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Compensating for climate change: principles and lessons for equitable adaptation funding

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There are significant gaps between funds pledged and the needs of developing countries struggling to adapt to the impacts of climate change. Additionally, there has been insufficient attention to the question of which funding mechanisms are most appropriate for serving communities affected by climate change.
This report discusses the current funding gaps and presents a core set of principles by which any adaptation funding mechanism should be assessed. It reviews the existing funding mechanisms and evaluates these based on the core principles highlighted. Finally alternative models for adaptation finance are examined based on two existing precedents - the Global Fund to Fight AIDS, Tuberculosis and Malaria and the Multilateral Fund for the Implementation of the Montreal Protocol
The key findings noted in this report include:

while the GEF adheres to the principle of “compensatory funding,” it falls short on aspects of the ActionAid principles related to democratic governance and civil society participation, among others
while bilateral assistance offers some important lessons, it does not allow for the international cooperation and coordination among nations that is vital to addressing climate change
the Global Fund for AIDS, Tuberculosis and Malaria could serve as a model for a climate change adaptation fund in several ways. Its governance structure strives for regional balance, country ownership, and transparency; however, many governments have not effectively involved civil society in the process and the voluntary funding mechanism has created instability
another possible model is the Montreal Protocol Fund, which applies a principle of “common but differentiated responsibility” that recognizes historical differences in the contributions to global environmental problems. This approach has boosted international cooperation with the Fund.

Based on the above findings, ActionAid recommends the following:

the Kyoto Protocol Adaptation Fund should become the main channel for future adaptation funding, operating under the guidance of, and accountable to, the COP/MOP
each participating country should constitute a multi-stakeholder committee, with broad government, expert and civil society participation
an independent inspection panel of representatives from affected communities should be formed to monitor the use of funds
the Adaptation Fund should support a combination of investment and non-investment activities, such as capacity building initiatives, LDC workshops, and development and adaptation activities
all existing overseas development assistance must factor in the costs and impacts of pending climate changes to their development work.