Financing Adaptation: Opportunities for Innovation and Experimentation

Climate change is upon us. The earth is warming, seasons are shifting, species are migrating, and water is fl owing in new patterns. The accelerating and deepening impacts of climate change will touch everyone on earth, but those who stand to suffer most are the poor. People and governments must find the will and the means to slow, stop, and reverse the buildup of greenhouse gases in the atmosphere to avert catastrophic warming.

But it is already too late to avert some serious consequences. We must also learn to adapt to a warmer world. This question of adaptation is a particularly pressing issue for national and international agencies tasked with providing financial and technical assistance to reduce poverty in developing countries. As leaders begin to consider policies and measures to respond to mounting climate effects, it is critical that adaptation efforts be designed to support the poorest communities in their development efforts. Likewise, development assistance must foster adaptation if it is to succeed within a changing climate. That the poor are the people least responsible for global warming makes these efforts all the more imperative.

This paper explores the opportunities and challenges involved in financing adaptation efforts in developing countries. The last two years have seen a surge of interest in adaptation finance with new funding proposals floated on an almost weekly basis. But many critical questions remain. How much will adaptation cost? Which proposals are most likely to generate an adequate and predictable flow of funds? How should these funds be channeled so that they reach those most in need? How do we ensure adaptation funds are used most effectively?

This paper seeks to provide some answers, and to lay out the state of play in the fledgling field of climate adaptation finance. Section I provides a conceptual model for the relationship between adaptation and development. Section II reviews estimates of adaptation costs and the funding chasm with existing sources of adaptation finance. Section III assesses existing and emerging approaches to generating new finance from public sources. With an eye to the United Nations climate negotiations for a post 2012 international climate agreement, it also sets out guiding principles for generating funds on a scale commensurate with the challenge. Section IV looks at options for channeling adaptation funds to developing countries, and ensuring the accountability of chosen institutions. Section V highlights emerging approaches to spending adaptation funds and dissects the relative merits for the world’s poor of financing specific adaptation projects or mainstreaming adaptation into development.

In Section VI, Next Steps, we use a U.S. legislative case study to explore how de-linking the three phases of adaptation finance—generation, channeling and spending—could promote innovation and political support for such initiatives around the world.

Throughout, we propose guiding principles to assure effective decision-making by the international community in tackling this most urgent of challenges of our time.