ADAPTATION FUND: status and issues

Richard Muyungi, United Republic of Tanzania

Focus

Introduction The Adaptation Fund uniqueness Progress towards accessing resources

from the Fund Procedure for parties to access

resources

Introduction Financing Climate Change adaptation

needs vast amounts of financial resources. Precise estimates of the amount needed to address adaptation Estimates from the UNFCCC review is at USD 67 bn annually. Other estimates have shown ranges of $10-40 bn (World Bank) in 2020 to $ 86 bn by UNDP annually in 2015.

Unlike many other funds such as the LDCF and SSF under the UN Framework Convention on Climate Change (UNFCCC) – the AF falls under the Kyoto Protocol.

Introduction Established in 2001 in Marrakech and adopted in Bali

in December 2007 to finance concrete adaptation projects and programmes in developing country Parties to the Kyoto Protocol that are particularly vulnerable to the adverse effects of climate change.

It is financed from the share of proceeds on the clean development mechanism project activities and other sources of funding.  The share of proceeds amounts to 2% of certified emission reductions (CERs) issued for a CDM project activity. Estimates for the revenue that will be generated from the sale of the two per cent CER share until 2012 has been between $160m to $950m

Expected CERs generated by CDM projects

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2008 2009 2010 2011 2012

k C

ER

s

Expected Supply of CERs

Approximately 1.6 billion tons of CERs are projected to be issued by 2012.

The Adaptation Fund Uniqueness

It is a unique Fund: Majority representation from Developing countries in

order to address the issue of ownership. It is supervised and managed by the Adaptation Fund Board which is composed of 16 members and 16 alternates (20 out of 32 Members and alternates are from developing countries).

Funds primarily concrete adaptation projects recognizing that the impacts of climate change are already taking toll.

Allows for Direct access to avoid the existing barriers for developing countries to access resources embedded in current approaches and institutional arrangements

Progress For the past year and half focus has been on putting

in place the institutional and legal arrangements to ensure that the Fund becomes operational before Copenhagen. At CMP 4, in Poznań, December 2008, Parties adopted the necessary administrative and legal arrangements for the full operationalization of the Adaptation Fund.

Parties also considered how to ensure that developing countries can directly access resources under the Adaptation Fund.  They decided that the Adaptation Fund Board be conferred such legal capacity as necessary for the discharge of its functions with regard to direct access by eligible Parties --, consistent with decisions 5/CMP.2 and 1/CMP.3”

Progress The following has been achieved:

Rules of Procedure of the Adaptation Fund Board adopted Legal Arrangements for the Adaptation Fund Board Secretariat Arrangements between the CMP and the World Bank

Regarding the Services to be Provided by the Trustee for the Adaptation Fund adopted by CMP

Strategic Priorities, Policies and Guidelines of the Adaptation Fund adopted by CMP

Secretariat to the AFB in place with its roles and responsibilities adopted by CMP

Board has been conferred with the legal capacity that is necessary for the discharge of its functions with regard to direct access

initialization of the monetization of the certified emission reductions agreed but not executed because of the global financial crisis

Current Dynamics of Carbon Prices

CER prices have been affected by the current economic contextFinancial crisis and economic slowdown is

projected to cause a decline in industrial production, lowering the demand for CERs.

We hope that the economic environment which makes the financing of new projects more difficult, may pushing up the price of CERs. This might happen in the later part of 2009.

Falling carbon prices

CER prices have fallen from a high of €23 to €14 per ton.

CER ECX Future Dec 08March to November 2008

13.0

15.0

17.0

19.0

21.0

23.0

25.0

14-M

ar

28-M

ar

11-A

pr

25-A

pr

9-M

ay

23-M

ay

6-Ju

n

20-J

un

4-Ju

l

18-J

ul

1-A

ug

15-A

ug

29-A

ug

12-S

ep

26-S

ep

10-O

ct

24-O

ct

7-N

ov

21-N

ov

Eu

ros

(per

to

n)

Source: Bloomberg

How will Parties access resources

At the next meeting scheduled in June the Board will finalize the Document with criteria and guidelines for parties to access resources. This document among others includes the criteria for national implementing entities ( such as Ministries of Finance) to directly access resources from the adaptation Fund.

The Board will also prepare template for parties to use in requesting for financial support from the Board.

How will Parties access resources The Board will also consider the offer by

parties that have shown interest to host the Adaptation Fund Board so as to enable it exercise its legal capacity.

The Board will also consider a report from the World Bank on the monetization status.

Once enough CERs have been monetized, Parties will be notified.

For the first monetization phase, priority has been given to the most vulnerable countries, particularly those in Africa and LDCs.

I thank you for your attention