Mainstreaming, accessing and institutionalising finance for climate change adaptation
The cost of adapting to climate change in developing countries could rise to between US$280 and US$500 billion per year by 2050 (UNEP, 2016).
Moreover, adaptation costs are likely to increase, even if the world succeeds in limiting the global temperature rise to well below 2°C above preindustrial levels by 2100 (ibid.). Past assessments seem to have substantially underestimated adaptation costs in developing countries, owing to the omission of some sectors, only partial coverage of others and unforeseen costs from maladaptation (Parry et al., 2009). What further leads to lower cost estimates is the fact that much of the literature on adaptation costs focuses on planned public adaptation, overlooking autonomous and private adaptation, which—if included—could raise cost estimates significantly (UNEP, 2016).
While the Paris Declaration’s Nationally Determined Contributions (NDCs) represent laudable progress on adaptation, the costs of their actions substantially exceed current finance levels (UNEP, 2016). The shortage of adaptation finance has been aggravated by the fact that climate funds have been created but not sufficiently capitalised.
Many climate funds are slow to disburse in general, and even slower in disbursing for adaptation (as opposed to mitigation), hindering much-needed adaptation actions. While climate funds are popular with governments and fulfil an important role in providing additional flexible finance for climate change, the sheer volumes required for adaptation far exceed the current climate fund amounts, making it evident that in most countries the bulk of adaptation action will have to be funded through expenditure from core development budgets and fiscal means.
To this end, governments can benefit from a framework that allows them to mainstream climate change into their core development budgets.
Financing frameworks for resilient growth (FFRGs) offer a way to estimate the economic cost of climate change damage, to quantify the adaptation benefits of current expenditure, to assess the adequacy of such expenditure relative to the projected economic cost of climate change and to identify areas where additional financing is needed to reduce the economic impact of climate change.
Action on Climate Today (ACT), a UK Aid-funded programme focused on climate-proofing growth in five South Asian countries, responds to these challenges through its focus on mainstreaming climate change across budgets and helping government access new finance, while strengthening institutions to take action on both.
ACT has utilised its financing frameworks as a mechanism for 1) raising government awareness of adaptation needs; 2) helping governments identify key priority sectors or actions where investment is needed; 3) mobilising finance from development budgets and assessing the adequacy of effort; and 4) reporting on adaptation-relevant expenditure, thereby adding to accountability and transparency.
This paper reviews the current state of practice and debates related to the mainstreaming of adaptation finance and synthesises experience and key lessons from the ACT programme that may be of relevance to practitioners and governments working to mobilise financing for climate-resilient growth and development.
In particular, this paper reviews:
- Methods for estimating the climate change relevance of budgets or expenditure;
- Approaches to budget tracking and expenditure review;
- Estimations of economic loss and damage;
- Calculation of the adaptation financing gap;
- The development of financing scenarios;
- Approaches to closing the adaptation gap;
- Key entry points for mainstreaming climate adaptation finance.
The paper also discusses necessary institutional mechanisms and the capacity development required for effective climate finance mainstreaming and provides key lessons for practitioners and government agencies looking to undertake similar work.