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AID POLICY: Climate change and adaptation funding equally unpredictable

Johannesburg, 11 February 2010 (IRIN) - Money - as in every other sphere of life - has been a contentious aspect of global climate change. Are rich countries keeping their end of the bargain in helping poor countries adapt to increasingly erratic weather patterns? Are some poor countries exagerating financial needs or their ability to spend funds?

There are two main issues: the amount of external finance needed to help poor countries adapt, and how it should get to them. A stew of proposals has been simmering for years, but new promises at the last round of climate change talks in Copenhagen in December 2009 heated up the pot.

Developed countries put "new and additional resources" for adaptation and mitigation in the mix, including investments via international institutions amounting to US$30 billion from 2010 to 2012, and in the long term promised to "mobilize" $100 billion a year by 2020.

This raised a flurry of reactions from developing countries, academics, environmental aid activists and NGOs. "Where is the money going to come from?"; "How much of it is new and additional?"; "We need predictable funding"; "Any funds should be besides the ODA [Official Development Assistance]"; "There are too many sources of funds - how do we monitor them?"

Two recent papers have attempted to find answers: a discussion draft by the World Bank, Monitoring and Reporting on Financial Flows Related to Climate Change; and a briefing paper, Copenhagen's climate finance promise: six key questions, by the UK-based International Institute for Environment and Development.

IRIN takes a closer look at some of the issues around adaptation funding.

Q: What are the sources of funding for adaptation?

A: Adaptation finance is being provided by a "spaghetti-bowl" of "bilateral and multilateral channels", as Oxfam, the UK-based development agency put it in its paper, Beyond Aid.

a) The UNFCCC has set up various funds: the Adaptation Fund, the Least Developed Countries Fund, and the Special Climate Change Fund. The Adaptation Fund is to be financed by a levy on the Clean Development Mechanism; the other two are multilateral funds managed by the Global Environment Facility, the UNFCCC's financial mechanism.

''Current approaches have been built ad-hoc upon an inappropriate aid infrastructure. The result is opaque, underfunded, overly complex, and poorly coordinated''
The Global Environment Facility allows industrialized countries to earn and trade emissions credits, called Certified Emission Reductions, by implementing projects either in developing countries or other developed countries, and then to put the credits towards meeting their targets for greenhouse gas emissions.

Other funds specifically for climate change are the Climate Investment Funds (CIF), a collaborative effort between multilateral development banks and developed countries to "bridge the financing and learning gap between present needs, and a global climate finance architecture (being currently negotiated under UNFCCC)", according to the World Bank paper.

All these funds are topped up on a voluntary basis. The contributions are counted as Official Development Assistance by the members of the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD), which includes all the major developed countries. The Development Assistance Committee is the principal OECD body dealing with co-operation with developing countries.

b) Other non-climate specific assistance by the Development Assistance Committee includes grants or concessional lending, such as technical assistance, budgetary support or help for climate-friendly projects, e.g., an insurance scheme covering climate variability.

c) Philanthropy: the World Bank report noted that foundations and private companies covered lot of ground in development finance, but the amount of money for climate change-related activities was unquantified.

Between 2000 and 2008 US foundations doubled their number of grants for climate change activities and increased their commitment from less than $100 million to nearly $900 million, according to the Foundation Centre, which maintains a database of all US grant-makers.

Q: How much money could or should be made available?

A: No one knows for sure. The UNFCCC has estimated that by 2030 poor countries would need between $28 billion and $59 billion a year to adapt; the World Bank thinks between $20 billion and $100 billion should do it; the European Union Commission put the amount between $10 billion and $24 billion a year by 2020, and the African Group of climate change negotiators arrived at a sum of more than $67 billion a year by then.

Although the amount of money flowing to developing countries for climate change-related projects and programmes is growing, it still covers less than five percent of the estimated funding required, said the World Bank report.

Until recently, many poor countries and think-tanks have looked to the UNFCCC's Adaptation Fund to provide most of the money. The World Bank feels that, depending on the performance and price of Clean Development Mechanism projects, the Adaptation Fund could only raise between US$300 and $600 million by 2012.

But there are reasons why rich countries have been reluctant to part with money. "Some industrialized country voices – already stressed by economic crisis expenditures and deficits - counter that adaptation is an ambiguous concept, and that many developing countries have poor track records in using foreign assistance funds in transparent, efficient and non-corrupt ways," commented a paper, Financing Urgent Adaptation by the Geneva-based Global Humanitarian Forum, a non-profit foundation.

And adaptation is not just about throwing a lot of aid to make the problem go away. "Support of adaptation action requires an efficient use of funds as well as an integration into country-driven development policy and planning," pointed out the German Development Institute, a Bonn-based think-tank in a paper on providing budgetary support for adaptation. "There is an urgent need to go beyond vulnerability assessments and the implementation of singular, stand-alone adaptation projects typical of current practice in international adaptation finance."

Q: What problems are there in mobilising and tracking adaptation funds?

A: Quite simply, not enough money is flowing in, and the funds that are being delivered are difficult to track and monitor in the complex and chaotic funding landscape.

Since it was set up in 2001, the Least Developed Countries Fund has received pledges of around $176 million, but it says it needs $1.5 billion to help poor countries address their immediate adaptation needs.

"Current approaches have been built ad-hoc upon an inappropriate aid infrastructure. The result is opaque, underfunded, overly complex, and poorly coordinated," Oxfam said.

Jessica Brown, a researcher at the Overseas Development Institute, a UK-based think-tank, commented in an opinion piece that because aid funding was rooted in the Official Development Assistance approach it was "set up for failure".

The World Bank paper noted that Official Development Assistance (ODA) was meant to help developing countries achieve their Millennium Development Goals (MDGs), and OECD countries had made a global commitment to allocate 0.7 percent of their gross domestic product to this end by 2015, but "funds addressing climate change are not a part of this commitment."

Oxfam pointed out that "Reliance on bilateral aid channels, and the lack of effective developing country representation within multilateral governance structures means that adaptation is not demand-led, but instead is driven by donor priorities and preferences."

Papers by the International Institute for Environment and Development, the World Bank, and the Oxford Institute for Energy Studies emphasised that it was extremely difficult to keep track of funds, as the lines between Official Development Assistance for mitigation, adaptation and development were fudged.

For example, the World Bank said, building a seawall against rising tides could easily be slotted into an adaptation action, but "climate resilient road construction" also had "strong developmental implications".

Many OECD countries viewed climate and development financing as closely linked at the "project level, and difficult to separate", said the World Bank. "Therefore, all concessional aid, irrespective of its use, should be recorded as a part of their ODA." Some developed countries also count their ODA to environment-related MDGs as their contribution to climate finance.

The Bali Action Plan, a roadmap for a new climate change treaty when the first phase of the Kyoto Protocol expires in 2012, reiterated the need for climate change finance flows to be "new and additional, not taking the place of previous commitments of foreign aid (official development assistance), and which are 'measurable, reportable, and verifiable'", the Oxford Institute for Energy Studies maintained.

Q: Is there a way out of the financing quagmire?

A: Not anytime soon. As the World Bank pointed out, there is a fundamental difference between how developing and developed countries view climate financing. Most developing countries see climate finance as an "entitlement" and not as aid. "Accordingly, it should be considered as an obligation for those who caused the emissions historically, and not structured as repayable loans."

The World Bank noted that "Irrespective of the outcome of this political process", climate change finance needs to be recorded "in a systematic and mutually agreed manner to allow substantive analysis and reporting, tracking progress made in implementing the Copenhagen and post-Copenhagen decisions."

Saleemul Huq, of the International Institute for Environment and Development, underlined the need to monitor and track climate finance. "Developing countries have been burnt before by promises of funding made but not delivered ... Failure to deliver and monitor funding for climate actions will further undermine trust in them," he told IRIN.

"The clearest and most unequivocal way to demonstrate the funds are genuinely 'new and additional' is to channel them through Funds created under the UNFCCC." Using traditional bilateral and multilateral agencies made the accounting "extremely difficult (if not impossible)", he said in an email.

OECD member countries that have reached their target on MDG funding can consider climate finance as additional, but for those countries still "below their commitments, or without explicit targets, this will be more complicated," the World Bank paper commented.


Photo: Geoffrey Cain/IRIN
Adaptation action needs to become part of government planning
The Overseas Development Institute's Brown suggested raising funds through market-based mechanisms, such as an international auction of emission allowances and levies, or taxes from international shipping and aviation.

Remy Paris, who heads the environment and sustainable development section of the OECD's Development Assistance Committee, acknowledged the problems in distinguishing between funds with a development objective and money meant for adaptation projects. "They have very similar objective." The OECD said it hoped a new "Rio Marker", to be applied in 2011, would help.

Q. What are "Rio Markers"?

A: The UN Convention on Biological Diversity, and the UN Convention to Combat Desertification, signed as part of the global UNFCCC at the Rio Conference in 1992 (the "Rio Conventions"), committed developed countries to helping poor countries implement these agreements.

According to the OECD, since 1998 the Development Assistance Committee, using its Creditor Reporting System - the so called "Rio Markers" - has monitored every aid activity aid targeting the objectives of the Rio Conventions to determine whether it has succeeded or not.

The World Bank pointed out that the only Rio Markers for climate change - for mitigation projects - have been applied on a trial basis from 2005, and on an institutional basis from 2008, but not all OECD countries report on them at present.

Huq commented that "Developing a Rio Marker for adaptation will be at least ten times more difficult, in my view."

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Theme (s): Aid Policy, Economy, Environment,

[This report does not necessarily reflect the views of the United Nations]

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