The effects of climate change in 2022 is showing a growing need for developed nations to invest in adaptation. The implications of these adaptation needs will directly affect the availability of financial flows to developing countries. If developed countries will have to finance their growing domestic adaptation needs that were not realized fully before, this means it will be a bit more difficult to find the available funding sources to transfer to the developing world.

The effects of climate change have been evident in 2022 in many areas around the world. Some areas have experienced flooding, as seen in vast regions of Pakistan, and some areas have experienced warmer temperatures and drought conditions. Other areas have seen less snowfall or precipitation during the winter months. With less snow accumulating on mountains, less precipitation and/or with warmer temperatures earlier in the year, many areas have seen less water flows. The European Commission Report about Drought in Europe - August 2022 explained that the drought conditions in Europe in the summer of 2022 were caused by wide and persistent lack of precipitation combined with a sequence of heatwaves.

These conditions have devastating implications on areas dependent on snow or continuous water flows as water storehouses for drinking water and for agriculture. Less precipitation has devastating effects on the fertility of soil and less water in river discharges also has a negative effect on the energy sector, which uses water for hydroelectric power generation and cooling systems of other installations, and on other human activities.

As these climatic conditions become more frequent, water scarcity will become a bigger issue. In a recent discussion during a seminar organized by the Korea Institute for International Economic Policy on Global Transition and Food Security, I raised my concerns that what we have seen during the past summer is just an intro or a “sneak-peek” to what we will be experiencing in the future, and there is no doubt many countries are unprepared for the crisis.

If we take Europe as an example, according to the European Parliamentary Research Service from December 2019, over 40% of total water use in the EU goes to agriculture, reaching 80% in some regions. In addition, the share of the irrigated area in total agricultural area in the EU is only 6% (Eurostat, 2016), meaning that as irrigation practices expand because of drier conditions, the share of total water use that will be directed to agriculture will grow. The question is, where will the water come from?

As water shortages become more acute in developed countries, these countries will have to resort or expand the use of technologies which create, conserve, manage, and treat water, just as Israel, a leading water-tech country, has done to manage its water crisis in the last decades. The use of desalination, even in countries which currently have no water shortages or have not even raised this possibility, will most probably become a necessity. In this regard, despite having several strategies in the fields of water management, climate change adaptation and food security, which include spreading the use of irrigation, the European Union acknowledges in its EU Blue Economy Report 2022 that in the EU and UK, 60.5 million people and €1,158 billion of economic activity are exposed to water scarcity and as a result, the use of desalination is a necessity. However, the market for newly developed desalination plants has not been growing as expected. Investments in improving and utilizing atmospheric water generation technologies will also be more substantial in the future.

Having said all that, adaptation to the water challenges created by climate change is just one area of investments needed in developed countries. Climate change will require these countries to take other measures to adapt their infrastructure to climate change. For instance, high temperatures this summer have caused railway infrastructure to buckle under the intense heat and roads and airport runways to melt. Adapting this infrastructure to a changing reality will require billions of dollars of investments.

The implications of these adaptation needs will directly affect the availability of financial flows to developing countries. Climate financing in developing countries relies mostly on the traditional sources of funding, which include funds provided by developed country governments from their national budgets either bilaterally or multilaterally (through the World Bank, Development Banks, the GCF, CIFs, and other dedicated funds) or through leveraged private sector funds. If developed countries will have to finance their growing domestic adaptation needs that were not realized fully before, this means it will be a bit more difficult to find the available funding sources to transfer to the developing world. This is especially true when even today there is a significant financing gap where infrastructure needs in the developing world exceed current investments.

Even when using off-budget expenditure measures, as countries do to finance many infrastructure projects, there are adaptation measures that do not create enough revenues, making off-budget borrowing not a viable solution for certain funding needs. Under the assumption that national budgets are not infinite sources of financing, and developed countries are now faced with reduced fiscal resources as well as tighter international banking regulations, all these create strains on financial transfers from donor countries. Domestic political and economic pressure might also elevate this problem.

As for private sector funding, which focuses on commercially viable projects, one should remember that in the developed world, infrastructure projects are relatively low risk. This makes them more attractive to certain private sector financing institutions than the same types of projects in much of the developing world, where sovereign, political, macroeconomic, market, credit, technical and other types of risks are much higher. It is not surprising then to read that according to the World Bank, 83% of investments in infrastructure projects in 2017 in developing countries were funded by government entities and state-owned enterprises rather than the private sector.

As if reality wasn't hard enough for financing adaptation infrastructure projects in the developing world, where climate related risks are expected to be more intense than in the developed world, it seems things are going to become even harder in the future. Innovative, holistic, reforming, and transformative solutions will have to be put in place to meet these financing challenges and to raise and utilize adequate financing for all countries.

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.

The Spillover Effects of Climate Change from Developed to Developing Countries

Climate change, unfortunately, is in the news on a daily basis these days. While climate change is expected to affect all countries, the climate crisis will affect some countries more than others. Extreme weather events, such as flooding, prolonged heat waves and droughts will become more frequent and intense in many places.

Climate change, unfortunately, is in the news on a daily basis these days. While climate change is expected to affect all countries, the climate crisis will affect some countries more than others. Extreme weather events, such as flooding, prolonged heat waves and droughts will become more frequent and intense in many places. The last months have illustrated this point well, with flooding across the United States, Europe, several countries in Africa like Uganda and Ethiopia, and even in unlikely places like the UAE. Extreme heat and drought conditions along with wildfires have also been seen this summer breaking historic figures.

As natural disasters are wreaking havoc around the world, it was only natural to see that the topic of climate change was one of the central themes of this year’s 

 (KGD). The Dialogue, which was hosted by the 

 and the Ministry of Foreign Affairs and International Cooperation, Rwanda, took place earlier this August in Kigali, Rwanda. One of the discussions in the field of climate change which I was grateful to be a part of focused on how to finance all the measures that are required worldwide to adapt to the physical climate hazards that will materialize into natural disasters.

When it comes to climate adaptation, the traditional view is that governments are those responsible to address, finance and implement the adaptation measures in their country. Yet financing adaptation is a challenge as many of the actions required have public benefits rather than private revenue creation, therefore the private sector is reluctant to join the market. One other problem is that it is also difficult to measure the performance and benefits of these adaptation actions and express them in a single metric, whether it be CO2 emissions or US Dollars. With growing adaptation needs, especially in poor and developing countries, which face constrained budgets and debt burdens, innovative ways for financing climate adaptation measures have become a necessity. As Dr. Samson Samuel Ogallah, Commonwealth Climate Finance Adviser, Government of Eswatini explained at the KGD, the amount of resources required annually for Africa alone to address adaptation gaps are over 15 billion USD.

According to Olga Chepelianskaia, Founding Director of 

 and International Climate Change Consultant, who participated in a discussion I moderated at the KGD, only 7% of the total climate finance goes to climate change adaptation – 30 billion out of nearly 600 in 2021 – and private sector funding represents 55% of the total. The majority of these private investments go to developed countries. Chepelianskaia explained that most of the developing countries, especially low and low middle income countries, are not considered investment grade and have a big problem accessing international capital markets. Their low creditworthiness discourages the private sector from entering these markets. Chepelianskaia believes that for developing countries, getting access to private sector adaptation finance at required scale is a long but worthy process. According to her experience in supporting Asian countries and cities with climate resilience and climate finance access efforts, the process requires assessing climate vulnerabilities through climate modelling, climate impact modelling and geo-spatial analysis; prioritizing climate interventions; setting up systems to implement them and link them to grant or low interest rate international development finance support. Stabilizing major climate risks along with developing robust implementation systems and raising creditworthiness leads to unlocking private adaptation finance opportunities at scale.

It is in this context and in the wake of the urgency and need, that countries in Africa have begun utilizing innovative financing instruments to fund their adaptation needs. Ogallah, who is one of the most prominent climate finance experts in Africa, added in the discussion that setting the legal backing to climate change action is important to help mobilize finance and several African countries, such as Kenya and Nigeria, have set in place appropriate climate change laws.

Ogallah also pointed out that African countries such as Nigeria, Kenya, Seychelles, Namibia, South Africa have joined a long list of countries in the world that have issued green bonds to address climate change adaptation interventions. 

 are another way to finance adaptation in Africa. Countries such as Seychelles is already implementing this instrument in mobilizing resources for climate actions and the Kingdom of Eswatini, Mozambique and other African countries are exploring how to engage with this instrument for undertaking climate actions. These debt swaps allow countries to deal with both climate and debt problems at the same time by permitting the debtor country to make payments in local currency to finance domestic climate projects instead of continuing to make external debt payments in a foreign currency. With the support from the Commonwealth Secretariat, the Kingdom of Eswatini has also developed its 

Private Sector Engagement Strategy for NDC/climate Actions

. This allows for the effective participation of the private sector in climate interventions in the country. The country has also conducted its 

Climate Public Expenditure and Institutional Review (CPEIR)

, all these are aimed at enhancing climate actions in the Kingdom.

According to Ogallah, there are also some financing initiatives and mechanisms at the Continental level that are gaining momentum, including the 

 which is being promoted by the Africa Development Bank and countries like Côte d’Ivoire, Kenya, the Kingdom of Eswatini and Uganda. The ABM enables countries to utilize Article 6.8 of the 

 on non-market mechanisms. As stated previously one of the problems with adaptation measures is that their benefits are hard to quantify. The purpose of the ABM is to certify the different benefits of adaptation activities through verified certificates issued by reputable international organizations in hope that these will guarantee the credibility of the adaptation activities and increase their attractiveness to potential investors or lenders.

It is interesting to see how low-income and vulnerable countries in Africa have developed and utilized innovative financing mechanisms for climate change adaptation, while Israel has not yet introduced any of the financial instruments listed above. In fact, in general, Israel’s climate financing mostly rests on the national budget, government grants and government guaranteed loans. Even concessional loans for climate mitigation measures are not that common. Mostly entities such as the 

, a not-for-profit organization, which provides both interest-free and low-interest loans or the 

 at the Ministry of Economy offer concessional loans, which can be used for climate related uses.

It would be interesting to conduct a study on why Israel over the years has not pursued different and diverse climate financing mechanisms to fund climate change interventions. One hypothesis, which I raised in the 

 at the KGD, might be that only when there is a true sense of urgency, that is when veracious action is taken. According to this hypothesis, till now, Israel and probably other countries as well have not reached a sense of urgency to adapt to climate change. For this reason, they have not treated climate change as an existential threat, even though it is usually less expensive and more efficient to prepare for crises in advance.

In the past, Israel was faced with a severe and 

, which required investing billions of ILS to bridge the gap between the growing demand for potable water and water scarcity. With the use of water conservation technologies, sustainable water management, wastewater treatment and desalination of sea water, today Israel is at the forefront of water technology and water resilience. According to 

, Israel’s National Water Company, Israel is planning 

 that will pump desalinated water from the Mediterranean Sea and send it across the country to the Kinneret Lake when required. Such actions are considered one type of adaptation measures and they illustrate that when needed it is possible in Israel to achieve (sectoral) climate resilience.

In the context of Africa, the effects of climate change are today considered an existential risk which exacerbates the other problems faced by African countries regardless, such as food security, poverty conflicts and health issues. Africa has no choice but to find ways to adapt to climate change and address the different bottlenecks, one of which is in the field of financing adaptation. I guess, Israel is not yet there. Let us hope that instead of reaching the crisis and then reacting too little too late, we can learn from the experience of other nations and prepare ourselves in advance to the immense adaptation challenges climate change is inflicting upon us.

. 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.

With no sense of urgency, climate adaptation is lacking

Galit Palzur is an economist, specializing in risk management of natural disasters, sustainability and climate change. She has held several Board of Director positions including the 

Chairman of the Bureau of the OECD Working Party on Climate, Investment and Development. 

Galit also mentors cleantech startups and advises private and public entities on how to incorporate sustainability and long-term thinking and risks into strategies.

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Galit Palzur

Galit Palzur

With no sense of urgency, climate adaptation is lacking

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