International adaptation finance:
benefitting the public or the
private?
Åsa Persson,
Stockholm Environment Institute &
Stockholm Resilience Centre
“In the context of meaningful mitigation
actions and transparency on
implementation, developed countries
commit to a goal of mobilizing jointly USD
100 billion dollars a year by 2020 to
address the needs of developing
countries.”countries.
Between countries?
Between countries?
Between projects?
Between countries?
Between individuals
within countries?
Between projects?
Between countries?
Between projects?
Between individuals
within countries?
Between individuals
between countries?
Between countries?
Between projects?
Between individuals
within countries?
Between individuals
between countries?
Equity vs. Efficiency?
• Watershed
management in a
Honduras urban
slum area
• 1 million indirect
beneficiaries
• $4 per person
• Farm-level investment
support in livestock
sector in Uruguay
• 500 farms
• $3,500 per farm
Outline
• Policy context: adaptation is being institutionalised
as a policy issue and public spending item, with a
political economy emerging
• Why and how is adaptation finance justified?
Adaptation for whom? Benefitting the public or the
private?
• Adaptation benefits
• Government intervention rationales
• Empirical evidence from the Adaptation Fund
The need for adaptation finance
(annualised flow, billion USD)
100
90
80
70
60
50
40
30
20
10
0
Est. Need
CopAcc
Long-term
CopAcc
Fast Start
Previous
ODA (0.1)
AF (0.1)
The need for adaptation finance
(annualised flow, billion USD)
100
90
80
70
60
50
GAP
40
30
20
10
0
Est. Need
CopAcc
Long-term
CopAcc
Fast Start
Previous
ODA (0.1)
AF (0.1)
UNFCCC funds: Adaptation Fund
• Established under the KP, financed by share of proceeds from
CDM and voluntary contributions
• Majority of developing countries on the Board and direct
access
• Funds ’concrete adaptation’
• Scale: 370 million available 2009-2012; 93 million per year
• Disbursed: 70 million (11 projects)
• Future uncertain after Kyoto expires
UNFCCC funds: Green Climate Fund
• Transitional Committee to present design in Durban
• Supply of finance not within its mandate – ’challenging but
feasible’ (see AGF and G20 reports)
• Business model still not determined – ’main global fund’?
– Comprehensive fund with large secretariat including existing funds as
windows
– Complementary fund specialising in leveraging private sector finance
• Balanced allocation between adaptation and mitigation – two
windows
• Focus on governance issues: equal Board representation,
direct access
Multilateral funds: World Bank PPCR
• Pilot Programme for Climate Resilience, part of CIF
• Pilot countries selected partly based on vulnerability
assessment (9 countries, 2 regions)
• Country-driven through formulation of Strategic Programs
• Equal representation of donors and recipients on committee
• Scale: 987 million pledged (60% grants)
• Disbursed: 323 million
• Future uncertain, CIFs have a sunset clause
Bilateral funding and development
aid
• Specific adaptation projects and ’climate-proofing’/mainstreaming
initiatives
• No agreement on how to assess what is ’new and additional’ in relation to
current ODA budgets and targets (0.7%), i.e. how to ’MRV’ adaptation
finance
• Scale: lack of methodology
– 100 million per year (2001-2006) (Roberts et al. 2007)
– 3,963 million from three BFIs in 2009 (UNEP 2010)
• Future uncertain due to evolving institutional architecture, MRV practices,
budget austerity
The link with development
Vulnerability focus
Addressing the
drivers of
vulnerability
Activities seek to
reduce poverty and
other non-climatic
stressors that
make people
vulnerable
Impacts focus
Building response
capacity
Managing climate
risks
Confronting climate
change
Activities seek to
build robust
systems for
problem solving
Activities seek to
incorporate climate
information into
decision-making
Activities seek to
address impacts
associated
exclusively with
climate change
McGray et al. (2007)
richard.klein@sei.s
e
The link with development finance
Vulnerability focus
Addressing the
drivers of
vulnerability
Activities seek to
reduce poverty and
other non-climatic
stressors that
make people
vulnerable
Traditional development
funding
Impacts focus
Building response
capacity
Managing climate
risks
Confronting climate
change
Activities seek to
build robust
systems for
problem solving
Activities seek to
incorporate climate
information into
decision-making
Activities seek to
address impacts
associated
exclusively with
climate change
New and additional
funding
richard.klein@sei.s
e
Accountability vs. Effectiveness?
• Mobilising new and
additional 100 billion – an
issue of trust and
accountability
vs.
• Improving ’climatecompatible development’
practices
Accountability vs. Effectiveness?
• Mobilising new and
additional 100 billion – an
issue of trust and
accountability
vs.
• Improving ’climatecompatible development’
practices
• Not a trade-off, but unlikely
with clear-cut boundaries
between climate finance
and ODA
The political economy of adaptation finance
• The finance gap not likely to be closed in near future, but still
serious inflow of new money
• Commodification of carbon – commodification of adaptation?
• ”Processes by which ideas, power and resources are
conceptualised, negotiated and implemented by different
groups at different scales” (Tanner and Allouche, 2011)
– Who control the funding institutions? Formal and informal power
– Growing market, project management revenues worth up to 100
million
– Increasing interest from the private sector
– Risk of corruption
Need to broaden the focus
• Current focus on supply side and institution-building
• Need to expand to consider beneficiaries
– Targeting the most vulnerable
• Debate on vulnerability indices
Vulnerability indices
• Academic work (e.g. Haddad; Buys et al; Barr et al)
• Impossible to objectively construct indices, since
ultimately rest upon normative values around what
constitutes vulnerability (Klein; Hinkel; Füssel)
• Yet, new attempts addressing policy-maker demand
–
–
–
–
Global Adaptation Index 2011
Climate Vulnerability Monitor 2010
ActionAid – climate and food vulnerability index 2011
PPCR selection of countries
Need to broaden the focus
• Current focus on supply side and institution-building
• Need to expand to consider beneficiaries
– Targeting the most vulnerable
• Debate on vulnerability indices
– Maximising benefits and prioritising benefits of public
rather than private nature
• Private vs public good properties of adaptation
• In practice, how many and which individuals benefit from an
adaptation investment?
• More pressing for adaptation than mitigation finance, since
although some CDM benefits are private (profits) there are clear
global benefits of equal per capita character
Private vs. public adaptation
• IPCC definitions:
– Private: ”adaptation that is initiated and implemented by
individuals, households or private companies”
– Public: ”adaptation that is initiated and implemented by
governments at all levels”
Anticipatory
Reactive
· Changes in length of growing
season
· Changes in ecosystem
composition
· Wetland migration
Private
· Purchase of insurance
· Construction of house on
stilts
· Redesign of oil rigs
Public
Natural
Systems
· Early-warning systems
· New building codes, design
standards
· Incentives for relocation
Human
Systems
· Changes in farm practices
· Changes in insurance
premiums
· Purchase of air-conditioning
· Compensatory payments,
subsidies
· Enforcement of building codes
· Beach nourishment
Externalities and public goods related to
adaptation
• Some adaptation actions have positive externalities –
individuals have an incentive to undersupply those, hence role
for government support (Leary; Mendelsohn)
– E.g. irrigation (private) vs. plant breeding (public)
• Adaptation as providing or protecting public goods – nonrivalrous and non-excludable
– E.g. seawall (club good), prevention of temperaturesensitive disease carriers
• Use government support in cases where positive externalities
or public good at stake to enhance allocative efficiency
Three dimensions of benefits
• Private benefits only or positive externalities (public
benefits)
– No. of beneficiaries and concentration of benefits – sliding
scale
– In politics: inclusivity, non-discrimination, regulatory
capture
• Scale
– Local up to global
• Direct and indirect benefits
– Delimitation of sequence of effects from an adaptation
investment
Private and public benefits - across scales
Local private benefits
Local public benefits
Global public benefits
• Value of saved crop
for farmer
• Improved water
storage for
household
• Flood-proofed urban
infrastructure
• Afforestation
preventing landslide
• Biodiversity
protection
• Control of infectious
diseases
Indirect global public
benefits
• Avoided migration
• Lower price volatility
Private and public benefits - across scales
Local private benefits
Local public benefits
Global public benefits
• Value of saved crop
for farmer
• Improved water
storage for
household
• Flood-proofed urban
infrastructure
• Afforestation
preventing landslide
• Biodiversity
protection
• Control of infectious
diseases
Indirect global public
benefits
• Avoided migration
• Lower price volatility
• Direct public resources towards projects where more
public benefits, as a function of
– No. of beneficiaries
– Size of benefits (possibly vulnerability-weighted)
Other rationales for government
intervention
•
•
•
•
•
Market failures (externalities and public goods)
Policies and institutional arrangements – adaptation options and incentives may be
constrained by counterproductive policies and institutions
Behavioural barriers – individuals make sub-optimal and/or maladaptive decisions due to, for
example, short-sightedness
Limited capacity – individuals may sometimes lack adaptive capacity due to external
circumstances (e.g., cannot control insulation if living in rented accommodation) and natural
systems may lack resilience to anthropogenic climate change
Distributional concerns – uneven distribution of impacts and different adaptive capacity
within sectors, regions and social groups
Local private benefits
Local public benefits
Global public benefits
• Value of saved crop
for farmer
• Improved water
storage for
household
• Flood-proofed urban
infrastructure
• Afforestation
preventing landslide
• Biodiversity
protection
• Control of infectious
diseases
Indirect global public
benefits
• Avoided migration
• Lower price volatility
Other rationales for government
intervention
•
•
•
•
•
Market failures (externalities and public goods)
Policies and institutional arrangements – adaptation options and incentives may be
constrained by counterproductive policies and institutions
Behavioural barriers – individuals make sub-optimal and/or maladaptive decisions due to, for
example, short-sightedness
Limited capacity – individuals may sometimes lack adaptive capacity due to external
circumstances (e.g., cannot control insulation if living in rented accommodation) and natural
systems may lack resilience to anthropogenic climate change
Distributional concerns – uneven distribution of impacts and different adaptive capacity
within sectors, regions and social groups
Local private benefits
Local public benefits
Global public benefits
• Value of saved crop
for farmer
• Improved water
storage for
household
• Flood-proofed urban
infrastructure
• Afforestation
preventing landslide
• Biodiversity
protection
• Control of infectious
diseases
Indirect global public
benefits
• Avoided migration
• Lower price volatility
Other rationales for government
intervention
•
•
•
•
•
Market failures (externalities and public goods)
Policies and institutional arrangements – adaptation options and incentives may be
constrained by counterproductive policies and institutions
Behavioural barriers – individuals make sub-optimal and/or maladaptive decisions due to, for
example, short-sightedness
Limited capacity – individuals may sometimes lack adaptive capacity due to external
circumstances (e.g., cannot control insulation if living in rented accommodation) and natural
systems may lack resilience to anthropogenic climate change
Distributional concerns – uneven distribution of impacts and different adaptive capacity
within sectors, regions and social groups
Local private benefits
Local public benefits
Global public benefits
• Value of saved crop
for farmer
• Improved water
storage for
household
• Flood-proofed urban
infrastructure
• Afforestation
preventing landslide
• Biodiversity
protection
• Control of infectious
diseases
Indirect global public
benefits
• Avoided migration
• Lower price volatility
Constructing an analytical framework:
Efficiency and equity
• Efficiency: allocation of resources that maximise net social benefits
• Equity: distribution of resources/benefits perceived as fair, e.g. equal lump
sums (equality) or in proportion to level of vulnerability
• Definition and weighting of benefits
Constructing an analytical framework:
Adding the international layer
• At national level – government chooses rationale (or
mix of)
• At international level – rationale can be chosen in
respect to
– Country level
OR
– Individuals/sub-national groups
Subnational variation in vulnerability and
adaptive capacity
O’Brien 2004
Rationales for adaptation finance
Global
III.
•International redistribution
of wealth according to some
principle, e.g., ’particular
vulnerability’
I.
•Support climate
adaptation with
transboundary /global
benefits
Market
failure
Distributive
IV.
II.
•Support (sub-) national
policies for adaptation,
which prioritise or are
restricted to providing
public goods and
addressing market
failures
•(Sub-)national distribution
of wealth (externally
provided) to address
adaptive capacity limitations
or uneven distribution of
capacity
Local
Implications for allocating adaptation
finance
Empirical evidence from the Adaptation
Fund
• Which rationale is being applied in practice?
• Review of funding criteria and guidelines, proposals
and decisions
1.
2.
3.
4.
Type of adaptation proposed
Allocation between countries
Allocation between individuals and groups (project level)
Identification of adaptation benefits
Submission of project proposals
• Legal basis in Kyoto Protocol:
– ”to assist developing country Parties that are particularly vulnerable to
the adverse effects of climate change to meet the costs of adaptation”
• Called for proposals in April 2010
•
•
•
•
•
Projected funding available 2010-2012: USD 370 million
Has received 36 proposals (34 countries)
Has funded 11 projects
Total funding requested: USD 222 million (60%)
Average funding requested: USD 6.9 million
• Proposal review: not publicly accessible
1. Type of adaptation proposed I
• Guidelines
– Minimal guidance on what constitutes ’concrete
adaptation’, in terms of type of activities and priority
sectors
– Strategic Results Framework specifies 7 desired results, of
which 3 can be considered ’concrete’
• Proposals
– Typical sectors: agriculture, water, coastal management
– Mix of government investments in physical assets and
decentralised building of adaptive capacity
– Lack of budgetary breakdown of project components
1. Type of adaptation proposed II
• Decisions
– Sectors as above
– No clear pattern regarding types of activities
• Link to efficiency/equity rationales:
– Hard to generalise and associate types of adaptations with
private vs public benefits, depends on implementation
2. Allocation between countries I
• Guidelines
– No definition or indicators for ’particular vulnerability’
– Eligible countries still 149, no priority for SIDS and LDCs
– Equal national caps of USD 10 million
• Proposals
– Ad hoc and diverse justification of vulnerability
– Scoring on vulnerability indices – no priority for particularly vulnerable
– 33% LDCs and 30% SIDS – capacity problem
– Funding requested per capita: from USD 2,250 (Niue) to 0.4 cents
(India) – 6 orders of magnitude
Comparing with vulnerability indices
– Barr et al. 2010
• 131 developing country rankings, in quartiles
• Dark=most vulnerable; light=least vulnerable
Benchmark
Proposals
Decisions
Comparing with vulnerability indices
– GaIn 2011
• 187 developed and developing country rankings, in quartiles
• Dark=most vulnerable; light=least vulnerable
Benchmark
Proposals
Decisions
2. Allocation between countries II
• Decisions
– No pattern wrt justification of vulnerability
– 27% LDCs and 27% SIDS
– Dollar per capita: 2 cents (Pakistan) to 29 dollars
(Maldives) – 3 orders of magnitude
– Unclear logic so far
• Distributive rationale rather than market failure; equity
(equality) prioritised over efficiency
3. Allocation between individuals and
groups (project level) I
• Guidelines
– No criteria/guidance on how to ’target to most vulnerable
communities’
– No need to explicitly identify or quantify beneficiaries
• Proposals
– No/weak reasoning around comparative level of vulnerability of
project area
– Less than half quantify number of direct and indirect beneficiaries,
from 2 million to 500 households
– Funding requested per beneficiary: USD 3,500 (Uruguay) to 96 cents
(Tanzania) – 4 orders of magnitude
3. Allocation between individuals and
groups (project level) II
• Decisions
– Scattered info on beneficiaries
– Funding per beneficiary: from USD 1 (Turkmenistan) to
USD 1,095 (Maldives)
• International equity rather than equity at subnational level
4. Identification of adaptation
benefits
• Guidelines
– Limited guidance on how to estimate benefits and how to consider
alternatives
• Proposals
– Ad-hoc description of benefits, if any
– Only two proposals explicitly identify alternatives
• Decisions
– No evidence that proposals that discuss benefits more extensively are
more successful
• Equity rather than efficiency rationale
Implications for allocating adaptation
finance
Conclusion
• Clearly ’equity between countries’ rationale, to the point of
equality
• In line with convention and national sovereignty, BUT this is
problem when funds are scarce across countries
– No mechanism for ensuring that money goes to the most
vulnerable a) countries or b) groups within a country
– No mechanism for ensuring that benefits are maximised
(weighted for vulnerability)
– No mechanism for ensuring that benefits are directed
towards the public rather than the private
Ways forward
• Not an allocation formula based on maximisation of net
benefits, but better methodology for assessing adaptation
benefits
• Rule of thumb regarding securing (some level of) public
benefits, to minimise risk of regulatory capture
• Governance mechanisms for citizens to hold their national
governments accountable for sub-national allocation of
adaptation finance (AdaptationWatch.org)
• ”Not all things that can be counted count, and not all that
counts can be counted” – Albert Einstein