Financing climate adaptation with a credit mechanism: initial considerations

Abstract

Climate mitigation credits have mobilized considerable resources for projects in developing countries, but similar funding to adapt to climate change has yet to emerge. The Copenhagen Accord targets up to US$50 billion per year in adaptation funding, but commitments to date have been trivial compared to what is needed. Although there are some studies and suggestions, it remains unclear where the money will come from and how it will be disbursed. Beyond this, many development experts believe that the main hurdle in climate adaptation is effective implementation. A framework, based on the polluter pays principle, is presented here regarding the mobilization of resources for adaptation in developing countries using market mechanisms. It is assumed that mitigation and adaptation are at least partly fungible in terms of long-term global societal costs and benefits, and that quantifying climate vulnerability reductions is possible at least sometimes. The scheme's benefits include significant, equitable and flexible capital flows, and improved and more efficient resource allocation and verification procedures that incentivize sustained project management. Challenges include overcoming political resistance to historical responsibility-based obligations and scepticism of market instruments, and, critically, quantifying climate impact costs and verifying investments for vulnerability reduction credits.