A radical idea to fund climate adaptation globally

A lawsuit brought by a smallholder Peruvian farmer holding the biggest polluter in Europe responsible for its historic greenhouse gas emissions is currently making its way through the German court system — and with it brings a potential paradigm shift in the way that the private sector approaches climate change.

For the first time, if successful the lawsuit would hold the high-emitting German utility RWE liable for damages to this farmer, Saul Luciano Lliuya’s, property proportionate to its historical emissions (melting snow and ice from a nearby mountain summit threaten to overflow the lake in his small town). It could also have to pay for the required adaptation response, such as covering the cost of a much bigger dam and/or a pumping system at the glacial lake.

It’s not just Lliuya and his neighbors — around the world, those facing disproportionate amounts of climate change impacts are in low-income and developing countries in the Global South that are historically least responsible for the emissions causing these climate changes. But they lack the resources to fund adaptation projects that will help them survive these impacts. In fact, controversially, financing long promised by the Global North has never materialized.​

As courts reckon with legal issues of responsibility for climate change, we need another force to step in and help with these issues: global capital markets. While companies are turning to markets to deal with renewable energy credits and carbon sequestration credits, they’re ignoring funding urgently needed climate adaptation — which they have contributed to the need for.

We need a new system that gives companies the opportunity to privately fund climate adaptation measures, in order to recompense their historical emissions and the damage that these emissions have caused. This market-based mechanism would help companies be shielded from lawsuits like this one, as well as voluntarily opt in to new corporate environmental social and governance (ESG) efforts.

An adaptation credits marketplace would function similarly to carbon marketplaces. One adaptation credit would be equivalent to a carbon credit valued at the social cost of carbon: $51/ton (the latest estimate from the Biden administration). Companies could buy credits for various projects; for example, a corn farmer in India, who would need to invest $10,000 for a 5-acre farm to reduce his vulnerability to climate impacts via investing in drip irrigation, drought-resistant seeds, etc., would need about 200 credits. Credits for hundreds of corn farmers could be pooled by the local co-operative and listed on the adaptation marketplace, where corporate buyers such as Microsoft, Shell, and others can participate. Shell as an example contributed nearly 32 billion tons of carbon dioxide equivalent of emissions between 1750 and 2018 — it could buy up to 32 million adaptation credits globally, helping fund a plethora of projects (the actual number may vary depending on the number of carbon offsets bought by Shell already). This would unlock up to $1.6 billion into adaptation funding from Shell alone for adaptation in developing economies. 

A climate adaptation credits marketplace would be a tangible way for companies to make amends for historic emissions in the communities they have most affected, even if those are across the world from headquarters. The Googles of the world could provide funding for drought-resistant seeds for the drought-ridden smallholder farmers in the Horn of Africa; the Microsofts of the world could finance coastal restoration measures in Pacific Island nations facing sea-level rise.

The United Nations estimates that adaptation costs in developing countries are five to 10 times greater than current public adaptation finance flows, and the adaptation finance gap is widening — an opportunity for the private sector to step up and plug that gap. Many high-income countries are some of the largest historical emitters and also need to step up in their funding for low-income companies, but so are multinational companies. They should meet this moment with new leadership on the global stage for climate action.

Agriculture and forestry projects (such as mangrove restoration) would be one of the lowest hanging fruits with byproducts of reducing emissions as well. The benefits could be monitored and tracked using satellite imagery in the form of yield improvements and/or the growth of the forest. This system could also fund adaptation credits for the built environment and cities. At the city level, municipalities and utilities could issue such credits with funding tied to project completions.

Secondary benefits from this type of system include the acceleration of new climate-resilient industries, such as small seed companies providing climate-resilient seeds and weatherproofing materials companies. New climate jobs for residents in these communities unlock much-needed clean economies around the world. According to a recent report by Global Commission on Adaptation, a $1 investment in adaptation leads to $4 in economic benefits within this decade.

Granted, similarly to the early days of the carbon offset market, this climate adaptation market might initially run into some challenges quantifying adaptation progress and verification. But both carbon offsets for mitigation and adaptation credits are needed to tackle climate change, which is an urgent and underfunded need that must be included in any adequate climate change strategy.

Carbon offsets simply don’t go far enough to make up for the ongoing impacts of climate change that historical emissions have already caused and are continuing to cause. Building an adaptation credits marketplace would help build climate resilience worldwide. Starting with low-hanging fruits such as agriculture and flood-proofing infrastructure would pave the way to other interventions.

Most importantly, it will unite the north-south for an issue that is not a long-term issue anymore. We are in the middle of the most serious food crisis since World War II, accelerated by climate change. We need global efforts at the same scale to ensure just, resilient adaptation and recovery because by the time you finished this, nearly 500 more people would have become food insecure. We urgently need to accelerate climate solutions, especially in the adaptation space. This new system is exactly the kind of bold action that the world needs.

This article is also published in The Hill. Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.