According to a new United Nations report, developing countries need far more finance to adapt to climate change. In an interview with the Health Finance Coalition, Paul Watkiss, one of the lead authors of the UNEP Adaptation Gap Report’s finance section, discusses the widening adaptation finance gap, its impacts on health and what is needed to reduce the growing divide.

What is ‘Adaptation Finance Gap’?

WATKISS: The overall Adaptation Gap report looks at the progress on adaptation. However, it’s challenging to do this because progress on adaptation is more difficult to determine than for mitigation.

For mitigation, we have a quantified target, for example to achieve net zero target. For adaptation there is no equivalent target, so we look at areas of progress, around adaptation implementation, policies, and finance.  

For finance, we look at the size of the adaptation finance gap. We estimate what the cost of adaptation is likely to be for developing countries, which gives us our potential finance needs. We then look at the current adaptation finance flows, which tells us how close we are to meeting those needs. The difference between the two gives us the adaptation finance.

What were your findings?

WATKISS: We focus on the adaptation finance gap this decade. For developing countries, we estimated that adaptation costs – that’s how much we think we need – could be around $215 to $387 billion a year. We then compared that to current finance flows, which in 2021were around $21 billion a year.

So, we need approximately 200 to 400 billion and we’ve got around 20 billion from international public sources. Th difference between those two numbers is the adaptation finance gap, and it’s large, at least a couple of hundred billion dollars a year.

Why is that gap growing?

WATKISS: We look at several evidence lines for our analysis.  We estimate the cost of adaptation, using models, and that gives us one evidence line. We also look at the submissions from countries in their Nationally Determined Contributions (NDCs) National Adaptation Plans (NAPs) as a different evidence line. In both cases, what we find is the estimated costs are increasing.

If you look at the most recent IPCC reports, the literature is much more negative and projects larger impacts of climate change happening sooner, so the science is one factor driving the increase in adaptation costs.

At the same time, developing countries are recognizing that they need to widen adaptation to more sectors than they had thought about previously, and that they are going to have to adapt to larger extreme events. So, they will need more resources and their estimates of adaptation needs are increasing.  

On the finance flows, the levels of adaptation finance from international public sources is broadly constant. So, while costs are going up, finance appears and therefore, the gap is getting bigger.

Does this alarm you?

WATKISS: The numbers have gone up since the last time we looked in detail, which was in 2016, so yes, that’s a source of concern. The other thing is, if you’re not financing adaptation, then you’re going to end up with higher levels of loss and damage.

On the other hand, while this sounds like a large finance gap, it is not impossible to address. For example, in 2020, total official development assistance – the flows of support from developed to developing countries – was $200 billion. If developed countries all met the target to provide 0.7% of their GDP to ODA, this would close the gap on its own.

And even if we don’t fill the entire gap, increasing adaptation finance will significantly reduce the impacts of climate change, as the economic benefits of adaptation far outweigh the costs.

Given this widening finance gap, do you have concerns specific to Health?

WATKISS: In the same way that we can look at for adaptation finance gap for all sectors, we can also shine a light on the health sector. We find the same messages: estimates of adaptation costs are increasing, and current finance flows are too low.

We’ve also seen countries diving into more detail in the health sector to look at their adaptation finance needs, using health NAPs (health National Adaptation Plans) so that they are building a better idea about what they might need for the sector.

For the health sector, we estimate that health adaptation costs this decade could be around $10 billion a year. This can be compared to health adaptation finance flows, which are only around $1billion a year. And so there’s a growing health adaptation finance gap.

Do you have concerns when it comes to disease control, such as malaria?

WATKISS: There are several climate sensitive diseases that climate change has the potential to increase, including malaria.

And of course, that means that we’re going to implicitly need some additional finance – compared to the baseline for malaria – in a changing world of climate change.

What needs to be done to address this widening finance gap?

I think it’s also important to highlight that there’s no magic bullet or silver bullet here to fill the gap and it’s a mix of things that need to happen. Obviously, the starting point is that the amount of finance from international public finance sources needs to increase. We need to make sure we hit the goal of doubling adaptation finance by 2025. That’s a really important foundational layer for everything else.

Also, countries can provide and scale up their own domestic finance for adaptation. And many of them are already doing that.

But at the same time, there are issues if the least developed countries must do this, because of issues of equity. These countries have extremely low GHG emissions, and they have not caused climate problems.  If a developing country has to spend its own domestic on adaptation, then it’s taking away resources that should be spent on development, and that is inequitable.

Another big finance source could be the private sector.

We can incentivize the private sector to invest by using public finance to buy down the risks of investment, or to support innovation.

However, it is important to stress that the private sector will invest in its own self self-interest, or where there are opportunities, so it will only be interested in certain types of adaptation financing. where there’s an economic return. So the private sector is unlikely to finance the most vulnerable communities or areas that would traditionally be financed by the private sector.

Should early warning systems be part of the solution?

WATKISS: In the Gap report, we do look at the opportunities for early warning systems. These are what we would call a ‘no regret adaptation option’ – the sort of things we should be doing anyway. These offer really good early returns on investment, and have high benefits compared to the costs.

However, to maximize the economic benefits of early warning system investments, you must use a value chain perspective, to make sure that as well as providing accurate and timely information, that this reaches users, and that they use the information to make better decisions. This means you must invest across the value chain.

On their own, early warning systems ae not going to address all the problems of climate change, but they are definitely a really important part of the portfolio and need to be scaled up.

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