Strengthening the Adaptation Fund: Review of Potential Sources

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

2. Estimates of adaptation costs for Africa

3. Adaptation funding for Africa (in US$ million, as on 28 March 2012) Source: Climate Funds Update website Note: GEF5 figure shows funding marked for multiple foci (not specifically adaptation).

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

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

6. Sectoral and geographical distribution of projects funded by Adaptation Fund Source: Adaptation Fund website (accessed on 9 August 2012)

7. 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

8. 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

9. Potential sources • Redirecting fossil fuel subsidies • Carbon taxes • Auctioning emissions allowances

10. 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?

11. 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

12. 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?

13. 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

14. 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

15. Selected proposals to generate climate finance Bunker fuel emissions tax Brendenkamp and Patillo (2010): SDRs and green bonds 100 Silverstein (2010): Rising global carbon tax Swiss proposal: global carbon tax Likely revenue (billion USD/year) Norwegian proposal: auction allocations Ward (2010): 2-tier debt-equity model Border cost levelling ET levy 1 HIGH Predictability of revenue LOW Source: Adapted from Hof et al (2011) and others