IN-DEPTH: How can the adaptation finance gap be bridged?

What are the costs of adaptation in developing countries? What is the finance available to meet them? How can the anticipated difference between the two estimates be bridged? These are the thorny questions addressed by the Adaptation Finance Gap Report 2016, launched by the United Nations Environment Programme (UNEP) in May at the Adaptation Future Conference in Rotterdam. The report comes only a few months after the adoption of the Paris Agreement, which importantly placed adaptation and mitigation on equal footing and resolved to reach a balance between the financial resources devoted to both.

The report builds on a 2014 assessment by UNEP outlining three main types of adaptation gaps, namely technology, finance and knowledge. It specifically focuses on developing countries, in consideration of their pressing adaptation needs and low adaptive capacity, and adopts a short and medium term time horizon (2030 and 2050) consistent with decision-making related to adaptation. The report confirms the findings of the previous edition with respect to the current underestimation of adaptation costs. These could be in fact two-to-three times higher by 2030 and four-to-five times higher by 2050 than current global estimates, totaling to USD 140-300 billion in 2030 and USD 280-500 billion in 2050. The range of estimates depends on the methodology used, the analytical principles applied, and the assumptions made.

The financial resources currently devoted to adaptation still represent a small portion of total climate finance volumes flowing from developed to developing countries. However, the figure has increased considerably in the past 5 years, reaching USD 22.5 billion in 2014. Most of funds have targeted water and wastewater management projects, followed by the agricultural and land use sectors. As for the geographical distribution of recipients, the main beneficiaries are East Asia and the Pacific (46% of the total), followed by Sub-Saharan Africa (14%), Latin America and the Caribbean (12%) and South Asia (9%).

While development financial institutions continue to provide the lion’s share of adaptation funding, dedicated climate change funds are starting to play a crucial role in removing barriers to adaptation investments in developing countries. The report also acknowledges the important contribution of private sector finance for adaptation (debt, equity, and insurance products) despite the great methodological challenges in measuring the actual flows.

Yet, the available finance is still insufficient to meet adaptation costs in the developing world, a gap that is likely to increase substantially up to 2050. The graph shows how the adaptation finance gap could develop from today up to 2030 and 2050. It compares the estimated costs of adaptation against the international public finance actually deployed and the pledges made by developed countries to mobilize USD 100 billion per year from 2020 to be equally split between mitigation and adaptation. While current adaptation costs today are already two-to-three times higher than the finance available, this figure could steeply rise in 2030. Assuming that developed countries’ commitments will be honored, total finance for adaptation should increase from three-to-six times the pledged level. In 2050, the potential adaptation finance gap could be from six-to-ten times higher than the USD 50 billion commitment. It is worth noting that adaptation costs are emission dependent: this means that failing to meet the 2°C target could lead to substantially higher financial needs.

How can this (wide) gap be bridged? Reducing adaptation needs is key, and this can be done by pursuing ambitious mitigation policies in the first place and by reducing existing and future vulnerabilities through climate-resilient development cooperation. On the other side, scaling up both public and private finance for adaptation is equally crucial. Current estimates might underestimate the financial volumes devoted in effect to adaptation, given the methodological difficulties in tracking and reporting private and domestic resources. Yet, the inclusion of the latter would not change the picture that much. It is thus fundamental to move beyond the current pledges as well as to set up frameworks and incentives for enhancing the role of private sector investments in adaptation. The report makes also clear that is not just about financial flows available, but also about how these can be optimally used to have the greatest possible impact. Ensuring the effectiveness and efficiency of adaptation spending will be of paramount importance for delivering long-lasting outcomes that serve the needs and priorities of the most vulnerable.

 

This article was first published on ICCG’s International Climate Policy Magazine n. 41.

(Image: Tea pickers in Kenya’s Mount Kenya region, 2010. CIAT – International Center for Tropical Agriculture. Photo credit: Neil Palmer/Flickr)