Authored by Paul Watkiss and Blanche Butera

Since its launch in 2023, ECONOGENESIS has significantly advanced the global conversation on climate finance. Over the past year and a half, the team has directly contributed to a flagship international climate publication – the United Nations Environment Programme Adaptation Gap Reports (AGR) of 2023 and 2024. The headline results from this work were included in the first Global Stocktake and the COP29 negotiation text on the New Collective Quantified Goal on Climate Finance.

The challenge

At the twenty-first session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 21) in Paris, the decision was made to establish a new collective quantified goal (NCQG) for climate finance before 2025. This new goal, which was to be set by the end of 2024, had a floor of US$100 billion per year (this was the previous target that was set for 2020) and must account for the needs and priorities of developing nations.

Supported under the CLimate Adaptation and REsilience (CLARE) framework research programme, ECONOGENESIS has been working to assess the global costs of adaptation for developing countries, to feed into the discussion on the adaptation financial needs of the NCQG.

The adaptation finance gap for developing countries was assessed using the following evidence lines:

1. The estimated needs (in US$) for adaptation, which are derived from two different methods:
   • A modelled estimate of the costs of adaptation for all developing countries, based on global sectoral models that analyse adaptation at the national level.
   • An analysis of adaptation finance needs as reported in developing countries’ National Adaptation Plans (NAPs) and Nationally Determined Contributions (NDCs), extrapolating these data to all developing countries.
2.  An analysis of global international public adaptation finance flows (in US$) to developing countries, aggregated from country-level data.

The analysis has also looked at the distributional and equity issues associated with climate finance.

Results

The ECONOGENESIS contributions to the 2023 Adaptation Gap Report set out new estimates of global adaptation finance needs for developing countries. The ECONOGENESIS team led the work that estimated these needs for developing countries to be between 215 and 387 billion US$ per year in the period up to 2030 – many times more than the current annual flows of international public finance provided by developed countries, assessed at only 28 billion US$ (for the year 2022). The analysis also looked at the potential adaptation finance needs by world region and by sector. The results indicate the strong need to urgently scale up adaptation finance.

Impact on the Global Climate Finance Discussion

The work of the ECONOGENESIS team – as reported in the AGR 2023 and the supporting Adaptation Finance Gap Update 2023 – was referenced in the first-ever Global Stocktake. Through this process, Parties to the United Nations Framework Convention on Climate Change (UNFCCC) assess collective progress towards the Paris Agreement goals. This work was also cited in the COP29 Negotiation decision text of the new collective quantified goal on climate finance (NCQG).

COP29 did agree – as part of the NCQG –a goal for developed countries to provide at least US$ 300 billion per year by 2035 for developing countries for climate action (mitigation and adaptation), and to secure efforts from all actors to scale up finance to developing countries, from public and private sources, to US$ 1.3 trillion per year by 2035. However, adaptation typically requires much higher levels of public finance, and this will mean the lower COP29 goal will be insufficient to meet the financial needs of developing countries alone.

Who pays for adaptation?

The AGR2024 explored the question of who pays for and who benefits from adaptation finance, diving deeper to explore how adaptation finance flows to vulnerable groups on the ground. The report developed an example for a typical Least Developed Country (LDC) to show how different types of financial sources and instruments work for adaptation.

The summary is shown below and finds that, with exception to a grant model (where the international funder bears all the costs), adaptation finance models ultimately place a burden on the LDC – meaning that ultimately, these countries/ communities partly pay for adaptation. This raises critical equity issues and alignment with the underlying principle of the UNFCCC. While many of these financial approaches helps close the adaptation finance gap, they do not align with the notion of common but differentiated responsibilities, nor the polluter pays principle, as some or all of the ultimate costs of adaptation are borne by the LDC country.

In this context, the report also highlighted the need for adaptation finance needs to consider gender equality and social inclusion much more strongly, to avoid perpetuating existing inequalities and to ensure no one is left behind.

Next steps

Going forward, the ECONOGENESIS project is shifting to country specific studies in Rwanda, Nepal and Tanzania (Zanzibar). By working closely with researchers, development planners, economists, climate fund /climate finance staff, civil society and private sector partners in these regions, ECONOGENESIS is also strengthening capacities of key actors on the ground to use these analyses to improve adaptation financing and planning for the most vulnerable.

Through South-South cooperation – where lessons, approaches and methods from Rwanda are shared with partners in Nepal and Zanzibar – ECONOGENESIS is demonstrating the potential of cross country collaboration to address climate research challenges.

Lastly, one other research question that the ECONOGENES project seeks to address – and we will focusing on in this coming year – using the information from the analysis of country specific studies, is how can countries take forward adaptation finance solutions. The project will identify bankable adaptation projects with potential to advance gender equality and inclusion.