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Financing Adaptation and Mitigation in Asia and the Pacific

Article | 18 November 2013

Asia and the Pacific face a monumental challenge in finding the funding needed to prepare for the impacts of climate change.

As the devastation brought to the Philippines by typhoon Haiyan in November 2013 clearly demonstrates, extreme weather events that could have their roots in climate change are a call for urgent action.

Developing countries need massive investments to transition to a low carbon, climate resilient development path. The needed incremental investments are estimated to be between $140 billion to $175 billion per year for mitigation in all developing countries, and $40 billion per year for adaptation in developing countries in Asia and the Pacific.

For example, Mongolia will need to spend as much as $560 million a year between now and 2050 to prepare its infrastructure for the increasingly severe weather brought about by climate change, according to the ADB report Economics of Climate Change in East Asia.

In the Republic of Korea, the report found that about $2.5 billion a year is needed during the same period in order to protect the country's infrastructure from the effects of climate change. In the People's Republic of China, the figure climbs to $44 billion a year.

Limited public resources need to be optimized by deploying them to scale up private investments both in climate mitigation and adaptation. This includes unlocking private investment through well-targeted finance that mitigates risk, especially policy and regulatory risks, and helps address the incremental cost of deploying clean technologies.

Innovative approaches involving a mix of financial instruments are needed. This includes concessional loans, equity investment, subordinated or mezzanine loans, credit enhancement of bond issues, and first loss facilities and guarantees.

Private sector investment is crucial to the effort to find funding. The United Nations Framework Convention on Climate Change estimates that the private sector will need to contribute more than 85% of investment and financial flows for infrastructure climate proofing.

Concessional resources

ADB is presently administering $1.5 billion from the Climate Investment Fund (CIF), which has become the largest source of cofinancing for ADB's climate change program. ADB has also administered $50 million of climate-related resources from the Global Environment Facility (GEF).

Aside from channeling resources from global climate funds, ADB has mobilized additional concessional resources for its developing member countries by establishing dedicated funds for financing climate change mitigation and adaptation actions in the region.

These include the Climate Change Fund ($50 million); the Clean Energy Financing Partnership Facility ($275 million); the Asia Pacific Carbon Fund ($152 million) and the Future Carbon Fund ($115 million). These are all in addition to ADB's regular financing instruments which are likewise available to support climate change responses.

Working with the Private Sector

ADB has also employed innovative approaches for mobilizing private sector financing for climate-friendly investments. For example, ADB is seeking to catalyze large amounts from institutional investors into a $1 billion Climate Public Private Partnership Fund, a platform that combines private sector investment with development finance institution expertise.

This provides equity, debt and grant facilities to climate-related sectors in ADB's developing member countries. ADB has also established the $82 million Canadian Fund for Private Sector in Asia that will blend discrete concessional resources with private sector operations for climate change mitigation and adaptation projects.