In what is being hailed as a breakthrough for a "collective effort" by developed and developing countries, the Adaptation Fund set up by the UN to help poor countries cope with the unfolding impact of climate change has finally become operational.
Last week, the Fund's board approved two adaptation projects, one in Senegal - threatened by sea-level rise, less rainfall and high temperatures - and the other in Honduras, which faces increasing water shortages.
The two projects worth a total of about US$14 million are not only the first to be approved by the board but also the first to get money directly from the Fund. Developing countries had been lobbying for direct access, and have now been granted control over how to spend the funds.
The decision is good news ahead of more UN climate change talks slated for December in Mexico.
The money for the Senegal project will be used to implement the country's National Adaptation Plan for Action in the areas of Rufisque, Saly and Joal, along the country's west coast, and will cover actions to protect houses from flooding, erosion and sea-level rise. The project also aims to help rice growers and the fishing community in the region adapt to increased salinization.
Honduras will use the funds to improve water management in its capital region of Tegucigalpa. At least 13,000 households stand to benefit.
Direct access marks yet another "positive and innovative action" by the Fund, said Saleemul Huq, lead author of the chapter on adaptation in the Intergovernmental Panel on Climate Change's fourth assessment report.
Huq, a senior fellow at the UK-based policy think-tank International Institute for Environment and Development, said the decision adds to the growing list of "positive and innovative features" of the Adaptation Fund. He said these included “its uniquely innovative source of funding through an adaptation levy, its governance structure, which - again uniquely - has a majority of developing countries, and its genuinely participatory and collegial board".
Besides direct contributions from developed countries, the Fund raises money from a levy of about 2 percent on credits generated by the Clean Development Mechanism (CDM) set up under the Kyoto Protocol, which in turn operates under the UN Framework Convention on Climate Change (UNFCCC).
The mechanism allows industrialized countries to earn and trade emission credits by implementing projects in developed or developing countries; they can then put the credits towards meeting their greenhouse gas emission targets.
Sven Harmeling, co-chair of the adaptation working group of Climate Action Network International, a global coalition of NGOs, said the Fund’s board "has shown that a collective effort of experts from developed and developing countries, even with a majority of developing country representatives, has been able to set up a consolidated Fund which had to face many complex and new issues, and which manages to address concerns from different sides with regard to fiduciary standards for direct access."
"Developing countries should now do their best to show that they really want to use the direct access opportunity, to show that they are willing to take up the associated responsibility," he said.
The decision to set up the Fund was taken almost 10 years ago under the Kyoto Protocol. Vulnerable countries are given the option of directly accessing money through their national institutions charged with implementing the projects. The first such body - Le Centre de Suivie Écologique du Sénégal - was approved in April 2010.
Similarities with Global Fund
The Fund's direct access approach is "unique in international environmental governance", said Harmeling, pointing out that the only similar example was the Global Fund to Fight HIV/Aids, Tuberculosis and Malaria, which had inspired it.
"Both funds are the only ones which allow developing countries to directly access resources, and in my view the Global Fund has shown that it is a workable approach, which can increase significantly the ownership of developing countries... Of course, the scale of the two Funds cannot be compared, since the Global Fund manages several billion dollars."
Harmeling, who is also senior adviser at Germanwatch, a North-South watchdog initiative, asked: "However, if donors admit to give billions of dollars in a direct access health fund, why shouldn't they in an international climate fund?"
Short of funds
Marcia Levaggi, manager of the Adaptation Fund’s board secretariat, told IRIN, the Fund had about $150 million - far short of the sum required, according to various estimates.
UNFCCC reckons that by 2030 poor countries would need $28-59 billion a year to adapt; the World Bank $20-100 billion; the European Union Commission $10-24 billion a year by 2020; and the African Group of climate change negotiators more than $67 billion a year by 2020.
Huq noted that while "money is available in the short term for initial projects", there could be bottlenecks “as more countries get their national implementing entities approved and submit project proposals".
Model for the future?
There is still a lot to learn and build on for the Adaptation Fund, which could be the "model for the future" for other climate financing mechanisms, reckoned Harmeling.
The Global Fund's country-coordinating mechanisms such as the multi-stakeholder forum, which decides on which proposals to submit could be a feature to emulate, he suggested.
The Adaptation Fund also needed to build on its repository of national implementing entities "as much as possible while at the same time ensuring that the fiduciary management standards are not weakened," said a paper Harmeling co-wrote with Alpha Oumar Kaloga, a member of the Guinean delegation at the UNFCCC talks.
But a contentious issue is still outstanding: the criteria on which decisions are made as to which project gets the money first. There have been heated debates at various UNFCCC talks on how to assess the extent to which individual developing countries are vulnerable to climate change, allowing a fair allocation of funds.
It was easy to allocate funds to the projects in Senegal and Honduras as they were the only fully-developed proposals on the table, said Levaggi. Harmeling believes it would be better to allocate money regionally as it is not clear that every developing country will submit a project.