Adaptation: is securing funding really the top priority for COP negotiations?

There is a growing consensus that one of the significant impediments to climate change adaptation is the lack of adaptation finance (UNFCCC 2023). Furthermore, adaptation finance has been a focus of the negotiations at COP. COP29 has been widely recognized as the "Finance COP," emphasizing the pivotal role of finance in addressing climate change. The New Collective Quantified Goal (NCQG) on climate finance is expected to dominate discussions, which will no doubt have implications for scaling up financial support for adaptation efforts.^{Footnote 1}

The UNEP Adaptation Gap Report 2023 (UNEP 2023a; hereinafter AGR2023) and the UNEP Adaptation Finance Gap Update 2023 (UNEP 2023b; hereinafter AFGU2023) have significantly contributed to this shared understanding (UNFCCC 2023). These reports were released just before COP28, with the explicit intention to impact international negotiations (UNEP 2023a; b). Consequently, the COP28 outcome document uses the assessments of AGR2023 for adaptation finance as they are, stating "Also highlights that the adaptation finance needs of developing countries are estimated at USD 215–387 billion annually up until 2030 …" and "Notes with concern that the adaptation finance gap is widening…." (UNFCCC 2023).

In this case, the validity of the contents of these reports should be carefully examined before reaching an agreement. However, there is no evidence that such verification was conducted in reaching an agreement at COP28.

This article critically examines AFGU2023 and highlights some significant challenges therein. However, the article goes beyond critiquing these financial estimates to address deeper, underexplored structural issues in the adaptation framework under the UNFCCC. These structural issues could potentially be the root cause of the problems in the AFGU2023’s adaptation finance gap estimate. Through revealing these challenges, this article calls for more informed and evidence-based COP discussions, which should lead to a fundamental rethinking of the adaptation framework.

This section examines AFGU2023’s estimate of the adaptation finance gap. The critiques offered herein are intended to enhance the robustness and reliability of such estimates rather than undermine the credibility of the efforts behind them.

Adaptation cost estimation based on sector-specific model calculations

AFGU2023 estimated the necessary adaptation finance using two methods. First, based on sectoral model calculations, AFGU2023 estimated the adaptation costs for all developing countries as approximately USD 215 billion per year over the current decade (UNEP 2023b). In this method, the coastal zones, river floods, and infrastructure sectors accounted for about 80% of the total costs (Watkiss et al. 2023). Therefore, analyzing the model calculations for these three sectors provides an overview of this estimate.

The model calculations for coastal zones, flood protection, and infrastructure relied on the Dynamic Interactive Vulnerability Assessment (DIVA) model (Lincke and Hinkel 2018), the GLOFRIS flood model (Ward et al. 2017), and studies by the World Bank team (Rozenberg and Fay 2019; Hallegatte et al. 2019; Miyamoto International 2019), respectively. Reviewing these original studies reveals that these estimates include costs of adaptation for both human-induced climate change (HI-CC) and natural climate change (N-CC), which occurs even without human influence.

This fact has significant implications as the UNFCCC covers only HI-CC (UNFCCC 1992). Therefore, only adaptation activities to address HI-CC could get financial support under the UNFCCC. Thus, AFGU2023’s adaptation cost estimate is not directly relevant to the negotiations under the UNFCCC. Distinguishing adaptation costs for HI-CC from those for N-CC is crucial for providing meaningful insights in UNFCCC negotiations. Scenario analyses, while imperfect, could contribute to more relevant financial assessments.^{Footnote 3}

It is also worth noting that in assessing the cost of flood protection, the AFGU2023 demonstrated that the choice of adaptation objective significantly impacts cost estimates, resulting in cost disparities up to fivefold (Ward et al. 2017). This type of adaptation cost estimate requires, at the very least, some meticulous analysis for defining and justifying a suitable adaptation objective. Unfortunately, the AFGU2023 did not provide any such arguments.

Adaptation finance needs estimation based on NDCs and NAPs

The method used for calculating adaptation finance needs (AF needs) of all developing countries was a statistical analysis based on data from 85 nationally determined contributions (NDCs) or national adaptation plans (NAPs) that have reported AF needs (Chapagain et al. 2023). It consists of estimating per capita AF needs for each country, grouping them into three income categories, calculating the median for each category, multiplying this median with the total population of each category, and then aggregating them to obtain an overall estimate. The AF needs for all developing countries for 2021–2030 were estimated at USD 387 billion per year (Chapagain et al. 2023).

To verify this estimate, this article conducted additional estimations using alternative approaches (data used were extracted from the bar chart in AFGU2023).

The first alternative approach involved calculating the median for each category after weighting the per capita AF needs by the population of each country, instead of using the per capita AF needs without weighting, accounting for the validity of the values in proportion to their populations.

The second and the third alternative approaches used the reported AF needs of the 85 countries as they are and estimated values only for the remaining countries. This approach contrasts with AFGU2023’s, which recalculated almost all the country values using the median of each income category.

All alternative estimations yielded significantly lower values than the AFGU2023 estimate (recalculated), ranging from USD 65 billion to 327 billion per year as shown in Table 1.

Even when using reported data for 85 countries, the final estimates differed by more than a factor of 2.5, depending on the estimation method for the remaining population. One contributing factor to this discrepancy is that countries with almost half of the total population of developing countries have not yet reported AF needs (3,102 million out of 6,513 million),^{Footnote 4} necessitating extensive extrapolation.

The calculation results differ significantly due to slight adjustments in calculation methods, casting serious doubt on the reliability of the AFGU 2023’s estimate of the AF needs.

What does adaptation finance estimation mean?

As explained above, the AFGU2023 estimates raise serious concerns regarding their relevance and reliability. However, a more significant concern is that AFGU2023 fails to fully account for the context of such estimations. AF needs in NDCs and NAPs are reported information under the rules of the UNFCCC. Hence, these values must be respected as they are unless COP requests their verification. In contrast, AFGU2023 not only estimated AF needs based on country-reported information, but also calculated adaptation costs using models, presenting them together as a "plausible central range"(UNEP 2023a). Even in the former estimation, statistical processing involved excluding some country data as "outliers" and recalculating almost all countries’ values (Chapagain et al. 2023). However, such an approach should not have been acceptable under the UNFCCC framework, despite COP28 highlighting these estimation results in its decision.

Available adaptation finance and the adaptation finance gap

After estimating the necessary adaptation finance using the above-mentioned two methods, AFGU2023 estimated the "amount of finance available for adaptation". This estimation only included international financial flows, excluding domestic expenditure and private finance entirely (Savvidou et al. 2023).

The difference was called the "adaptation finance gap". AGR2023 and AFGU2023 claimed that the "adaptation finance gap is widening" and that "a widening adaptation finance gap indicates a deepening climate crisis and will lead to increased loss and damage" (UNEP 2023a; Watkiss et al. 2023).

However, these arguments have foundational challenges.

First, by excluding domestic expenditure and private finance in estimating the adaptation finance gap, AFGU2023 inflated the gap drastically. AFGU2023 stated that the reason for this exclusion was that the Adaptation Committee, which assessed 14 national studies reporting adaptation-only expenditure, claimed not to recommend direct cross-country comparisons due to methodological differences (Savvidou et al. 2023). However, AFGU2023 used a similar approach for estimating the AF needs of all developing countries based on NDCs and NAPs. This inconsistency undermines the credibility of AFGU2023's argument.

Second, while the costs of adaptation for both HI-CC and N-CC are counted in estimating the necessary adaptation finance (further explained in the case of NAPs later), this fact is not fully considered in the discussion. The statement of AFGU2023 that "the adaptation finance needs of developing countries are estimated to be 10–18 times as much as international public finance flows" (Chapagain et al. 2023) could be construed as a proposition advocating that all N-CC adaptation efforts, not just HI-CC adaptation efforts, should be entirely financed by international assistance.

Third, the claims that "the adaptation finance gap is widening" and that this indicates a worsening problem are unfounded. AFGU2023 conducted a more comprehensive estimate than the assessment in 2016, finding significantly larger values than earlier estimates (UNEP 2023b). This change reflects a shift in calculation methods, not an analysis of changes in the adaptation finance gap over time; nor does it justify the link between a widening gap and a deepening climate crisis.

As described above, the AFGU 2023’s estimation process exposed serious concerns at all stages of calculating the adaptation finance gap. Unless these challenges are resolved, it would be better if COP refrained from relying on AFGU2023’s evaluations on adaptation finance to advance the discussion. Resolving these issues is essential to ensuring that the AFGU estimates are relevant and valuable to COP in the future.

If COP discussions on adaptation finance are to move beyond the estimates presented in AFGU2023, it is crucial to explore alternative sources of information. A key source is the AF needs reported through NDCs and NAPs, which AFGU2023 had already partially relied on. If we could fully rely on such reported AF needs, we may well be able to overcome the challenges in estimating the adaptation finance gap. This section examines the nature of these reported AF needs, leading to providing informed recommendations for future COP discussions on adaptation finance.

Reporting status of AF needs from developing countries

As already explained, many developing countries, whose total population represents almost half of the entire population of developing countries, have not yet reported their AF needs. Therefore, if COP is to discuss adaptation finance, it is imperative that these countries report their AF needs. The priority is to accelerate the reporting of AF needs from these countries and identifying bankable adaptation activities in these countries as a prerequisite for such reporting.

There is limited value in estimating AF needs using methodologies like those used in AFGU2023. If many countries have not yet reported their AF needs—it could mean they do not know how to use the funds or are, at least, not ready to convert their adaptation ideas to specific bankable project proposals—even if significant resources were secured now, they would not guarantee the progress of adaptation activities. Thus, while estimates like those in AFGU2023 provide a broad perspective, relying on them without sufficient country-level reporting could be misleading and may disproportionately focus COP discussions on the scale of funds to be mobilized.

The nature of AF needs indicated in NAPs

Accordingly, if all developing countries were to report their AF needs through NDCs or NAPs, should we rely on them to assess the necessary adaptation finance? This subsection analyzes this point by examining the COP decisions and guidelines on NAPs.

The unrestricted scope of the adaptation activities in NAPs

NAPs have been continuously discussed, but the scope of adaptation activities to be included in NAPs has not been stipulated in any COP decisions to date.

However, the "Technical Guidelines for the National Adaptation Plan Process" (NAP Guidelines) (LDC Expert Group 2012) prepared by the LDC Expert Group in response to a request in Decision 5/CP.17 can serve as a reference regarding the scope of adaptation activities and the associated AF needs included in NAPs.

The NAP Guidelines highlight the review and appraisal of adaptation options based on their costs, effectiveness, efficiency, and contribution to sustainable socio-economic development. Therefore, if countries adhered to the NAP Guidelines, only those adaptation options meeting specific criteria would be incorporated with their cost estimates.

Unfortunately, many developing countries do not consider such criteria. The Adaptation Committee analyzed 76 NDCs or NAPs, and found that”most typically they [developing countries] cost long lists of identified activities, rather than prioritized actions (and levels of action). They are not based on an analytical assessment of baseline risks and the benefits of adaptation (in reducing climate change impacts) or use an economic appraisal framework. They therefore do not consider adaptation effectiveness, the comparison of the costs and benefits of adaptation, and thus the estimated level or scale of adaptation” (Adaptation Committee 2022).

Currently, NAPs are formulated with no boundaries on the scope of adaptation activities to be included. Developing countries incorporate any adaptation activities in NAPs that are deemed necessary in light of their "country needs."

Developing countries’ country needs

Developing countries can design adaptation activities for their NAPs with the assumption that most costs will be covered by international financial support. As a result, they may focus primarily on the benefits of these activities. If benefits alone guide decisions, effective and efficient use of funds cannot be guaranteed. Developing countries could design activities that maximize gross benefits for their NAPs without considering the costs. Furthermore, there is no COP agreement on the level of social resilience that NAP implementation should achieve. In this case, an unlimited number of adaptation activities could be conceivable as perfect resilience is the unattainable target. Therefore, countries can legitimately present any range of adaptation activities in their NAPs, claiming they reflect their "country needs." If COP discussions were to reference such information, and if all AF needs were assumed to be covered primarily by international financial flows, as possibly posited by AFGU2023,^{Footnote 5} countries would have strong incentives to report significant AF needs beyond economically and politically justifiable from global perspectives.

Given the open-ended nature of NAPs, it is problematic to accept the AF needs expressed by countries as fully representative of legitimate country needs, both in terms of the appropriateness of proposed adaptation activities and equity among developing countries. This embedded unreliability of reported AF needs in NAPs could be a potential root cause of the issues we examined in the AFGU2023.

Discrepancy between NAPs and the UNFCCC

Another critical issue is the lack of distinction between HI-CC and N-CC. The NAP Guidelines, which adopt the IPCC’s definition of adaptation, do not exclude human-driven adjustments to N-CC from adaptation (LDC Expert Group 2012).

COP subsequently welcomed the NAP Guidelines, allowing countries to include adaptation to N-CC and its associated costs in their NAPs (UNFCCC 2013). Consequently, NAPs can encompass a broad range of disaster preparedness activities for N-CC and their costs. This inclusion of N-CC adaptation costs in AF needs creates a misalignment between NAPs and the UNFCCC’s mandate. However, this discrepancy between NAPs and the UNFCCC has rarely been discussed in international processes and academia.

To make the AF needs in NAPs relevant to UNFCCC discussions, practical measures must be introduced to report only the needs for HI-CC adaptation, even if the rigid scientific separation between N-CC and HI-CC remains challenging. Given that the GCF has made strides in introducing various practical rules, for example, requiring project proponents to, among others, differentiate between climate-related expenses and development or other expenses, and to justify the incremental cost (GCF 2022a, b), aiming to fund only activities aligned with the UNFCCC’s mandate, it must be feasible to introduce such practical measures. If it is not an option for COP to entrust the GCF and other financial mechanisms under the UNFCCC to deliberate on adaptation finance and refrain from discussing it based on the reported AF needs, COP should take this challenge seriously and find a way to address it. The scientific difficulty of separating HI-CC from N-CC should not justify using conflated AF needs estimates in these critical discussions.

Adaptation negotiation priorities

The current discourse on adaptation finance, largely shaped by the notion of a 'finance gap,' overlooks a more pressing need for a comprehensive rethinking of the adaptation agenda. Approximately, half of the population in developing countries resides in nations that have yet to report their AF needs (Chapagain et al. 2023). For COP to advance discussions on adaptation finance, the focus must shift toward accelerating the reporting of AF needs from these countries and identifying bankable adaptation activities in these countries as a prerequisite for such reporting.

However, merely accelerating the reporting process will not resolve the fundamental challenges. The scope of adaptation activities outlined in NAPs remains entirely undefined, with no clear boundaries that align with the UNFCCC’s mandates or reflect sound economic justification. Addressing these challenges requires COP to urgently establish rational and equitable boundaries for adaptation activities.

Defining these boundaries is only the first step. COP must also establish a policy framework that operationalizes these boundaries and accelerates the identification and implementation of appropriate adaptation activities. It is necessary to give deserved attention to the fact that efforts on adaptation under the UNFCCC have lacked a cohesive system design perspective so far, particularly in terms of incentivizing appropriate adaptation activities. This discussion should be integrated into broader efforts on the Global Goal on Adaptation and the New Collective Quantified Goal on Climate Finance.

This article critically examined the UNEP Adaptation Gap Report 2023, revealing important methodological challenges used to estimate the adaptation finance gap. Uncritically accepting these inflated assessments risks diverting attention from other pressing adaptation priorities and could create unnecessary obstacles within negotiations, leading to a potentially unproductive dichotomy. Any adaptation finance assessments should be scrutinized before being used as a basis for international negotiations.

Beyond the shortcomings of these reports, deeper systemic issues within the UNFCCC adaptation framework pose even greater challenges. The lack of clear boundaries for adaptation activities and the misalignment between NAPs and the UNFCCC’s mandate create substantial problems that could undermine the effectiveness of international adaptation efforts. To address these concerns, COP should establish well-defined boundaries for adaptation activities within the UNFCCC mandate and implement a robust framework to operationalize these boundaries effectively. Unless these issues are addressed, the challenges in estimating the adaptation finance gap could not be fully resolved.

By shedding light on these underexplored issues, this article aims to contribute to more informed and evidence-based dialog at future COP discussions, which should eventually lead to a fundamental rethinking of the adaptation framework.