Financial Innovations and Market Mechanisms at the National Level for Coping with Climate Change

Event: International Conference on Adaptation to Climate Change and Food Security in West Asia and North Africa
Date: 13-16 Nov 2011

The West Asia and North African (WANA) countries are projected to undergo a range of climate change impacts that can put even greater pressure on the already over utilized water and land resources in the region calling for an urgent intervention for climate change risk reduction in these countries. Though WANA appears to be a rich region from the average figures of economic development in the region due to skewed distribution of income from oil exporting states, some WANA countries have poor socio-economic development and poor political stability that affect their capacity to fund and implement climate change adaptation agenda. More specifically, financing adaptation is a priority for countries and regions such as Chad, Georgia, Niger, Palestine, South Sudan, Sudan, Syria, Western Sahara, and Yemen which are some of the low income economies with high proportion of population in agriculture and allied sectors living in climatically challenged region. Due to poor socio-economic development, political and institutional mechanisms in some of these countries, the progress in funding for adaptation is hampered.

Keeping the above background in view, this presentation looks at the funding needs for adaptation in the WANA countries, gaps in available funding and means to bridge those gaps through national level actions, performance of WANA countries in the clean development mechanism (CDM) under the Kyoto Protocol, reasons behind imbalance between regional and sectoral distribution of CDM projects, and limitations of CDM in supporting development and providing funding for adaptation in its current form. Some experiences in country level adaptation funding and institutional mechanisms from Asia would be presented for WANA countries to emulate and benefit. This presentation argues that while a strategy that links the developed and developing countries in the region through options such as regional carbon trading is a possibility, there is even more need to look at opportunities available within individual countries in the region. It also argues that market mechanisms are not originally designed to benefit the poor but to maximize the greenhouse gas mitigation and hence a mechanism such as CDM needs to be modified to benefit the poor in the region. For these countries, strengthening community based organizations and community managed participation in market mechanisms may work well.

Domestic financing of climate change adaptation appears to be inevitable since most financial mechanisms under UNFCCC and other international and multi- and bi-lateral streams appear to be insignificant. This presentation discusses various domestic financing sources that may come handy to developing countries to fund climate change adaptation with related pros and cons. Domestic public financing appears to be the single largest source but tapping this source requires building demand for carbon tax, plugging loopholes in the existing financial management systems etc in these countries.