties to the particular needs of the most vulnerable communities."

Bali Action Plan Commitments
In December 2007, the COP13 meeting adopted the Bali Action Plan which committed parties to provide "new and additional resources" and the development of "innovative means of funding to assist developing country Parties that are particularly vulnerable to the adverse impacts of climate change in meeting the cost of adaptation."

The Plan committed parties to support "urgent implementation of adaptation actions, including through vulnerability assessments, prioritization of actions, financial needs assessments, capacity-building and response strategies, integration of adaptation actions into sectoral and national planning, specific projects and programmes, means to incentivize the implementation of adaptation actions, and other ways to enable climate-resilient development and reduce vulnerability of all Parties, taking into account the urgent and immediate needs of developing countries that are particularly vulnerable to the adverse effects of climate change, especially the least developed countries and small island developing States" and African countries affected by drought, desertification and floods.

Developments at COP14, Poznan December 2008
The most substantial decision at the COP14 conference of parties related to the Adaptation Fund. Earth Negotiations Bulletin, the official journal of the conference, noted that it had been agreed that the fund should commence operations as soon as possible but that amongst the delegations of officials there was no agreement "on enabling direct access of parties to the Fund, which is one of the three tracks under the decision 1/CMP.3. The two other tracks are access through implementing entities and through accredited executing entities at the national level."

However, at the subsequent Ministerial level meeting it was agreed that direct access would be approved, though with the qualification that "these provisions will be reviewed as part of the review envisaged in decision 1/CMP.3, paragraph 33, taking into account the feasibility study commissioned by the Adaptation Fund Board.". Up until the COP14 meeting, the Adaptation Fund had been managed by the Global Environment Facility, a semi-independent partnership of the UN's environment and development programs and the World Bank.

In its summary of developments, the Third World Network reported that the most significant failure of COP14 was the fact that "negotiations broke down over new funding sources for climate-related adaptation activities in developing countries ... Many developed-country parties would not agree with the developing countries' demands that the Adaptation Fund also obtain revenues through the JI (Joint Implementation) and ET (Emissions Trading)."

Developed countries' lack of commitment to provide additional funding prompted expressions of amongst developing states. Colombia noted that despite expressions of a commitment to equity, developed countries weren't prepared to commit to it by funding additional adaptation. South Africa noted that "we now have an Adaptation Fund but no funds." It also noted that -- with the only source of adaptation funding being derived from a levy on Clean Development Mechanism projects -- developing countries' adaptation costs were being funded by developing countries. Costa Rica, Brazil, India, the Maldives and Venezuela all expressed frustration at the lack of progress.

At least one diplomat from a developing country believes that the breakdown in discussions on adaptation funding is an indication of what's to come at COP15. "Developed countries have said they are willing to take the leadership in combating climate change, but the collapse of talks on this agenda item shows, that the commitments do not match the rhetoric for public consumption," the diplomat told the Third World Network.

Other Adaptation Funds
Oxfam International notes with concern that the "central role of the Adaptation Fund is being challenged, however, by a proliferation of competing funds with fewer linkages to the UNFCCC process and less representative governance. While increasing levels of adaptation finance and other support are welcome, it is clear that the Adaptation Fund's critical role as a fair, effective, and representative mechanism could be undermined." In particular, Oxfam mentioned the European Union's Global Climate Change Alliance (GCCA) and the World Bank's Pilot Program on Climate Resilience. Oxfam proposed that other existing UNFCCC funds, such as the Least Developed Countries Fund and the Special Climate Change Fund could be "brought within the umbrella" of the Adaptation Fund while "maintaining their specific purposes."

The scale of required funding
A late 2008 United Nations briefing note for Ministers discussing the financing of the Millennium Development Goals stated noted that the scale of funding needed for adaptation was substantial. "The UN's latest Human Development Report (HDR) estimates that additional adaptation finance needs will amount to US$86 billion annually by 2015. Oxfam puts the price tag at US$50 billion per year, and the UNFCCC puts it at US$28-67 billion by 2030. In addition to the costs of adaptation there will also likely be costs incurred in managing the residual climate impacts, which will occur regardless of improved adaptation efforts. These costs (e.g. through reconstruction and humanitarian spend) are only factored into the HDR estimates."

In a March editorial in the edition of ECO (the publication of the Climate Action Network) for the Bonn Climate Change talks estimated that funding of at least $100 billion by 2020 in addition to development assistance programs would be needed for the development of clean energy, forest protection and climate adaptation."Does this amount seem high? Let’s look at this example. Assuming that the EU provides about €35 billion annually by 2020 to developing nations, the share of this contribution would amount to less than one and a half euro a week for each EU citizen. Less than a Bonn metro ticket. ECO would argue that this is a small price to pay for our planet’s life insurance policy."

Current Funding
The UNFCC website states that "the Fund is to be financed with a share of proceeds from clean development mechanism (CDM) project activities and receive funds from other sources. (The share of proceeds amounts to 2% of certified emission reductions (CERs) issued for a CDM project activity.)"

In its report to the COP14 meeting, the Executive Board of the Adaptation Fund noted the uncertainty of the value of the CERs held in trust for the fund, "as the market for them is limited." It also noted that as of March 2008, only 130 million CERs had been issued with "a potential" that up to 2.1 billion CERs could be issued by 2012. "Thus an estimated total of 40 million CERs may be held in the CDM Adaptation Fund account by 2012," the board noted.

However, in March 2009 Reuters reported that the fund "is worth only about 50 million euros ($62.9 million).

According to Oxfam America, the UNFCCC estimates that the two per cent levy on CDM projects may raise between US$80 and 300 million a year for the Adaptation Fund between 2008 and 2012. Oxfam adds that "if the CDM continues post-2012, the levy could raise anywhere between $100m and $5bn a year by 2030, depending on the level of demand in the carbon market. While this will be a substantial advance on current finance, it is still far too little and far too late to meet the scale of finance needed."

The rationale for funding being addition to development aid
In the international negotiations on a post-Kyoto agreement, many developing countries have stressed that the rationale for adaptation financing is one of compensation, not of development aid. As Oxfam noted, "the funding required is not on the basis of developed countries providing aid to developing countries, but on the basis of polluting countries providing compensatory finance to those most vulnerable to the effects of that pollution. It should be additional because funding for adaptation should not be diverting or re-branding aid funding that is much needed to support children going to school or help the poorest farmers create livelihoods. Therefore, funding should be raised through innovative financing mechanisms that can ensure a reliable flow of funds independent of current ODA" [overseas development aid].

Potential sources of additional funding
A United Nations background briefing note in September 2008 noted that there were four main additional sources of funding under consideration for funding the projected costs needed by the Adaptation Fund. These are:


 * Financial pledges from national governments: Pledges of additional funding by national governments or groups of countries. Reliance on such funding would be vulnerable to fluctuating political and economic pressures. Nor would there be any long-term certainty that the funds would be additional to existing development funding.
 * Auctioning greenhouse gas emission allowances: If countries or regions establish a "cap-and-trade" emissions trading scheme, part of the greenhouse gas emission permits could be auctioned off with the revenue allocated to adaptation funding. The United Nations noted that "Germany, for example, plans to raise €120m for adaptation financing from a portion of its carbon allowances auction revenues during the second phase of the European Trading Scheme."
 * Levies on the carbon market: One proposal has been for the extension of the levy on the Clean Development Mechanism credits to include Joint Implementation projects. The UN background briefing note states that "measures to secure adaptation financing from the carbon market must be managed in a way which does not undermine the regime or hamper international negotiations towards delivery of a Global Carbon Market. Mobilizing adaptation finance through levies has the advantage of also providing an incentive to reduce emissions."
 * Global carbon tax mechanisms: The UN notes that the Swiss government "has proposed a carbon tax levied by each country according to its economic capacity and its responsibility for climate change" and that levies have been proposed for "petrol, electricity supply and emissions from industry."

Other proposals have been for the imposition of a levy on aviation fuels and bunker fuels for maritime shipping, as both emissions from most international airlines and shipping are excluded from the Kyoto Protocol. For further information, see Greenhouse gas emissions from the international maritime industry and Greenhouse gas emissions from the international aviation industry.

Oxfam proposals for additional funding
In December 2008 a report published by Oxfam International proposed that $81 billion in new funding for the Adaptation Fund could be obtained by 2015 (assuming a carbon price of $45 per ton) by:


 * Setting aside a fixed proportion of the international emissions allowances allocated to each developed country to be auctioned off "rather than simply given away for free." Oxfam estimated that "auctioning just 7.5 per cent of these Assigned Amount Units (AAUs) from the countries currently designated as Annex I parties under the UN Framework Convention on Climate Change (UNFCCC) could yield approximately $50 billion by the year 2015;" and
 * "Establishing emission limits for aviation and shipping, focused on developed countries only, and auctioning off emission allowances in those sectors could generate more than $12 billion and $16.6 billion, respectively."

Oxfam noted that with "a global financial crisis unfolding, one benefit of these mechanisms is that they do not depend on political will from countries to find funds from their national treasuries."

Contact Details
Website: http://unfccc.int/cooperation_and_support/financial_mechanism/items/3659.php

Related SourceWatch articles

 * Accra Climate Change Talks 2008
 * Clean Development Mechanism
 * COP14
 * COP15
 * Emissions Trading
 * Global Climate Change Alliance
 * International Air Travel Adaptation Levy
 * Kyoto Protocol
 * United Nations Framework Convention on Climate Change
 * World Bank Climate Investment Funds

Key UNFCCC Adaptation Fund Documents

 * "Kyoto Protocols Adaptation Fund Board Holds Inaugural Meeting: UN Efforts Expected to Usher In New Era in Environmental Financing", Media Release, March 28, 2008.
 * Adaptation Fund, "Report of the Adaptation Fund Board", December 2008.

Reports

 * Benito Müller, "The Nairobi Climate Change Conference: A breakthrough for adaptation funding", Oxford Institute for Energy Studies, January 2007.
 * Climate Action Network, "Urgency of Adaptation", ECO, December 1, 2008, pages 4.
 * Heather K. Coleman and David Waskow, Turning Carbon into Gold: How the international community can finance climate change adaptation without breaking the bank, Oxfam International, December 2008. (Pdf)
 * Oxfam International, "UN Climate Talks: Too little but not too late", Media Release, December 11, 2008.
 * Oxfam International, "Delay kills: Disappointing climate negotiations leave millions of vulnerable people at risk", Media Release, December 12, 2008.
 * Oxfam International, "Oxfam analysis of the Poznan Conference outcomes", Media Release, December 13, 2008.
 * Sven Harmeling, Christoph Bals, Michael Windfuhr and Thomas Hirsch, Making the Adaptation Fund Work for the Most Vulnerable People, Germanwatch and Brot für die Welt, December 2008.

General Articles

 * Brian Tokar, "Why No Real Progress at Bali Climate Talks? Toward a People's Agenda for Climate Justice", Znet, December 19, 2007.
 * Megan Rowling, "U.N. climate adaptation fund running out of cash", Reuters, December 6, 2008.
 * James Murray, "Recriminations over adaptation fund overshadow Poznan close: As officials claim talks remain on track, developing nations claim richer countries leaving them short changed", BusinessGreen, December 15, 2008.
 * John Vidal, "Rich nations failing to meet climate aid pledges: World's richest countries have pledged nearly $18bn to help poorer countries adapt to climate change, but less than $1bn has been disbursed", Guardian, February 20, 2009.
 * Pete Harrison and Jan Strupczewski, "EU finance chiefs to tap industry for climate fund", Reuters, March 5, 2009.