Financing Adaptation and Resilience through Fossil Fuel Subsidy Reform and Fuel Duty

There is a troubling gap between the existing amount available in finance for climate change adaptation and its actual costs. Though methodologies for estimating adaptation costs are widely debated, the World Bank estimates that adaptation will cost countries tens of billions USD this century, and UNEP’s 2016 Adaptation Finance Gap Update predicts that these costs could escalate to be hundreds of billions USD by mid-century.

The gap presents adaptation practitioners with a significant challenge. In order to meet this growing need for adaptation finance, countries will need to consider how to combine multiple sources of revenues, whether public or private, international or domestic.

With a focus on one aspect of the financing landscape—domestic resources for implementing National Adaptation Plans—the NAP Global Network recently co-hosted the side event “Financing Adaptation and Resilience through Fossil Fuel Subsidy Reform and Fuel Duty” at the UNFCCC SB 44 in Bonn, Germany.

At the side event, Anne Hammill (IISD & NAP Global Network) explained: “Traditionally, [domestic resources haven’t] been a strong focus. Unsurprisingly, the countries that are most in need of adapting don’t necessarily have strong domestic revenue streams. That said, we’re seeing moves to allocate domestic resources from fossil fuel subsidy removal, for example, and fuel duty. These type of domestic resources can be used to fund things like climate-resilient infrastructure projects, social protection programs—which can be absolutely critical to building a country’s resilience and helping them adapt—and ecosystem-based adaptation.”

Anne Hammill’s presentation on domestic resources for NAP implementation:

Andrea Meza (Director, Climate Change, Ministry of Environment and Energy) explained how Costa Rica has used a portion of the revenues from their fuel tax to implement adaptation policies: “Our [Nationally Determined Contribution] NDC established this approach of ecosystem-based adaptation focused on forests and water protection. These [fuel tax] revenues are very important right now to get to the targets that we set in our NDC in adaptation. We’re protecting critical areas for water sources, and we’re working a lot with local communities to do this job.”

Laura Merrill (Global Subsidies Initiative & IISD) described several other international examples of using subsidy reforms for adaptation. She explained: “Indonesia is in the enviable position of looking at what to do with USD $16 billion worth in savings from their gasoline and diesel [subsidy] reforms. A lot of it is going to infrastructure, a small percentage for renewables—but the hope is that it will leverage more private finance by opening up that sector—and a huge amount has gone into what some would term a social safety net around one-off cash transfer schemes, a social welfare system on health, a food scheme and [supports for] students.”

With 13 countries including fossil fuel subsidy reform in their NDCs, this will be a policy option to watch as a potential source of domestic revenue for mounting adaptation needs.

Watch IISD Reporting Services coverage of this event:

Watch a webcast of this side event:

This event was co-hosted by:

International Institute for Sustainable Development  |   Global Subsidies Initiative  |  National Adaptation Plan (NAP) Global Network  |  Friends of Fossil Fuel Subsidy Reform