Editing IPCC:AR6/WGII/Chapter-13 (section)

==== 13.11.1.4 Financing Adaptation and Financial Stability ====

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Dedicated financial resources for the implementation of NAS and plans are a key enabling factor for successful adaptation ( ''high confidence'' ) (Chapter 17; [[#Russel--2020|Russel et al., 2020]] ). Yet, only 14 EU countries have announced such budget allocations in their plans and strategies; and even if budget numbers are available, they are difficult to compare ( [[#EEA--2020a|EEA, 2020a]] ). Current adaptation spending varies greatly across and within European countries, partly reflecting (sub)national adaptation priorities or financing sources targeting investment projects ( [[#López-Dóriga--2020|López-Dóriga et al., 2020]] ; [[#Russel--2020|Russel et al., 2020]] ) and competing statutory priorities ( [[#Porter--2015|Porter et al., 2015]] ). European government budgets are also burdened by climate-change damages today, particularly after huge flooding events, and austerity following financial crises, limiting anticipatory action ( [[#Penning-Rowsell--2015|Penning-Rowsell and Priest, 2015]] ; [[#Miskic--2017|Miskic et al., 2017]] ; [[#Schinko--2017|Schinko et al., 2017]] ; [[#Slavíková--2020|Slavíková et al., 2020]] ). National adaptation funding in EU member states is complemented by EU funding (e.g., European Structural and Investment Funds, European Regional Development Funds, and LIFE program). While the EU spending target on climate action increased from 20% in 2016–2020 to 25% in 2021–2026, most spending is going into mitigation, not adaptation ( [[#Berkhout--2015|Berkhout et al., 2015]] ; [[#Hanger--2015|Hanger et al., 2015]] ; [[#EEA--2020a|EEA, 2020a]] ).

With higher warming levels, financing needs are ''likely'' to increase ( ''high confidence'' ) ( [[#Mochizuki--2018|Mochizuki et al., 2018]] ; [[#Bachner--2019|Bachner et al., 2019]] ; [[#Parrado--2020|Parrado et al., 2020]] ), and governments can address this higher need by cutting other expenditures, increasing taxes or by increasing the fiscal deficit ( [[#Miskic--2017|Miskic et al., 2017]] ; [[#Mochizuki--2018|Mochizuki et al., 2018]] ; [[#Bachner--2019|Bachner et al., 2019]] ). Yet, the requirement for fiscal consolidation that will be needed after the COVID-19 pandemic (Cross-Chapter Box COVID in Chapter 7) may also lead to a cessation of adaptation spending, as evidenced by the expenditure drop in coastal protection in Spain after the financial crisis in 2008 ( [[#López-Dóriga--2020|López-Dóriga et al., 2020]] ). Governments can shift the financial burden to beneficiaries of adaptation, as suggested, for example, for coastal protection and riverine flooding ( [[#Jongman--2014|Jongman et al., 2014]] ; [[#Penning-Rowsell--2015|Penning-Rowsell and Priest, 2015]] ; [[#Bisaro--2018|Bisaro and Hinkel, 2018]] ). There is also an increase in financial mechanisms to accelerate private adaptation actions, including adaptation loans, subsidies, direct investments and novel public–private arrangements. For example, the European Investment Bank created a finance facility to support European regions through loans to implement adaptation projects ( [[#EEA--2020a|EEA, 2020a]] ).

Since AR5, new evidence has emerged that climate change may deteriorate financial stability both at the global and European scales ( [[#Campiglio--2018|Campiglio et al., 2018]] ; [[#Dafermos--2018|Dafermos et al., 2018]] ; [[#Lamperti--2019|Lamperti et al., 2019]] ; [[#ECB--2021a|ECB, 2021a]] ). The European Central Bank, the European Systemic Risk Board, and several national central banks in NEU and WCE have started to systematically assess the consequences of climate risks for financial stability and plan to integrate climate stress testing into their supervisory tools ( [[#Batten--2016|Batten et al., 2016]] ; [[#ECB--2021a|ECB, 2021a]] ; [[#ECB--2021b|ECB, 2021b]] ).

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'''Box 13.3 | Climate Resilient Development Pathways in European Cities'''
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Climate resilient development (CRD) in European cities offers synergies and co-benefits from integrating adaptation and mitigation with environmental, social and economic sustainability ( [[#Geneletti--2016|Geneletti and Zardo, 2016]] ; [[#Grafakos--2020|Grafakos et al., 2020]] ). Climate networks (e.g., Covenant of Mayors), funding (e.g., Climate-KIC), research programmes (e.g., Horizon Europe), European and national legislation, international treaties and the identification of co-benefits contribute to the prioritisation of climate action in European cities ( [[#Heidrich--2016|Heidrich et al., 2016]] ; [[#Reckien--2018|Reckien et al., 2018]] ; [[#CDP--2020|CDP, 2020]] ). Still, mitigation and adaptation remain largely siloed and sectoral ( [[#Heidrich--2016|Heidrich et al., 2016]] ; [[#Reckien--2018|Reckien et al., 2018]] ; [[#Grafakos--2020|Grafakos et al., 2020]] ). An assessment of the integration of mitigation and adaptation in urban climate-change action plans in Europe found only 147 cases in a representative sample of 885 cities ( [[#Reckien--2018|Reckien et al., 2018]] ).

In European cities, CRD is most evident in the areas of green infrastructure, energy-efficient buildings and construction, and active and low-carbon transport ( [[#Pasimeni--2019|Pasimeni et al., 2019]] ; [[#Grafakos--2020|Grafakos et al., 2020]] ). Nature-based Solutions, such as urban greening, often integrate adaptation and mitigation in sustainable urban developments and are associated with increasing natural and social capital in urban communities, improving health and well-being, and raising property prices ( [[#Geneletti--2016|Geneletti and Zardo, 2016]] ; [[#Pasimeni--2019|Pasimeni et al., 2019]] ; [[#Grafakos--2020|Grafakos et al., 2020]] ). Barriers to CRD in European cities include limitations in: funding, local capacity, guidance documents and quantified information on costs, co-benefits and trade-offs ( [[#Grafakos--2020|Grafakos et al., 2020]] ). Pilot projects are used to initiate CRD transitions ( [[#Nagorny-Koring--2018|Nagorny-Koring and Nochta, 2018]] ). Malmö (Sweden) and Milan (Italy) are two examples to illustrate the strategies and challenges of two European cities attempting to implement CRDP.

'''Malmö (population 300,000):''' Since the 1990s, Malmö has been transitioning towards an environmentally, economically and socially sustainable city, investing in eco-districts (redeveloped areas that integrate and showcase the city’s sustainability strategies) and adopting ambitious adaptation and mitigation targets. The city has focused on energy-efficient buildings and construction, collective and low-carbon transportation, and green spaces and infrastructure ( [[#Anderson--2014|Anderson, 2014]] ; [[#Malmo%20Stad--2018|Malmo Stad, 2018]] ). Malmö has developed creative implementation mechanisms, including a ‘climate contract’ between the city, the energy distributor and the water and waste utility to co-develop the climate-smart district, Hyllie ( [[#Isaksson--2018|Isaksson and Heikkinen, 2018]] ; [[#Kanters--2018|Kanters and Wall, 2018]] ; [[#Parks--2019|Parks, 2019]] ). Flagship eco-districts play a central role in the city’s transition, in the wider adoption of CRD and in securing implementation partners ( [[#Isaksson--2018|Isaksson and Heikkinen, 2018]] ; [[#Stripple--2019|Stripple and Bulkeley, 2019]] ). The city has also leveraged its status as a CRD leader to attract investment. The private sector views CRD as profitable, due to the high demand and competitive value of these developments ( [[#Holgersen--2015|Holgersen and Malm, 2015]] ). Malmö adopted the SDGs as local goals and the city’s Comprehensive Plan is evaluated based on them, for example, considering gender in the use, access and safety of public spaces, and emphasising development that facilitates climate-resilient lifestyles ( [[#Malmo%20Stad--2018|Malmo Stad, 2018]] ). Malmö also engages stakeholders via dialogue with residents, collaboration with universities and partnerships with industry and service providers ( [[#Kanters--2018|Kanters and Wall, 2018]] ; [[#Parks--2019|Parks, 2019]] ). Despite measurable and monitored targets, and supportive institutional arrangements, sustainability outcomes for the flagship districts have been tempered by developers’ market-oriented demands ( [[#Holgersen--2015|Holgersen and Malm, 2015]] ; [[#Isaksson--2018|Isaksson and Heikkinen, 2018]] ) and there is limited low-income housing in climate-resilient districts ( [[#Anderson--2014|Anderson, 2014]] ; [[#Holgersen--2015|Holgersen and Malm, 2015]] ).

'''Milan (population 1.4 million):''' Milan is taking a CRD approach to new developments ( [[#Comune%20di%20Milano--2019|Comune di Milano, 2019]] ). From 2020, new buildings must be carbon neutral and reconstructions must reduce the existing land footprint by at least 10%. The Climate and Air Plan (CAP) and the city’s Master Plan ( [[#Comune%20di%20Milano--2019|Comune di Milano, 2019]] ) focus on low-carbon, inclusive and equitable development. The CAP is directed at municipal and private assets, and individual- to city-scale actions. In 2020, Milan released a revised Adaptation Plan and the Open Streets Project to ensure synergies between the COVID-19 response and longer-term CRD. Examples include strengthening neighbourhood-scale disaster response and reallocating street space for walking and cycling ( [[#Comune%20di%20Milano--2020|Comune di Milano, 2020]] ). Milan emphasises institutionalisation of CRD via a dedicated resilience department, and through active participation in climate networks and projects that support learning and exchange. Climate network commitments are cited in the city’s Master Plan and CAP guidelines as driving more ambitious deadlines and emissions targets ( [[#Comune%20di%20Milano--2019|Comune di Milano, 2019]] ). Implementation of Milan’s plans remains a challenge, despite dedicated resources and commitment.

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