Financing Adaptation to Climate Change: A Development Practitioner‘s View

1. Financing Adaptation to Climate Change:A Development Practitioner‘s View Climate Talks - Water Day Bonn - June 2, 2010 Dr. Manuel Schiffler, KfW Development Bank

2. The old challenges have not gone away: The example of water • Low capacity in some countries, especially in Least Developed Countries • Perception of poor governance • Low levels of cost recovery • Population growth and chaotic urbanization • Droughts and floods • Pollution • Inefficient water use • Groundwater overuse • Lack of Integrated Water Resources Management (IWRM)

3. „…must be tackled as an integrated whole“ • “If we try to separate projects or programmes into those which are development and those which are climate change, or even to try to be precise about elements which are one or the other, we risk confusion, disruption and incoherence. We must be committed to both issues, analyze them together carefully, and act in a way that integrates them into projects and programmes.” • “Attempts to build strongly separate adaptation funding arrangements and institutions would be very damaging. (…) The two great challenges of the 21st century, fighting world poverty and tackling climate change, must be tackled as an integrated whole by a united world.” Nicholas Stern, IG Patel Professor of Economics and Government, at the London School of Economics andformer Chief Economist of the World Bank, in: A Blueprint for a Safer Planet, 2009

4. Adaptation funding is already happening • About 38 % of KfW‘s new commitments for water already support adaptation - Flood protection, e.g. in Bulgaria - Loss reduction, e.g. in Jordan - Water conservation and reuse, e.g. in Peru - Watershed management, e.g. in India - Protection of water resources through wastewater treatment and sanitary landfills (worldwide) • Systematic climate auditing (mitigation potential and adaptation needs) is now being undertaken for all new projects at the appraisal stage

5. Public Climate Financing: Committed Grants & Concessional Loans in 2008 36% Source: Estimates based on SEI, GEF & German Parliament 18 billion USD (12 billion €) of new commitments for mitigation & adaptation 5

6. Copenhagen Accord • „new and additional resources (…) approaching USD 30 billion for the period 2010 – 2012 with balanced allocation between adaptation and mitigation.“ (Fast Start) • „Funding for adaptation will be prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa.“ • „In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries.“ (from private and public sources)

7. Fragmentation vs. Consolidation Commitment to consolidation: • Paris Declaration of the OECD on Aid Effectiveness • Accra Declaration • EU Investment Facilities (16 European financing agencies join forces) Trend towards fragmentation: • Existing multilateral and bilateral development financing • WB Strategic Climate Funds • UNFCC Adaptation Fund • Possible new EU Climate Facility • Bilateral Facilities • Etc.

8. International Climate Financing: Multi-Channel System National Budgets & International Sources of Finance Sources Channel 1 Channel 2 Channel 3 CIFs CTF SCF NEW? UNFCCC Climate Funds GEF, AF & NEW? Trustees Others BFIs IFIs BFIs? BFIs? IFIs? Implementing Bodies Developing Countries: Budgets, Programmes, Projects, Companies, Civil Society 8

9. What does this mean? • Need to ensure sector expertise in water projects financed through Climate Funds • Commitments to adaptation must be channeled via experienced financing institutions • Accreditation of bilateral financing institutions such as AFD and KfW to GEF and Climate Funds • Further fragmentation should be limited as much as possible

10. Analytical work at KfW • “River Basin Snapshots” to summarize research on water impacts at the basin level: Souss (Morocco), Rimac (Peru), Niger (West Africa), Aras-Kura (Caucasus), others • Identification of pilot adaptation projects, e.g. in Morocco, India, West Africa, Guatemala etc. • New financing mechanisms • Cost-benefit analysis of adaptation, incremental cost analysis • Working closely with GTZ and relevant federal Ministries in the preparatory process for Cancun and beyond • Working with other development Banks (World Bank, EIB, AFD etc.), e.g. through a seminar on financing adaptation to climate change at World Water Week 2010