The 21st Century climate challenge

adaptation will require a high level of politicalcommitment. Aid donors will need to work withdeveloping country governments in identifyingincremental climate change risks, assessing thefinancing requirements for responding to thoserisks, and engaging in dialogue on adaptationpolicies. At the same time, donors themselveswill have to forge a far stronger consensus onthe case for international action on adaptation,going beyond statements of principle to practicalaction. Given the scale of resource mobilizationrequired, donors may also need to consider theurgent development of innovative financingproposals. There are several options:• Resource mobilization through carbonmarkets. The Kyoto Protocol AdaptationFund already establishes the principle thatadaptation financing could be linked tocarbon markets. That principle should beacted on. Mobilizing resources for adaptationthrough markets for mitigation offerstwo broad advantages: a predictable flowof finance and a link from the source ofthe problem to a partial solution. Carbontaxation provides one avenue for resourcemobilization (see chapter 3). For example,a tax of just US$3/tonne CO 2on OECDenergy-related emissions would mobilizearound US$40 billion per year (at 2005emissions levels). Cap-and-trade schemesprovide another market-based routefor mobilizing adaptation finance. Forexample, the European Union’s ETS willallocate around 1.9 Gt in emission allowancesannually in the second phase to 2012.Under current rules up to 10 percent ofthese allowances can be auctioned. Forillustrative purposes, an adaptation levy setat US$3/tonne CO 2on this volume wouldraise US$570 million. With an increase inauctioning after 2012, the EU ETS auctioningcould provide a more secure foundationfor adaptation financing.• Wider levies. In principle, adaptationfinancing can be mobilized through arange of levies. Applying levies to carbonemissions has the twin benefit of generatingrevenues for adaptation while at the sametime improving the incentives to promotemitigation. One example is an air-ticketlevy. In 2006, France began collecting an‘international solidarity contribution’ onall European and international flights. 76The aim is to generate revenues of US$275million to finance treatment for HIV/AIDSand other epidemics. An international drugspurchase facility has been created to disburserevenues from the scheme. The UnitedKingdom uses part of its Air Passenger Dutytax to fund immunization investments indeveloping countries. Establishing a levy ofUS$7 per flight would be unlikely to deterair transport on any scale, but it would yieldaround US$14 billion in revenues that couldbe allocated to adaptation. 77 Levies could beextended through taxation in other areas,including petrol, commercial electricitysupply and CO 2emissions from industry.An adaptation levy graduated to reflectthe high level of CO 2emissions of sportsutility vehicles and other low fuel-efficiencyvehicles could also be considered.• Financing linked to income and capabilities.A number of commentators have arguedfor adaptation commitments to be linkedto developed country wealth. One proposalis for all Annex I Parties under the KyotoProtocol to set aside a fixed share of theirGDP to finance adaptation. 78 Anotheradvocates the development of a formula forcontributions to adaptation financing thatlinks responsibility for carbon emissions (asreflected in historic shares) and financingcapabilities (measured by reference to theHDI and national income). 79Proposals in all of these areas merit seriousconsideration. One obvious requirement is thatrevenue mobilization to support adaptationshould be transparent and efficient. There arepotential pitfalls with the creation of specialfinancing mechanisms and dedicated fundingsources. Over-reliance on supplementary levieshas the potential to introduce an element ofunpredictability into revenue flows. Given thefar-reaching and long-term nature of the adaptationfinancing challenge, there is a strong casefor rooting it in normal budgetary processes.However, this does not rule out an expandedDonors may also needto consider the urgentdevelopment of innovativefinancing proposals4Adapting to the inevitable: national action and international cooperationHUMAN DEVELOPMENT REPORT 2007/2008 195