Bonn Bulletin: Adaptation Fund stalemate puts people at risk, says head

Dark clouds are gathering over adaptation finance. The US has all but stopped providing it and European countries are slashing their aid budgets to spend more on their militaries. Much of what is flowing comes in the form of loans and doesn’t reach the most vulnerable, as we’ve reported.

Over the years, one bright spark has been the Adaptation Fund and its grants to developing countries for pioneering work in communities. It has allocated $1.6 billion to 226 projects, benefiting 90 million people, its website says. And, while rich nations are failing to give the fund all the money it needs to finance its growing pipeline, new revenues are supposed to come in from the Paris Agreement’s new carbon market, known as Article 6.4.

Back at COP26 in Glasgow, governments agreed that the Adaptation Fund should get 5% of the proceeds from all Article 6.4 carbon credits – other than those based in small islands and least developed countries.

How much money that will amount to is uncertain. It depends on how many projects there are and the price of their credits. 

The fund got over $200 million from a similar share of proceeds under the Kyoto Protocol’s Clean Development Mechanism (CDM), although the price of those credits collapsed. 

While $200 million was a disappointment as ten times that was expected, the Adaptation Fund head Mikko Ollikainen told Climate Home News in Bonn that the sum was “not insignificant”. By comparison, the fund has been seeking $300 million per year from donor governments in recent years.

Hopes are that the CDM’s successor will yield bigger sums for adaptation. But for the fund to get its hands on the share of cash it is expecting from Article 6.4 projects , governments need to agree to transition the fund to “exclusively” serve the Paris Agreement. They are hoping to wrap up those talks in Bonn this week, so that they can rubber-stamp the decision early at COP31.

It has not been plain-sailing. As small islands’ lead negotiator Anne Rasmussen told a press conference on Tuesday, this transition “is being blocked, frustrating efforts to replenish the fund and ensure that the crucial adaptation finance can flow to those that need it the most”.

This issue, along with other finance complaints, leads small islands “to question whether the implementation of the NCQG [the 2035 finance goal agreed at COP29] is dead on arrival”, she added.

The problem is related to who is considered a developed country at UN climate talks, with the responsibilities for providing climate finance that designation implies.

Traditional donor countries, which have been pushing for years for some wealthier developing countries like Saudi Arabia and China to contribute to climate finance as well, want the Adaptation Fund’s board seats to be split between “developed” and “developing” countries. 

They argue that these are the categories referred to in the Paris Agreement and so are appropriate for a fund that exclusively serves that accord.

Developing countries – which have long opposed any of their members being considered developed – argue that the board seats should continue to be split between “Annex 1” and “non-Annex 1” countries. 

These categories, based on lists of nations drawn up in 1992, are more rigid than “developed” and “developing”. While development status can change over time, you’re either on the Annex 1 list or you’re not.

Ollikainen said a delay in agreement beyond COP31 – a risk if the issue is not resolved here in Bonn – would harm people in the real world where adaptation needs are rising sharply while the money to protect them from worsening climate impacts is not.

“If we don’t address adaptation,” the fund’s head told Climate Home News, “that will lead to loss and damage and that’s going to be even more costlier than adaptation – and the cost will be borne by people who have done least to cause this problem who typically don’t have social safety networks to support them.”

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