Efficiency in
adaptation financing
Side Event: Innovative approaches to climate change
finance
Cancun, 6 December 2010
Axel Michaelowa
Perspectives, michaelowa@perspectives.cc
www.perspectives.cc · info@perspectives.cc
© 2009 Perspectives GmbH
Topics
 Background
 Definition of indicators
- Saved Wealth (SW)
- Saved Health (SH)
 Ranking and funding of adaptation
projects/programmes
 Issues beyond indicators:
- Baseline setting
- Monitoring and payment
 Policy recommendations
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Adaptation finance
Adaptation as a requirement for future
development and wellbeing
 People need to adapt to impacts of climate change –
in particular in developing countries
 Estimations of required global funding range from
49 to 171 billion US$ annually (UNFCCC 2007)
 Action by UNFCCC parties/Copenhagen Accord:
- Fast start finance 30 billion US$ 2010-2012
- “up to” 100 billion US$/a in 2020,
- No fixed share for adaptation
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Background II
How will funding be distributed?
Financial
sources
CDM
Donors: International financial pledges 2010-2012: 30 billion USD
~ 30% - 50% in adaptation projects
Denmark,
EU 56 mio $,
Spain 59 mio $,
Germany 10 mio $
Financial
resources
~ 8.6 mio.
CERs =
~ 115 mio.
USD
Channeling
institutions
Adaptation Fund
(UN legitimation)
Multilateral Channeling Institutions:
e.g. ICCAI, PPCR, GCCA, WB-CIFs, etc.
Standardized,
Semi-transparent
Distribution
criterias
~ 40%
US: 1.8 bn USD
EU27: 4 bn USD
~ 60%
US: 1.2 bn USD
EU27: 6 bn USD
Bilateral Funding
Individual,
Totally intransparent
Adaptation projects in developing countries
Source: World Resources Institute; UNFCCC
 Lack of performance linked standards and indicators may lead
to monetary flows which only rarely lead to long-lasting benefits
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Current studies and approaches
 Focus on costs of adaptation
 Try to monetize different impacts (WB categorization)
-
Economic sectors (e.g. agriculture)
Infrastructural adaptation measures (e.g. flood protection)
Impacted areas (e.g. coastal zones)
Impact vectors (e.g. extreme events)
 Evaluating projects according to costs only may be a
weak indicator to assess adaptation effectiveness
because:
- Human lives (and ecological damages) are monetized or
neglected
- Monetary evaluation of human lives may create ethical dilemmas
 Unsatisfactory situation for policy makers – how to
decide how to allocate the available financial resources?
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Evaluating adaptation effectiveness
 Developing of a new approach to assess
adaptive benefit of projects/programmes by
definition of indicators:
- Saved Wealth (SW)
- Saved Health (SH)
- Environmental Benefit (EB) – threshold-based
 Learn from mitigation effectiveness
assessment
- Universal parameter
- Methodologies for baseline assessment and
monitoring
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Overview of approach
Funder ranks and selects tenderprojects to receive financing
according to SW, SH, EB
Funder sets framework condition
Fundamental structure:
Evaluation indicators and
methodology approach
Funder approves
specific projects to
be eligible for tender
Project developers...
Project developer
calculates SH, SW, EB
(Indicators) according to
framework and
methodology
...elaborate methodologies
for their adaptation project
types
Funder approves methodology
and project type in general
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Indicator: Saved Wealth (SW)
 Applied for:
- Public infrastructure
- Private property
 Natural resources and services are included in public property
 Development of wealth over time based on expected economic
growth is considered
 Discounting of wealth based on regional discount rates is
considered:
€
Autonomous
development of wealth
in region over time
(undiscounted)
Discounted
development of wealth
in region over time
€
Damage per event
Time
 Frequency distribution of damage from climate change
driven extreme events taken into account
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Frequency
Indicator: Saved Health (SH)
 Independent indicator for human life without
monetary valuation avoids ethical challanges
 New approach based on WHO-standard Disability
Adjusted Life Years Saved (DALYs)
- Enhancement of DALYs to avoid discounting and age
weighting
DALYcc = YLL
+
YLL = N x L
YLD = I x DW x L
YLL: years of life lost due to premature
mortality
N = number of deaths
L = standard life expactancy at age of death
(in years)
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YLD
YLD: years lived with disability
I = number of incident cases
DW = disability weight
L = average duration of disability (years)
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Example: Ranking of projects/programmes
Target parameter
(Example) Target level
Saved Health (in DALYs per year)
300,000
Saved Wealth (in € per year)
Project I (Seawall)
Costs: 100 million €
400 million
In % of
target
level
Project II (Irrigation)
Costs: 10 million €
In % of
target
level
Saved
Health
15,000
DALYscc / a
5
Saved
Health
6,000
DALYscc / a
2
Saved
Wealth
40 million € /
a
10
Saved
Wealth
4 million € / a
1
15 %
Sum %
Sum %
3%
Total adaptive ranking value: 3 / 10
= 0.3
Total adaptive ranking value: 15 / 100
= 0.15
Project II would have the higher adaptive ranking
(adaptation efficiency) and would therefore be prioritized
for funding
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Baselines and adaptation deficit
 Adaptation & development deficit: Sub-optimal
adaptation due to sub-optimal allocation of limited
resources
Project
Wealth/
Health
case
“Situation without development and
adaptation deficit”
“Non-climate change
baseline”
“Climate change“ baseline (without
any adaptation measures)
time
 We suggest: LDC receive full funding (including
adaptation deficit), emerging economies face most
conservative approach
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Incentives and payment timing
 Three possible financing/issuance approaches:
- Up-front financing and liability: Total payment issued
ex-ante and liability of NIE for the maintenance of the
project/programme
- Ex-post financing only: Total payment ex-ante over
project-lifetime, based on MRV results guarantees
maintenance
- Mixed ex-ante / ex-post financing: Depending on
project/programme type and lifetime a certain amount will
be paid upfront and the remaining part after positive
verification
 We suggest the mixed approach as it sets incentives
for continued performance without preventing
capital-intensive project/programme types
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Policy recommendations
 Adaptation funding is scarce and should not
be wasted
 Project selection according to generally
agreed parameters is required
 Learn from evaluation of mitigation projects
 Pilot efficiency-based parameter calculation
- Saved Wealth
- Saved Health
 Disburse funds in a way that provides
incentives for long-term performance
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