Speakers:

Tom Mitchell - Head of Programme, Climate Change Environment and Forests, ODI

Tim Gore - Senior Climate Change Policy Advisor, Oxfam

Chris Murgatroyd - Head of Adaption, Climate and Environment Department, DFID

Lisa Elges - Programme Manager, Climate Governance Programme, Transparency International

Chair:

Marcus Manuel - Head of Programme, Centre for Aid and Public Expenditure, ODI

Dr. Tom Mitchell opened with making key observations on climate finance spending and drew on some of the latest research on climate finance at the ODI from the Climate Funds Update project.

Adaptation finance accounts for a relatively small proportion of climate finance (13.2% of approved and 21.2% disbursed finance), most of which is weighted towards mitigation projects. In terms of adaptation funding, US$3-4 billion fast-start finance has been pledged, $1 billion has been approved and $350 million disbursed.

One of the main challenges of climate finance is finding a common methodology and definition of what it means to pledge, approve and disburse funds.  Without this, it is hard to effectively track the eventual use of climate funds, in particular how much is being used to promote pro-poor climate-resilient development in recipient countries which at present is irregular. 

Supply and demand for climate finance is not well-aligned, especially when comparing sectoral distribution of funds to needs outlined in country NAPAs (refer to Tom Mitchell’s presentation).  For instance, there is significant under-resourcing in food security, water resource management, disaster management and early-warning systems and an over-resourcing of ‘capacity-building’ projects.  Overall, the financial demands of NAPAs are not met.

Moreover, some countries find it easier to access climate funds than others (i.e. Bangladesh, Niger, Mozambique) while fragile countries find it more challenging to access funds.  Many LICs are not being categorised as LDC and cannot access finance under the LDC UNFCCC criteria.  Often adaptation finance is based on capacity to deliver rather than need.

Grants may not be the most effective way of delivering climate finance among recipients; concessional loans may be more appropriate for some countries, evidenced by the fact the concessional loan option for the pilot programme on climate resilience was over-subscribed for climate resilience.  Concessional loans are often easier to use as well as having the capacity to engage the private sector.  However, loans may not be accepted by civil society for developing countries as evidenced by protests in Nepal over government proposals to apply for concessional loans through the Strategic Programme on Climate Resilience (SPCR).

There is often the rhetoric of principles but there is no robust discussion of modalities on the ground.  ODI  research for the EDC2020 project found that in Bangladesh and Indonesia the Paris Declaration were not being followed and there was evidence that different climate funds and donor approaches were creating parallel structures that undermined government policies.  There is a distinct clack of donor coordination and a lack of confidence in existing financial mechanisms. There is a need to learn the lessons from the aid effectiveness agenda even though climate finance should not be considered aid (see Climate Finance in Bangladesh:

Lessons for Development Cooperation and Climate Finance at National Level).

Other issues in adaptation include
• What adaptation is meant to achieve has not been defined
• MRV is poorly defined by the UNFCCC
• There is a tension between adaptive capacity and adaptive action
• Ensuring adaptation finance has a pro-poor element and addresses community-level adaptation as well as at the national level
• Should adaptation finance have a pro-poor element?
• A lack of analysis of effectiveness of different instruments taking into consideration that scale does not equate to effectiveness
• Little comparative analysis of projects vs. programmes, multi-lateral vs. national delivery mechanisms
• Thus far there has been a relatively low amount of money flowing through the UNFCCC’s adaptation mechanisms.

There is a need for a robust assessment of the spending of adaptation funding rather than an excessive focus on the sources of adaptation; the Green Fund’s adaptation window will be a critical input for addressing these challenges.  It is important climate finance should not detract from emissions reductions.

Tim Gore analysed the delivery of adaptation projects and how to measure progress and value for money with a pro-poor outcome.  He outlined how Oxfam’s perspective puts the participation of marginalised and poor people at the heart of ensuring effectiveness and identified priorities in its delivery.  He stressed the need for a more streamlined and harmonised international system and highlighted how the Green Fund is an opportunity to do this.

Mechanisms to meaningfully reach out to communities in all recipient countries are required. Mr. Gore argued for a national delivery mechanism that can identify a lead agency to be responsible receiving adaptation funds, possibly the Ministry of the Environment, with affected communities playing a central role in defining indicates that will be used to determine the effectiveness of climate finance/adaptation.

Oxfam sees national ownership as critical.  There needs to be leadership across government with buy-in from all ministries, not just the environment ministry.  Adaptation finance should be provided as general budget support which will support capacity-building in the management of public funds.

In Bonn (June 2011 ) Oxfam will launch its report on an assessment of national governance of climate finance and key challenges.  It highlights that adaptation is currently around governments rather than in support of them, which undermines capacity.  There is also a lack of a clear leadership within government to identify adaptation strategies due to a lack of capacity and meaningful participation of communities is yet to be fully realised in recipient countries.

Ensuring national ownership presents a dilemma if capacity is low. There is a trade-off to ensure government leadership or to ensure government capacity in the first instance.  If adaptation funds are channelled through NGOs this could undermine government (i.e. in Cambodia) but if used appropriately funds could be used by NGOs to build government capacity.  In Ethiopia, donors supported adaptation projects but these were not in the NAPA and did not support existing national-level strategies. While in Nepal, 14 development partners signed a compact with the Environment Ministry to align efforts but in reality, most funding has been one-off projects outside of the government’s national plans. 

A focus on national ownership is critical and adaptation priorities should be nationally-led, with the participation of civil society. However, participation of poor people is minimal at the present time. For instance, during NAPA procedures in Cambodia civil society was only invited when the NAPA was practically a finished document. However, in Bangladesh where there is a strong civil society 2 of the 17 seats of the board of the Bangladesh Climate Change Trust Fund have been reserved for civil society. Adaptation funding should be made available to support communities to build their capacity and hold governments to account for the funds they receive.

Evidencing value for money remains a challenge for adaptation finance. 

Much adaptation finance remains on a trial and error basis and there needs to be flexibility to make mistakes and learn lesson. However, with the Green Fund we have an opportunity to address these issues and get it right.

Chris Murgatroyd outlined how while DFID funds forestry, adaptation and low-carbon development these areas are not as clear cut at the national level.  The UK’s International Climate Fund is tri-departmental mechanism for spending UK aid/climate finance, 50% of which is dedicated to adaptation finance.  The discussion so far has illustrated that speakers are speaking from the same page which is encouraging.
 
There is a need to focus on the building blocks for the delivery of finance and it is critical to build partner country capacity to spend sectoral funding and implement NAPAs.  DFID is focusing adaptation finance in vulnerable areas where it already has a country presence to ensure effective delivery. However, while DFID’s strengths have been in providing capacity-building, education and basic services there is a need to provide more support to food security, water and DRR. 

Indicators should be based on best-practice and bring in existing experiences in different national contexts to ensure effectiveness and value for money.   Needs should be identified and more attention paid to conflict areas and work in partnership with communities.  Moreover, identifying leverage private sector funding remains a priority, who are reluctant to invest in adaptation programmes.  DFID will continue to leverage multi-laterals and continue to explore opportunities through the Adaptation Fund.

Lisa Elges outlined how Transparency International (TI) is a global civil society organisation that works with 100 partners in 100 countries to tackle corruption and promote international transparency and accountability.  TI has recently published its Global Corruption Report: Climate Change which examines the potential for major climate-related corruption risks and to help ensure that climate finance goes to where it is meant to.  The report scopes out the governance mechanisms and institutional strengths in the global architecture to get a sense of risks based on previous experience.

Meeting climate change adaptation and mitigation objectives will see an exponential rise in the volumes of finance flowing through governments and the private sector.  For instance,  the construction sector will receive more money as more adaptation infrastructure projects are required to address increased floods and drought.  Yet there exists considerable risks of corruption in the procurement of materials to support construction projects – the World Bank attests that 5-20% of projects are liable to corruption in the procurement phase with inflated prices and lower quality materials and service delivery.

For instance, in hurricane Katrina this caused immense damage to New Orleans at a loss of US$71 billion to the local government.  However, this was primarily due to poor construction of the sea wall due to negligence.  If quality oversight had been integrated into local procurement systems and governance structures this would have been avoided.  Moreover, it costs 48m to advance the MDGs in water and sanitation due to corruption and complex bureaucracy globally.  However, in Bangladesh the water integrity initiative (BAWIN) is ensuring improvements in quality of contractors and mitigates corruption together with a role for civil society in the transparent oversight of such investments.

Bolivia is often cited as a developing country with a stock of Lithium while biofuels have been cited as a natural resource which can mitigate climate change.  However, ensuring these can deliver impacts and the dividends invested in people remains a key governance challenge.  To contribute to improved monitoring of quality control TI has developed integrity tools to ensure safeguards in the construction, forestry, water and humanitarian aid sectors.

Moreover, governance will be a key issue to address as more climate refugees and victims of natural disasters become more common.

Q&A

• ODI: How do you balance the issues of channelling adaptation finance through governments to improve capacity in contexts of weak governance? Answer: it is critical that corruption does not become an excuse for inaction. It is important to build government and civil society capacity to hold governments to account and expose corruption. It is important to get cross-sectoral leadership and not nominate a lead agency (Tom Mitchell).

• LSE/World Bank: Can aid and adaptation finance be separated? Answer: adaption encompasses vulnerability and poverty-reduction and it is impossible to distinguish between aid and adaptation.  However, when sourcing adaptation finance it is necessary to disaggregate it and it remains a challenge to report on its additionality.

• Results UK: What is the role of insurances – i.e. crop micro-insurance, food security and agriculture and how overlap with the role of the private sector? Answer: DFID is focusing on crop failure in Africa and is complementing the work being done by the World Bank on micro-insurance, though this is exploratory. 

• Independent: Is it naive to focus on adaptation finance if corruption risks are so high - sea levels will still rise; we should be lobbying our politicians to reduce consumption rather than asking poor countries to forgive us for our excessive consumption habits? Answer:  it is important to keep pressure to change consumption and reduce emissions. Climate finance is already locked into the international system.

• What role is there for civil society in adaptation finance? Answer: Civil society should be involved in designing policies that can reduce corruption and play an oversight function.