How should funding for climate change adaptation be generated, channelled and spent? This paper explores the opportunities and challenges involved in financing adaptation efforts in developing countries. Helping developing countries adapt to climate change will involve enormous resources, above those already assigned for development. Finance mechanisms that can deliver this additional level of resource need to be designed. Separating the different processes around generating, channelling and spending adaption finance offers a way forward. Donor country policymakers need to understand that effective approaches to adaptation finance will require attention to all three phases of decision-making, and to the interplay among them in any political context.
How adaptation funds are generated need not determine the choice of particular institutions for channelling funds, or the programmes for spending them. The separation of the decision making processes could offer two key benefits vital for adaption finance: innovation and political acceptability.
Public funding mechanisms for raising adaptation finance include national budgetary allocations, national market-based levies and global market-based levies, and vary in their levels of innovation. No single mechanism will meet the principles of ensuring adequate, predictable and additional funding; it will be necessary to advance the most promising mechanisms (such as auction revenues from proposed national and regional greenhouse gas markets). Other challenging issues include:
- Who should distribute adaptation funds? The array of institutions involved will nevertheless allow much experimentation, which is important given the lack of global experience on adaptation finance.
- The fragmentation of adaptation finance: The range of bodies involved in channelling adaptation finance poses challenges of coordination for those generating and receiving adaptation finance.
- The effective use of adaptation funds: Most efforts to date have adopted single project-based funding approaches which are slow and piecemeal. Spending adaptation finance should ideally be integrated into wider development programmes.
Experimentation and political feasibility will be crucial to the success of adaptation finance. The (ultimately failed) introduction of the Boxer-Lieberman-Warner US climate change legislation in 2008 offers a number of lessons for the politics of adaptation finance. For example, it shows that the politics of adaptation may be quite different in the three key phases of the decision-making process, since different issues and principles come into play when deciding about generating, channelling and spending funds.