Equity and cost-effectiveness of multilateral adaptation finance - are they friends or foes?

Equity and cost-effectiveness of multilateral adaptation finance - are they friends or foes?

Analysis of potential criteria for the allocation of international funding for adaptation to climate change

This paper analyses the potential criteria to allocate international funding for adaptation to climate change as a response to the prioritisation of project proposals given scarce funding. It is based on a review of the equity and cost-effectiveness literature and relevant policy documents. It identifies vulnerability levels, poverty and the number of beneficiaries as indicators for equity and economic savings in absolute and relative terms, and human lives saved as an indicator for cost-effectiveness. The indicators were applied to information provided in 16 project documents considered by the Adaptation Fund Board (AFB) in 2011.

The analysis finds that:

  • it is challenging to define universally acceptable equity and cost-effectiveness indicators, as neither the academic literature nor policy documents give clear guidance on when adaptation funding is equitable and cost-effective
  • on applying the indicators to the projects, the AFB approved projects from high-income countries neglecting the poor countries which are most vulnerable to climate change
  • data constraints only permitted country level indicators as opposed to the community level indicators demanded by the AFB project review criteria.
The results imply the following for the operations of the AFB:
  • the AFB should give more detailed criteria for the technical review, provide additional guidance to support implementation and make public the technical review and reasons for its final decision
  • if past approval decisions are related to the capacity of countries and implementing entities to develop well-written proposals, capacity development for both national and multilateral implementing entities and support for collection of relevant data is as important as deciding on concrete review and allocation criteria
  • the AFB should find synergies between equity and cost-effectiveness, even when cost-effectiveness is defined in purely economic terms.
The paper concludes that a purely economic definition of cost-effectiveness is in contradiction with equity, but trade-offs between equity and cost-effectiveness can be limited, if they are supported by theory and empirical data.
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