Using A Market Mechanism To Prioritize Climate Adaptation and Enhance Adaptive Capacity
K.H. Schultz, M.R. Mader, B. Tapley, L.M. Adler
The Higher Ground Foundation, UK
Prioritizing investments in the face of uncertainty is a core function of markets. Unfortunately, while “leveraging private finance” is a common line, the adaptation finance debate is thin on substance regarding how markets could contribute to developing, funding and executing climate adaptation projects.
Most approaches proposed to fund and mobilize the trillions of US$ needed for developing countries to adapt to climate change are “top down” with resources assumed to be sourced from treasuries or other direct taxation measures. This calls into question if funding will suffice. And the mainstream debate on mobilizing funding doesn’t stray much from alternative approaches for “funds” to support national government interventions. Projects supported to date don’t present robust metrics that quantify how much they reduce climate vulnerability.
The author suggests an alternative: the formation of a market in “vulnerability reduction credits” (VRCs) fungible with the carbon market. Not only would it demand robust measures to prove, post hoc, vulnerability reduction, it offers potential to raise funding of an order of magnitude greater than overseas direct assistance, and opens up opportunities for communities and businesses to create bottom-up solutions with cost effectiveness, transparency, and the potential to create sustainable, local adaptive capacity. With appropriate regulation, the market price of vulnerability reduction becomes a valuable means of rationing scarce resources and prioritizing adaptation.
The paper explores the framework for creating demand for VRCs and the project registration and credit issuance methodologies. It outlines challenges in establishing climate vulnerability baselines and additionality, and considers approaches to appropriately award credits in asset-poor, vulnerability-high regions. It discusses work by THE HIGHER GROUND FOUNDATION to develop a voluntary market and how this approach incentivizes positive learning feedbacks regarding climate impacts, vulnerabilities, and adaptation solutions.