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In response to the need for adaptation finance across the African continent, the African Development Bank launched the pilot phase of the Adaptation Benefits Mechanism (ABM) with the objective of creating a financing mechanism that does for adaptation what the Kyoto Protocol did for mitigation. The ABM recognises that while most adaptation projects yield economic benefits, lower perceived or actual financial benefits make them unattractive to the private sector. To remediate this, a credible means of valuing adaptation benefits combined with a willingness to pay for them, has the potential to incentivise private sector investment in adaptation.
Designed as a non-market mechanism under Article 6.8 of the Paris Agreement, the ABM draws upon lessons learned from carbon markets and relies upon a compelling results-based finance business model that enables African households, communities, economies, and ecosystems to adapt and build resilience to the negative impacts of climate change. The ABM aims to bridge the financing gap in adaptation projects by providing sufficient finance to make projects financially viable while ensuring value for money for purchasers of Certified Adaptation Benefits (CABs). As envisioned, CABs will be paid under a resultsbased scheme whereby purchasers commit to purchasing units prior to a project’s start but where adaptation benefit payments occur only after adaptation benefits are verified throughout a project’s implementation. As CABs are project specific, they are non-fungible and limit speculation or secondary trading. The price the purchaser pays, excluding a possible retail mark-up, is the price the project developer receives. Should a host country issue a letter of approval for the project, any adaptation benefits can be reported as assistance, provided they meet the host country’s adaptation goals. Indeed, the payment of CABs play a central role towards closing the existing financing gap.
At present, there is no mechanism to incentivise host countries to communicate their adaptation needs and consequently, donor countries are not hastened to make commitments to support such needs. The ABM shows great potential to transform adaptation finance and fill the vast climate change financing gap.
A comprehensive understanding of the interest in and demand for adaptation benefits as a means of contributing to the adaptation goal of the Paris Agreement, and/or fulfilling corporate social responsibility or philanthropic mandates, is central to a viable and successful ABM. This study brings together the insights and expertise of a broad swath of stakeholders and presents meaningful and encouraging feedback.
The ABM calls on developed countries to recognise the critical need for adaptation projects in Africa and to convey a willingness to support adaptation by enhancing global cooperation and promoting inclusivity.
I would like to thank the respondents for their time and insights, and look forward to seeing the feedback incorporated into the design of the ABM as it matures.
Kevin Kariuki
Vice President for Power, Energy, Climate & Green Growth
African Development Bank Group