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Gareth Phillips is Chief Climate Change and Green Officer in the AfDB Environment and Climate Change Division. His background is in forestry and sustainable resource management; carbon market mechanisms including Clean Development Mechanism and Joint Implementation; emission trading schemes and the international climate negotiations; climate finance and green growth.
Adaptation benefits are in a similar position today to that of emission reductions in the 1990s, when the international community was broadly aware that greenhouse gas emissions had to be reduced, but the available technologies and know-how, such as renewable energy generation, were not financially attractive and no large-scale mechanisms existed to encourage their adoption.
Article 6 of the Paris Agreement makes provision for the development of both market and non-market mechanisms. While there is no formal definition of a market and a non-market mechanism, one may suppose that market and non-market mechanisms could share a common basis of how to methodologically determine baselines and estimate climate outcomes. The verification process could also be similar. The key difference could be that non-market mechanisms do not result in universal and internationally tradable units that could be re-sold and be subject to market price fluctuations and speculation.
The imbalance in investment in adaptation and mitigation is both well documented and logical. The Multilateral Development Banks, for example, report that 80% of climate finance is tagged as mitigation whilst only 20% is adaptation, and that comes from institutions whose mandate is development. For the private sector, there is no obvious or easy return for investing in technologies that improve public health or air quality, or provide long term flood defenses or irrigation services to subsistence farmers. These are public goods that are traditionally provided by public funds.
Despite the immense potential of Africa’s vast, resource-rich forests, commercial investments in forestry have nearly ground to a halt across the continent over the course of the past decade. Since 2000, for instance, the commercial private sector has established only about 125,000 hectares of new plantations, whereas smallholders have planted a mere 250,000 hectares. To make matters worse, government-owned forests shrank by approximately 100,000 hectares during the same period.
In the run-up to 2015’s historic COP21, there was a lot of debate about the role carbon markets should play in the final negotiated Paris Agreement. Many, myself included, called for inclusion of carbon trading; and I recall a general sigh of relief when Article 6 of the Agreement was accepted, seemingly creating space for a new carbon market mechanism (Article 6.4) and transfer of International Mitigation Outcomes (ITMOs) (Article 6.2).
The challenge of the Paris Agreement is “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century”. It’s a 50-year marathon, made up of successive five-year sprints, and we need to approach it as such.
Results-based finance is a mechanism that enables an “off-taker” to pay a “project developer” for the delivery of specific results. For a results-based payment mechanism to work, four key elements are required: