The African Development Bank (AfDB), with support from the Climate Investment Funds (CIF), has awarded a contract to Swedish consulting firm CPMA International to help develop a global Adaptation Benefit Mechanism (ABM).
The revolutionary ABM would serve as a business model to encourage private sector investment in climate change adaptation, sending a price signal to project developers that will encourage them to invest in technologies, goods and services which bring verified adaptation and resilience benefits to developing economies.
Under the ABM, project-based technologies and services that deliver supplementary adaptation benefits to developing countries will be able to have those benefits verified and issued as Adaptation Benefit Units (ABUs), and monetized through an Adaptation Benefit Unit Offtake Agreement (ABOA).
The ABOAs signed with creditworthy off takers are bankable and, subject to due diligence, may be used to raise debt to finance the projects.
An adaptation benefit can be defined as any activity that makes households, communities or economies more resilient to climate-induced shocks, and includes a wide range of products and activities not immediately recognized as essential to climate resilience. For instance, clean cooking stoves, flood prevention solutions, and access to electricity all help strengthen households, communities and economies by improving health and access to information, reducing women’s workloads, improving school attendance, protecting assets, enabling small-scale agro-processing, etc., all functions which ensure a stronger and more resilient society.
The ABM concept is based on experience from the mitigation-based CDM set up under the Kyoto Protocol, the UN’s former global climate change treaty, and also draws on the Payment for Ecosystem Services (PES) business model.
Under an ABM, project developers will be incentivized to change their behaviour from business-as-usual to invest in adaptation technologies, thus beginning to make adaptation solutions marketable and adaptation projects profitable.
Un-quantified mitigation co-benefits will be left in the host country to help them meet their emission targets defined in the Nationally Determined Contributions which form the heart of the Paris Agreement on climate change. Helping countries meet their targets will encourage them to raise their ambition and take the world closer to the 2°C target which was set in a global agreement in Paris last year.
As envisioned, the ABUs would be transacted in commercial agreements between willing buyers and sellers with no international environmental compliance obligations. The lack of compliance regulation is significant, as it simplifies the process, removes unexpected interference in domestic policies, reduces liability and eliminates speculator-driven secondary markets.
As much as 70% of Africa’s 2050 infrastructure still needs to be built and hundreds of millions of people, who need to move out of poverty and subsistence farming, remain highly exposed to changing climates and extreme conditions.
While the international community has set a goal of directing 50% of its committed US $100 billion towards adaptation, adaptation projects and technologies offer little or no financial incentive to the private sector. A mechanism like the ABM will open the door for early investors to enter into adaptation-based projects.