The Adaptation Benefit Mechanism Gareth Phillips Chief Climate

The Adaptation Benefit Mechanism Gareth Phillips, Chief Climate Change Officer & OIC PECG 2 ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

The Adaptation Benefit Mechanism TITRE DE LA PRESENTATION • Af. DB with support from CIF is proposing an Adaptation Benefit Mechanism (ABM) which would create Adaptation Benefit Units (ABUs) • An ABU is an output or outcome of an activity which makes households, communities or economies economically stronger and therefore more able to withstand climate-induced shocks (hard and soft; concrete and human) • For sale to donors, CSR buyers, philanthropists and anyone currently buying CERs and VERs • ABM is a results-based payment mechanism that uses CDM infrastructure to deliver verified ABUs to buyers in an efficient and transparent manner • Main purpose is to create a price signal for private sector investors • Price signal is monetized via an Adaptation Benefit Offtake Agreement (ABOA) – a bankable instrument just like an ERPA ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Defining feature of the ABM #1 TITRE DE LA PRESENTATION • ABUs are NOT compliance-based, fungible instruments • There is no compliance obligation and no fundamental need to be able to compare and standardize different kinds of adaptation benefits • Whilst economists would find it useful, commoditizing adaptation suggests that we can create an algorithm that can quantify human suffering • There at least three upsides to this approach: – The units in which ABUs are denominated do not matter (very significant implications for the complexity and costs of monitoring and verification); – The ABOA is a commercial transaction between a willing buyer and seller; – The mechanism escapes the major disadvantages of the CDM – the un-even playing field, the impact of speculation, rewarding of poor performance and environmental liability ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Defining and counting ABUs TITRE DE LA PRESENTATION • For example, anything which improves opportunities for economic activities or protects assets from flood or drought, makes household economically stronger and hence better able to cope with shock – Clean / efficient cookstove reduce time spent collecting firewood and improve indoor air quality = better health = more productive lives: HH using clean cookstoves per annum – Flood protection for villages and agricultural land protects assets: Communities protected from flooding for a decade – Connecting a household to an electric (mini) grid improves economic output, education, communication etc and makes households more resilient: HH connected to a grid – Implementation of Climate Smart Agriculture make farming yields more resilient to climate shock: HH applying CSA per annum • These are the units that would be offered to buyers for sale ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Defining feature of the ABM #2 TITRE DE LA PRESENTATION • An ABM fits better under the Paris Agreement because the principal unit – an Adaptation Benefit Unit – is relatively independent of the primary accounting units of the Paris Agreement • i. e. in claiming credit for creating ABUs and “counting” them, the mechanism is not interfering with the host country’s efforts to achieve its NDC • AND in addition, most adaptation benefit projects will have mitigation cobenefits. Like Sustainable Development benefits under the CDM, these are unquantified and are “left behind” in the host country • These un-quantified benefits will be detected in the national inventory and will have the effect of helping the host country achieve their Paris commitment (which is the objective of Art 6 of the PA) ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

TITRE DE LA PRESENTATION How does ABM work? ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

We propose…. TITRE DE LA PRESENTATION • To use the M&P of the CDM with some minor adjustments. Retain: – – – Approved baseline and monitoring methodologies; PDD – amended to “tell the story” and show the cost of generating ABUs Validation and registration; verification and issuance ABM register for projects and issued ABUs DOEs Host Country Lo. A; DNAs • Modify – Additionality tool – make it much simpler – Methodologies – make much simpler – Register for ABUs – only cancellation, no transfer of units out of the registry ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Who buys ABUs? And at what price? TITRE DE LA PRESENTATION • Donors who have an obligation to transfer funds to developing countries under the Paris Agreement – bilaterally or through funds • Development Banks – could use RBF mechanism to disburse funds • CSR buyers – who realise that buying CERs and VERs makes it harder • Impact investors who want to do good with a modest return • Philanthropists who may see it as a way of scaling up action • Price will vary depending on the project • Includes agreed / allowed costs plus a profit margin to reflect risk to investor • Might be $10 for one ABU and $10, 000 for another ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Economic flows in an Adaptation Benefit Mechanism project Bank lends debt on basis of ABOA, cash flows and developer equity Private Sector Project developers and Investors $ / Tech / Exp $ debt ABU off-taker(s) – CSR buyers, impact investors, philanthropists sign ABOA $ Host country $ profit $ Project Vehicle USD Bank A/C $ ABU Climate Finance Donor(s), Funds e. g. GCF sign ABOA ABU Adaptation Project Unquantified mitigation cobenefits Monitoring report Issuing authority (ABM EB) 3 rd Party Verifier

TITRE DE LA PRESENTATION Next steps ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Series of meetings leading to Co. P 23 TITRE DE LA PRESENTATION • • • This meeting Zambia to seek support from PPCR pilot countries Half day workshop in London to try and find an early mover to sign ABOA The PPCR Pilot Country meeting in Grenada to seek global support. Requesting side event in Bonn to present at SBSTA 46 AGN to present ABM to Parties at the parties only workshop on Article 6 immediately after SBSTA 46 • At and after SBSTA 46 we will work with a range of Governments to ask them to submit text to SBSTA 47 • Lobby Fijian Presidency and Parties to put ABM on the agenda for Co. P 23 ultimately leading to the creation of the ABM. ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Pilot projects • • TITRE DE LA PRESENTATION Ethanol cook-stoves in Kenya Climate adapted housing in Nigeria Rural water supplies and sanitation in Uganda Household grid connection in Ethiopia • Other plots are welcome – need to develop a methodology and draft a PDD – could use PPCR IPPG to pay for this work • The goal is to be able to cite ABM revenues as a new source of funding for adaptation projects in SPCR ENERGY, ENVIRONMENT & CLIMATE CHANGE DEPARTEMENT

Welcome to the Paris Agreement Questions please Thankyou for your attention Contact: Gareth Phillips, Chief Climate and Green Growth Officer – ONEC. 3 g. phillips@afdb. org