Strengthening the Adaptation Fund: Review of Potential Sources African Climate Policy Centre (ACPC) The Energy and Resources Institute (TERI)

Estimates of adaptation costs for Africa

Adaptation funding for Africa (in US$ million, as on 28 March 2012) Total pledged Approved for Sub-Saharan Africa Disbursed to Sub-Saharan Africa Dedicated funds for adaptation Adaptation Fund Pilot Programme for Climate Resilience Special Climate Change Fund Least Developed Countries Fund Sub-total Other funds for adaptation International Climate Initiative85112 Global Climate Change Alliance GEF Trust Fund - climate change focal area (GEF ) Sub-total Total Source: Climate Funds Update website Note: GEF5 figure shows funding marked for multiple foci (not specifically adaptation).

The Adaptation Fund Financing concrete adaptation activities A more inclusive governance structure Direct and indirect access model Innovative financing approach

Sectoral distribution of projects identified in African NAPAs Source: UNFCCC (2012)

Sectoral and geographical distribution of projects funded by Adaptation Fund CountryAmount (US$)Sector Eastern Africa30,412,135 Djibouti4,658,556Agriculture Eritrea6,520,850Agriculture and water resources Madagascar5,104,925Agriculture Mauritius9,119,240Coastal Tanzania5,008,564Coastal Northern Africa6,904,318 Egypt6,904,318Food security Western Africa16,422,605 Mauritania7,803,605Food security Senegal8,619,000Coastal Source: Adaptation Fund website (accessed on 9 August 2012)

The case for strengthening the Adaptation Fund through Additional Revenues The main source will be dwindling – Price of carbon expected to decrease 3 countries moving out of the Kyoto Protocol Less ambition Unilateral measures The demand for adaptation will increase – Parties start implementing projects after needs assessment – Actual and expected changes become graver than anticipated: improvements in prediction, less mitigation ambition

Potential sources Emissions levy Extending the levy on CDM to JI and International Emissions Trading Extending the levy on CDM to the NMM and various market-based approaches (including those operating nationally) Raising the levy on the CDM An international air travel adaptation levy

Potential sources Redirecting fossil fuel subsidies Carbon taxes Auctioning emissions allowances

Requirements How much can be raised from a particular source? What are the incentives and disincentives to reduce emissions associated with a particular source? To what extent a particular source is consistent with equity, the principle of common but differentiates responsibilities?

Requirements Do we have (or can we quickly to establish) the right institutional framework to be able to mobilize resources from a particular source? How predictable is the flow from the source? Additionality Political acceptability

Preliminary assessments Emissions levy – Could potentially generate significant resources – Provides the right incentives to reduce emissions and hence minimizing the costs of adaptation – Scope for lower or no levies on some regions and countries – Political acceptability?

Preliminary assessments Extending the levy on CDM to JI and International Emissions Trading – Revenue depends on demands for credits and allowances from JI and IET – Difficult relationship with the incentive to reduce emissions – In terms of equity, better than the levy on CDM

Preliminary assessment Extending the levy on CDM to the NMM and various market-based approaches (including those operating nationally) – Very important, particularly considering the potential to generate significant amount of credits and allowances (sectoral approach) and NMM could potential reduce the revenue from CDM to the AF – Difficult relationship with the incentive to reduce emissions – In terms of equity, mixed outlook

Selected proposals to generate climate finance Predictability of revenue LOW HIGH Likely revenue (billion USD/year) Swiss proposal: global carbon tax ET levy Norwegian proposal: auction allocations Bunker fuel emissions tax Source: Adapted from Hof et al (2011) and others Silverstein (2010): Rising global carbon tax Border cost levelling Brendenkamp and Patillo (2010): SDRs and green bonds Ward (2010): 2-tier debt-equity model