The effect of different mitigation strategies on international financing of adaptation

Recent proposals at the UNFCCC meeting in Bali in December 2007 suggest that a 2% levy on the CDM could finance adaptation costs in developing regions. Other proposals include extending the scope of the levy to emissions trading. This study applies an Integrated Assessment Model to gain insight in the interactions between adaptation costs, residual damages and mitigation costs and to analyse the effectiveness of a 2% levy on both the CDM and emissions trading from developing countries. We show that adaptation is especially important in lower income regions where damages are higher. The revenues of a 2% levy strongly depend on both the climate mitigation target and the burden-sharing regime. A more stringent climate mitigation target results in more emissions trade and, in the longer run, less need for adaptation. Both factors increase the share of adaptation costs that can be funded. The burden-sharing regime strongly affects the revenues of a 2% levy as well: relatively more stringent targets for developed countries increase the revenues of a 2% levy. However, in the next two decades the share of adaptation that can be financed remains well below 20% in most cases. Additional funding mechanisms are therefore necessary to substantially finance adaptation costs in developing countries.