Berlin, 26 May 2008 Jan Kowalzig, Oxfam Germany

1. Innovative Finance forAdaptation to Climate Change in Developing Countries- an NGO perspective - Berlin, 26 May 2008 Jan Kowalzig, Oxfam Germany

2. Now • Principles for funding • New instruments for raising funds • Conclusions & Summary

3. Principles for funding

4. Principles for funding: above all... • Drive down the costs by avoiding the worst:Adaptation will become a mission impossiblewithout fast, effective and massive mitigation- Limit global warming to below 2°C- Peak emissions by 2015- Reduce global emissions by 80% by 2050

5. Raising the money Contributing to mechanism Institutional arrangements /administering the funds Disbursement of funds predictable additional fair & equitableadequate needs basedeffective democraticefficient Principles for funding • 1/CP.13: adequate, predictable, new & additional • Oxfam: fair & equitable, democratic & effective • Address entire “funding chain”:

6. Principles for funding: “adequate” • Current funding- LDCF+SCCF: ~$265m- Adaptation Fund: $80m-$300m per year, $100m to $5bn by 2030- GEF SPA: $50m= less than 1 year US spending on suntan lotion • Funding requirements- UNFCCC: $28bn-$67bn by 2030- UNDP: $86bn by 2015- Oxfam: at least $50bnODA: ~$100bn

7. Principles for funding: “new & additional” • Additional to existing ODA commitments (0.7%):ODA needs (health, education, development etc.) should not be compromised. Funding is not aid but compensation. • But: mainstreaming adaptation into development co-operation makes split difficult, and new funding from national budgets beyond ODA will be difficult. = instruments bypassing national budgets needed!

8. Principles for funding: “predictable” • Voluntary pledge-based system has failed • Binding rules, commitments & quantified targetsto realise necessary finance year by year, and get non-Annex 1 country buy-in to post-2012 regime • De-linked from national politics (and elections), instruments bypassing national budgets

9. Principles for funding: “fair & equitable” • Grants not loansCrashing your car into one’s house and thenoffering a loan to repair it? • Responsibility and capability:Level of funding based on polluter-pays principle and economic strength to address the crisis

10. Principles for funding: “fair & equitable” II • Greenhouse Development Rights (Ecoequity):- RC-Index for differentiation & graduation- Development threshold: minimum average income- Equity within national borders • Adaptation Finance Index (Oxfam):- RC-Index for differentiation & graduation- Development threshold: minimum HDI • Mexican proposal:Multilateral Climate Change Fund

11. Principles for funding: “fair & equitable” III • Taking responsibility & capability seriously:- EU: 27-32% of overall burden- Germany: 6-7% of overall burden

12. Principles for funding: “democratic” • Developing country control:- compensation, not aid- not attached to conditionalities- developing country majority • Avoid proliferation of funds:- New money to go into UNFCCC Adaptation Fund- Emerging funding mechanisms to be folded into AF

13. Principles for funding: “effective” • Needs based and targeted on the poorest:Focused on vulnerable communities & marginalised groups, natural resource management • Fast and easy access, also for NGOs, not only governments • Integrated with development& PRS (but: ODA+) • Incentivise further action:Insurance and risk sharing systems (but: avoid burden transfer to poor people)

14. New instruments for raising funds

15. New instruments: existing architecture • Extending 2% levy to JI and IET:$10-50m by 2010, depends on demand relatively predictable, additional to ODA low turnout, depends on JI/IET post-2012 markets • Increase CDM levy to 3-5% (Pakistan) predictable, higher volumes, additional to ODA penalises mitigation efforts (but links adaptation with mitigation), seen as adaptation burden transfer, depends on future demand for CDM

16. New instruments: auctioning revenues • Auctioning of a small portion of CP2 AAUs:Several $bn, depending on share (e.g. 5-10%)  predictable, potentially high turnout, polluter-pays motivates to negotiate for lax post-2012 targets, could be counted as ODA (depending on design) • Auctioning maritime and aviation emissions:$22-40bn annually, depends on carbon price predictable, high turnout, polluter-pays, less sovereignty concerns, additional to ODA depends on carbon price

17. New instruments: auctioning revenues II • Earmarking of regional/national ET revenues:EU-ETS: €8-20bn by 2013, up to €50bn by 2020 predictable flows, potential high turnout, polluter-pays constitutional excuses, depends on carbon price, can be ruined by high influx e.g. of forest credits, can be counted as ODA (Germany).US: Liebermann-Warner Climate Security Act- $1bn by 2012, up to $6bn by 2030 for adaptation and national security

18. New instruments: taxing polluters • International Air Travel Adaptation Levy:$8-15bn annually predictable & high turnout, polluter-pays can be counted as ODA • Tuvalu Proposal for shipping and aviation:0.01/0.001% levy on transport operations, <$100m predictable flows, polluter-pays probably not very high turnout, can be counted as ODA

19. New instruments: taxing polluters II • Levy on fossil fuels sales, carbon taxGermany: €18-19bn in 2008 predictable flows once established, high potential turnout issues of national sovereignty, can be counted as ODA • Divert fossil fuel subsidiesEU 2001: €22bn to fossil energy Mitigation link, high potential turnout issues of national sovereignty,can be counted as ODA

20. New instruments: insurance & risk sharing • Insurance initiatives:Problem: insurance in low income high risk regions unaffordable, especially for the poor who also suffer most from disasters- Weather index based insurance that pays out on trigger rather than proof of loss (e.g. India)- Polluter-funded capital reserves can reduce costs for insurance holders- Directly subsidise premiums, or “in-kind” premiums e.g. adaptation measures (Germanwatch)

21. New instruments: insurance & risk sharing • Insurance initiatives, ctd: - Reinsurance cover for rare but extreme events through Annex 1 countries- But: premiums = burden transfer to poor people, will have to be recycled back to local society

22. Conclusions & Summary Conclusions & Summary

23. Raising the money Contributing to mechanism Institutional arrangements /administering the funds Disbursement of funds Conclusions & Summary • No special preference for any particular instrument • Probably several instruments needed • Tendency towards pollution-oriented instruments that link adaptation with mitigation • Entire “funding chain” needs to be addressed:

24. Raising the money Contributing to mechanism Institutional arrangements /administering the funds Disbursement of funds Conclusions & Summary II • International Negotiations, next steps- Decide on level of finance required- Define “new & additional”- Identify possible instruments, including incentives, and addressing entire “funding chain”

25. Conclusions & Summary III • Criteria:- adequate: 50-86bn annually, grants not loans- predictable: binding commitments & reliable flows- additional: beyond existing ODA commitments- fair: responsibility/capability, EU share: 27-32% - democratic: developing country majority, channelled through Adaptation Fund- effective: easy access, focused on vulnerable communities & marginalised groups, natural resource management, incentivise further action, integrated with development (but: ODA+)

26. Thank you.