Innovative Financing for the Adaptation Fund: Pathways and Potentials

The Adaptation Fund has emerged as an important body in the multilateral adaptation finance landscape. It has pioneered novel approaches such as direct access, has streamlined project cycles to allow participation of small institutions and holds an impressive track-record of delivering results-based adaptation finance. Demand for its services is high among vulnerable developing countries. Continued interest was clearly visible during COP 22, where Parties showed willingness to carve a role for this Kyoto Protocol climate fund under the Paris Agreement. However, this potential is constrained by a continuous resource crunch in the Fund after its primary revenue source – a 2% share of proceeds levy from mitigation projects registered under the Clean Development Mechanism (CDM) - dried up. The resulting revenue gap has been partially covered by donor contributions to the fund. Since such contributions are limited and come with vagaries on their own, the access to innovative finance sources needs to be restated to meet countries' continuous and growing adaptation needs. With this background in mind, this study follows the history and experiences of the CDM levy and focusses on options deriving from different carbon pricing instruments and approaches.