Editing IPCC:AR6/WGII/Chapter-9 (section)

=== 9.4.1 Climate Finance ===

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Access to adequate financial resources is crucial for climate change adaptation (Cross-Chapter Box FINANCE in Chapter 17). Since the Copenhagen Accord ( [[#UNFCCC--2009|UNFCCC, 2009]] ), and then extended by the Paris Agreement ( [[#UNFCCC%20Paris%20Agreement--2015|UNFCCC Paris Agreement, 2015]] see Article 4.4, and also 4.8, 4.9), developed countries are expected to scale up climate finance for developing countries toward a collective goal of USD 100 billion per year by 2020, with a balanced allocation between adaptation and mitigation.

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==== 9.4.1.1 How Much Adaptation Finance is Needed? ====

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There is limited research providing quantitative estimates of adaptation costs across Africa. Adaptation costs in Africa have been estimated at USD 7–15 billion per year by 2020 ( [[#Schaeffer--2013|Schaeffer et al., 2013]] ), corresponding to USD 5–11 per capita per year. The African Development Bank estimates costs of near-term adaptation needs identified in the Intended NDCs (INDCs) of African countries as USD 7.4 billion per year from 2020, recognising INDCs describe only a limited subset of adaptation needs ( [[#AfDB--2019|AfDB, 2019]] ). Many African countries, particularly Least Developed Countries (LDCs), express a stronger demand for adaptation finance—a study of financial demands in INDCs for 16 African countries suggests a ratio around 2:1 for adaptation to mitigation finance with demand for Eritrea and Uganda approximately 80% for adaptation ( [[#Zhang--2016|Zhang and Pan, 2016]] ).

Adaptation costs in Africa are expected to rise rapidly as global warming increases ( ''high confidence'' ). A meta-analysis of adaptation costs identified in 44 NDCs and National Adaptation Plans (NAPs) from developing countries estimated a median adaptation cost around USD 17 per capita per year for 2020–2030 ( [[#Chapagain--2020|Chapagain et al., 2020]] ). Adaptation cost estimates for Africa increase from USD 20–50 billion per year for Representative Concentration Pathway (RCP) 2.6 in 2050 (around 1.5°C of warming), to USD 18–60 billion per year for just over 2°C, to USD 100–437 billion per year for 4°C of global warming above pre-industrial levels ( [[#Schaeffer--2013|Schaeffer et al., 2013]] ; [[#UNEP--2015|UNEP, 2015]] ; [[#Chapagain--2020|Chapagain et al., 2020]] ). Focusing on individual sectors, the average country-level cost is projected to be USD 0.8 billion per year for adapting to temperature-related mortality under 4°C global warming ( [[#Carleton--2018|Carleton et al., 2018]] ), with cumulative energy costs for cooling demand projected to reach USD 51 billion by 2°C and USD 486 billion by 4°C global warming ( [[#Parkes--2019|Parkes et al., 2019]] ). Transport infrastructure repair costs are also projected to be substantial ( [[#9.8.2|Section 9.8.2]] ) More precise estimates are limited by methodological difficulties and data gaps for costing adaptation, uncertainties about future levels of global warming and associated climate hazards, and ethical choices such as the desired level of protection achieved ( [[#Fankhauser--2010|Fankhauser, 2010]] ; [[#Hallegatte--2018|Hallegatte et al., 2018]] ; [[#UNFCCC--2018|UNFCCC, 2018]] ) (Cross-Chapter Box FINANCE in Chapter 17). As such, existing estimates are expected to substantially underestimate eventual costs with adaptation costs possibly 2–3 times higher than current global estimates by 2030, and 4–5 times higher by 2050 ( [[#UNEP--2016a|UNEP, 2016a]] ).

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==== 9.4.1.2 Benefit–Cost Ratios in Adaptation ====

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Although analysts face challenges related to the nature of climate change impacts ( [[#Sussman--2014|Sussman et al., 2014]] ) and data limitations ( [[#Li--2014|Li et al., 2014]] ) when estimating all costs and benefits for adaptation measures in specific contexts, adaptation generally is cost-effective ( ''high confidence'' ). The Global Commission on Adaptation estimated the benefits and costs of five illustrative investments and found benefit–cost ratios ranging from 2:1 to 10:1. However, it also noted that ‘actual returns depend on many factors, such as economic growth and demand, policy context, institutional capacities and condition of assets’ ( [[#The%20Global%20Commission%20on%20Adaptation--2019|The Global Commission on Adaptation, 2019]] ). A review of ''ex-ante'' cost–benefit analyses for 19 adaptation-focused projects in Africa financed by the Green Climate Fund (GCF) shows benefit–cost ratios in a similar range. Using a 10% discount rate, as used by many of GCF’s accredited entities, the benefit–cost ratio for individual projects ranges from 0.9:1 to 7.3:1, the median benefit–cost ratio is 1.8:1 and total ratio across all 19 projects is 2.6:1. When using lower discount rates, as some entities do for climate projects, the benefit–cost ratio is even higher, reflecting the front-loaded costs and back-loaded benefits of many adaptation investments. Using a 5% discount rate, the overall benefit–cost ratio of the GCF projects is 3.5:1, with a range from 1:1 to 11.5:1 and a median ratio of 2.4:1 ( [[#Breitbarth--2020|Breitbarth, 2020]] ). In addition, many proposals have activities for which further benefits were not estimated due to the difficulty of attributing benefits directly to the intervention. The benefits of adaptation measures for infrastructure and others with clear market impacts are often easier to estimate than for policy interventions and where markets may not exist, such as ecosystem services ( [[#Li--2014|Li et al., 2014]] ).

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==== 9.4.1.3 How Much Finance is Being Mobilised? ====

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The amounts of finance being mobilised internationally to support adaptation in African countries are billions of US dollars less than adaptation cost estimates, and finance has targeted mitigation more than adaptation ( ''high confidence'' ). The Organisation for Economic Co-operation and Development ( [[#OECD--2020|OECD (2020)]] estimates an average of USD 17.3 billion per year in public finance targeting mitigation and adaptation from developed countries to Africa in 2016–2018, with adaptation expected to be a small share of this amount. Of the global total, only 21% in 2018 targeted adaptation (there is no breakdown provided for Africa). Analysis of OECD data that is reported by the funders, covering bilateral and multilateral funding sources, estimated international public finance (grants and concessional lending) committed to Africa for climate change for 2014–2018 at USD 49.9 billion: 61% (30.6 billion) for mitigation, 33% (16.5 billion) for adaptation and 5% (2.7 billion) for both objectives simultaneously (Figure 9.8a; [[#Savvidou--2021|Savvidou et al., 2021]] ). This equates to an average of USD 3.8 billion per year targeting adaptation ( [[#Savvidou--2021|Savvidou et al., 2021]] ). In per capita terms, only two countries (Djibouti and Gabon) were supported with more than USD 15 per person per year, most were supported with less than USD 5 per person per year ( [[#Savvidou--2021|Savvidou et al., 2021]] ).

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[[File:3d55186ccf581e8a76f70db55a80f908 IPCC_AR6_WGII_Figure_9_008.png]]

'''Figure 9.8 |''' '''Total adaptation-related finance (commitments) to African countries and regions from 2014–2018 (USD millions, constant prices) as reported to OECD.'''

'''(a)''' Flows of committed finance targeting adaptation by source and recipient region;

'''(b)''' trend over time in international development finance commitments targeting adaptation in Africa; and

'''(c)''' country-level shares of total climate finance commitments that targeted adaptation or mitigation or both simultaneously. Source: [[#Savvidou--2021|Savvidou et al. (2021)]] .

The multilateral development banks (MDBs) report 43% of their climate-related commitments to sub-Saharan Africa in 2018 targeted adaptation (EBRD et al., 2021). Sources other than international public finance are more difficult to track and there is limited data on Africa (Cross-Chapter Box FINANCE in Chapter 17). Considering a wider range of finance types (including private flows and domestic mobilisation), an estimated annual average of roughly USD 19 billion in climate finance for 2017–2018 went to sub-Saharan Africa, of which only 5% was for adaptation ( [[#CPI--2019|CPI, 2019]] ; [[#Adhikari--2021|Adhikari and Safaee Chalkasra, 2021]] ). The mobilisation of private finance by developed country governments, through bilateral and multilateral financial support, is lower in Africa relative to other world regions. Globally, in 2016–2018, Africa made up only 17% of mobilised private finance relevant for climate change ( [[#OECD--2020|OECD, 2020]] ).

Strong differences exist among African sub-regions. Finance commitments targeting adaptation increased from 2014–2018 for east and west Africa but decreased in central Africa ( [[#Savvidou--2021|Savvidou et al., 2021]] ) (Figure 9.8b). Climate-related finance was &gt;50% for adaptation in 19 countries, while 26 received &gt;50% for mitigation ( [[#Savvidou--2021|Savvidou et al., 2021]] ).

African countries expect grants to play a crucial role in supporting adaptation efforts because loans add to already high debt levels that exacerbate fiscal challenges, especially in light of high sovereign debt levels from the COVID-19 pandemic ( [[#Bulow--2020|Bulow et al., 2020]] ; [[#Estevão--2020|Estevão, 2020]] ). From 2014–2018, more finance commitments targeting adaptation in Africa were debt instruments (57%) than grants (42%) ( [[#Savvidou--2021|Savvidou et al., 2021]] ).

For Africa combined, the sectors targeted with most support for adaptation are agriculture and water supply and sanitation, which account for half of total adaptation finance from 2014–2018 (Figure 9.9a). The sectoral distribution has changed little over these years, suggesting adaptation planners and funders are maintaining a relatively narrow view of where support is needed and how to build climate resilience ( [[#Savvidou--2021|Savvidou et al., 2021]] ).

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[[File:8ffc3e87e74ba36d65d48da59a19e3e8 IPCC_AR6_WGII_Figure_9_009.png]]

'''Figure 9.9 |''' '''Adaptation finance for Africa has focused most on agriculture and water, and disbursement ratios for climate-related finance are very low''' 

'''(a)''' The amounts of finance targeting adaptation committed to different sectors across Africa from '''2014''' '''–''' '''2018''' '''in millions of USD as reported to OECD and including multilateral development banks (Savvidou et al.''' , 2021).

'''(b)''' Disbursement ratios (disbursements expressed as percentage of commitments) for finance targeting mitigation and adaptation, and for total development finance; showing disbursement ratios for Africa compared to global average; and

'''(c)''' disbursement ratios for adaptation finance broken down by each African sub-region for 2014–2018 (for all funders reporting to OECD except multilateral development banks). Source: [[#Savvidou--2021|Savvidou et al. (2021)]] .

However, to understand actual expenditure on adaptation, it is necessary to look at disbursements (that is, the amounts paid out compared to committed amounts). Low ratios of disbursements to commitments suggest difficulties in project implementation. Disbursement ratios for climate-related finance from all funders other than MDBs (for which data is not published) in Africa are very low (Figure 9.9b; [[#Savvidou--2021|Savvidou et al., 2021]] ). Only 46% of 2014–2018 commitments targeting adaptation were dispersed ( [[#Savvidou--2021|Savvidou et al., 2021]] ). Regions faring worst are north Africa (15%), central Africa (33%) and west Africa (33%) (Figure 9.9c). These disbursement ratios for adaptation and mitigation finance in Africa are lower than the global average ( [[#Savvidou--2021|Savvidou et al., 2021]] ), which suggests greater capacity problems in implementing climate-related projects and, in turn, means lost opportunities to build resilience and adaptive capacity and a wider gap in adaptation finance for Africa ( [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ).

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==== 9.4.1.4 What Are the Barriers and Enabling Conditions for Adaptation Finance? ====

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The present situation reflects not only an insufficient level of finance being mobilised to support African adaptation needs ( [[#9.4.1|Section 9.4.1]] ) but also problems in accessing and using funding that is available. The direct-access modality introduced by the Adaptation Fund and GCF, whereby national and regional entities from developing countries can be accredited to access funds directly, is aimed at reducing transaction costs for recipient countries, increasing national ownership and agency for adaptation actions, and enhancing decision-making responsibilities by national actors, thereby contributing to strengthening local capacity for sustained and transformational adaptation ( [[#CDKN--2013|CDKN, 2013]] ; [[#Masullo--2015|Masullo et al., 2015]] ). Indeed, direct-access projects from the Adaptation Fund tend to be more community focused than indirect-access projects ( [[#Manuamorn--2020|Manuamorn and Biesbroek, 2020]] ). Country institutions in Africa, however, are struggling to be accredited for direct access because of the complicated, lengthy and bureaucratic processes of accreditation, which requires, for example, strong institutional and fiduciary standards and capacity to be in place ( [[#Brown--2013|Brown et al., 2013]] ; [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ). As of December 2019, over 80% of all developing countries had no national direct access entities (DAEs) ( [[#Asfaw--2019|Asfaw et al., 2019]] ). Capacity to develop fundable projects in Africa is also inadequate. An analysis of proposals submitted to the GCF up to 2017 revealed that, while African countries were able to submit proposals to the GCF, they had the lowest percentage of approvals (39%) compared to all other regions ( [[#Fonta--2018|Fonta et al., 2018]] ). This suggests the quality of proposals and therefore the capacity to develop fundable proposals remains inadequate in the region.

Even when accredited, some countries experience significant institutional and financial challenges in programming and implementing activities to support concrete adaptation measures ( [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ). Low disbursement ratios suggest inadequate capacity to implement projects once they are approved ( [[#Savvidou--2021|Savvidou et al., 2021]] ). Systemic barriers have been highlighted in relation to the multilateral climate funds, including funds not providing full-cost adaptation funding, capacity barriers in the design and implementation of adaptation actions (including the development of fundable project proposals) and barriers in recognising and enabling the involvement of sub-national actors in the delivery and implementation of adaptation action ( [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ). As of 2017, most GCF disbursements to Africa (61.9%) were directed to support national stakeholders’ engagement with regards to readiness activities, with only 11% directed to support DAEs in implementation of concrete projects/pipeline development ( [[#Fonta--2018|Fonta et al., 2018]] ). While supporting readiness activities is important for strengthening country ownership and institutional development, research suggests adaptation finance needs to shift towards implementation of concrete projects and more pipeline development if the goal of transformative and sustained adaptation in Africa is to be realised ( [[#Fonta--2018|Fonta et al., 2018]] ; [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ). The source of these problems needs to be better understood so that the prospects for future climate-related investments can be improved and institutional strengthening and targeted project preparation can be supported ( [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ; [[#Doshi--2020|Doshi and Garschagen, 2020]] ; [[#Savvidou--2021|Savvidou et al., 2021]] ).

Some progress has been made in supporting developing countries to enhance their adaptation actions. The process to formulate and implement NAPs was established by parties under the UNFCCC to support developing countries in identifying their vulnerabilities, and determine their medium- and long-term adaptation needs ( [[#UNFCCC%20Paris%20Agreement--2015|UNFCCC Paris Agreement, 2015]] ). NAPs provide a means of developing and implementing strategies and programmes to address those needs. In 2016, the parties agreed the GCF would fund up to USD 3 million per country for adaptation planning instruments, including NAPs. However, accessing funding through the GCF for NAP formulation is challenging ( [[#Fonta--2018|Fonta et al., 2018]] ) and, as of October 2020, 4 years after the decision to fund NAPs, only six African countries had completed their NAPs (UNFCCC NAP central). The next step is to convert adaptation planning documents into programming pipeline projects that are fundable and implementable, which presents a significant barrier to enhanced adaptation action ( [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ).

Adaptation finance has not been targeted more towards more vulnerable countries ( [[#Barrett--2014|Barrett, 2014]] ; [[#Weiler--2019|Weiler and Sanubi, 2019]] ; [[#Doshi--2020|Doshi and Garschagen, 2020]] ; [[#Savvidou--2021|Savvidou et al., 2021]] ). Reasons for this include fast-growing middle-income countries offering larger gains in emission reductions, so finance has favoured mitigation in these economies, even within sub-Saharan Africa, and as more climate finance uses debt instruments, mitigation projects are further preferred because returns are perceived to be more certain ( [[#Rai--2016|Rai et al., 2016]] ; [[#Lee--2018|Lee and Hong, 2018]] ; [[#Carty--2020|Carty et al., 2020]] ; [[#Simpson--2021c|Simpson et al., 2021c]] ).

Many adaptation interventions for most vulnerable countries and communities provide no adequate financial return on investments and can therefore only be funded with concessional public finance (Cross-Chapter Box FINANCE in Chapter 17). Yet, public funds alone are insufficient to meet rapidly growing adaptation needs. Public mechanisms can help leverage private sector finance for adaptation by reducing regulatory, cost and market barriers through blended finance approaches, public–private partnerships, or innovative financial instruments and structuring in support of private sector requirements for risk and investment returns, such as green bonds (Cross-Chapter Box FINANCE in Chapter 17). Sub-national actors can be core agents to conceptualise, drive and deliver adaptation responses, and unlock domestic resources in the implementation of adaptation action ( [[#CoM%20SSA--2019|CoM SSA, 2019]] ; [[#Omari-Motsumi--2019|Omari-Motsumi et al., 2019]] ), provided they are sufficiently resourced and their participation and agency are supported.

Many African countries are at high risk of debt distress, especially due to the COVID-19 pandemic, and will need to decrease their debt levels to have the fiscal space to invest in climate resilience ( [[#Estevão--2020|Estevão, 2020]] ; [[#Dibley--2021|Dibley et al., 2021]] ). As of mid-2021, the G20’s Debt Service Suspension Initiative is providing temporary relief for repayment of bilateral credit, but this has largely not been taken up by private lenders ( [[#Dibley--2021|Dibley et al., 2021]] ; [[#World%20Bank--2021|World Bank, 2021]] ). The total external debt-servicing payments combined for 44 African countries in 2019 were USD 75 billion ( [[#World%20Bank--2019|World Bank, 2019]] ), far exceeding discussed levels of near-term climate finance. Aligning debt relief with Paris Agreement goals could provide an important channel for increased financing for climate action, for example, by allowing African countries to use their debt-servicing payments to finance climate change mitigation and adaptation ( [[#Fenton--2014|Fenton et al., 2014]] ). Governments can disclose climate risks when taking on sovereign debt, and debt-for-climate resilience swaps could be used to reduce debt burdens for low-income countries while supporting adaptation and mitigation ( [[#Dibley--2021|Dibley et al., 2021]] ).

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