Adaptation financing in a global agreement: is the adaptation levy appropriate?

The climate negotiations recognize that adequate and additional funds are needed to assist adaptation in developing countries. This article analyses whether a future 2% or any higher adaptation levy (AL) can achieve this, whether it causes – as it is a tax on the Clean Development Mechanism (CDM) – a significant excess burden, and how it alters the relation between adaptation financing and mitigation. While former studies have focused on single AL levels, this article determines the transfers from the CDM and the AL for a range of emission reduction targets and AL levels with a partial equilibrium model based on marginal abatement cost estimates for 2020. Revenues from a 2% AL are negligible and remain inadequate for ambitious emission reductions and an AL that maximizes transfers (e.g. US$15 billion for 30% reduction target). Revenues are mostly subtracted from CDM transfers, so little additional funds are raised (e.g. less than $2.4 billion for 30% reduction target). Adaptation financing increases dispr...