Development Dialogue: Namrata Kala, Rohini Pande & Catherine Wolfram on financing climate adaptation

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The first episode of Development Dialogues offers an in-depth exploration of the intricate dynamics surrounding climate adaptation finance, the potential of carbon markets, and the pressing need for innovative solutions. Namrata Kala, Rohini Pande, and Catherine Wolfram join host Catherine Cheney to discuss the challenges and opportunities in climate finance, as well as the role of markets in driving transformative change. The episode is released in the run-up to the 29th United Nations Climate Change Conference – COP 29, which has become known as the “Finance COP" –  taking take place in Baku, Azerbaijan, November 11-22, 2024. 

Development Dialogues, a collaboration between EGC and VoxDev, facilitates direct conversations between researchers and policy actors on pressing development issues. It builds on the VoxDevTalks podcast and Voices in Development, a podcast from EGC exploring issues related to sustainable development and economic justice in low- and middle-income countries.

What are the most critical gaps in financing climate adaptation?   

"Low-income countries just don't have enough resources" – Rohini Pande

Rohini Pande opens by highlighting the importance of research establishing what works in climate adaptation, and estimating the benefits of different strategies. This will enable countries that face competing demands for limited resources to effectively invest in improving climate resilience. Namrata Kala underscores the scale of the funding gap, and discusses some of the early evidence from economic research in low- and middle-income countries covered in the recent VoxDevLit on Climate Adaptation.

Catherine Wolfram provides a broader perspective on the global responsibilities surrounding climate change, emphasizing the historical role of high-income countries in creating today’s climate challenges.

Not only is there a "moral imperative" for these nations to support adaptation efforts in the Global South, but lower-income countries, where temperatures are already higher, will bear the brunt of climate impacts, often without the financial capacity to cope.

"The ability to insulate yourself from the shocks of climate change... that just gets easier the more income you have.” – Catherine Wolfram

Can voluntary carbon markets act as sources of adaptation finance?

The conversation shifts to the potential of voluntary carbon markets to fund climate resilience. Rohini Pande sees these markets as a promising "sandbox" to test verification methods for high-quality carbon credits. While voluntary markets are currently plagued by issues of credibility and "adverse selection" – where low-quality projects are funded because they are cheaper – Pande argues that refining these markets could channel significant funds from high-income to low-income countries.

“If we don’t have a supply of high-quality credits... they are just bad news for compliance markets" – Rohini Pande

There is a hope that voluntary markets could evolve into compliance markets, which are mandatory and potentially more impactful. Wolfram expresses hope that voluntary markets are a "baby step towards compliance markets" but cautions that they could also serve as a distraction, allowing corporations to "claim net zero by 2050" without genuinely reducing emissions. Kala adds that for voluntary markets to be useful, they must be rigorously verified and held to high standards, a task that empirical economists could help to address by developing robust measurement techniques.

Innovative solutions for climate resilience

This podcast also covers other innovative financial and technological solutions to enhance climate resilience in vulnerable communities. Namrata Kala describes a promising initiative in Bangladesh, where a disaster-linked credit line provides farmers with financial support following floods. This product serves as an implicit form of insurance, enabling farmers to invest more in their farms even before a disaster occurs, helping farmers withstand financial shocks and enhancing their resilience.

Kala also highlights advancements in agricultural technologies that can reduce risks associated with natural disasters.

"Technologies can be super exciting, but they really need to be field-tested in difficult conditions" – Namrata Kala

More work is required to ensure that these innovations are both effective and equitable.

Carbon pricing and global cooperation 

The episode touches on the role of carbon pricing as both a tool for mitigation and a potential source of adaptation funding. Carbon pricing, Wolfram explains, creates fiscal revenues that governments could allocate to adaptation efforts. However, implementing carbon pricing has proven challenging, particularly in the United States, where political opposition remains strong.

Reflecting on the broader international context, Wolfram advocates for smaller, targeted agreements involving key emitters, which could drive meaningful progress outside the constraints of the annual COP negotiations. This approach could create a model for multilateral cooperation that balances economic development with climate adaptation needs.

Bridging mitigation and adaptation for a more holistic approach to climate policy 

The end of this podcast features a discussion of the intersection between mitigation and adaptation policies. Rohini Pande stresses the need to integrate these areas, noting that large-scale mitigation actions—such as preventing deforestation—can directly impact adaptive capacity.

"If there's large-scale deforestation, you might actually be impacting the adaptive capacity of ecosystems" – Rohini Pande

Namrata Kala is an Associate Professor at MIT Sloan School of Management. She is also on the Editorial Board of VoxDev and served as Senior Editor for the VoxDevLit on Climate Adaptation.

Rohini Pande is the Henry J. Heinz II Professor of Economics and Director of the Economic Growth Center at Yale University. She is also the faculty director of Inclusion Economics at Yale.

Catherine Wolfram is the William Barton Rogers Professor in Energy and a Professor of Applied Economics at the MIT Sloan School of Management. From March 2021 to October 2022, she served as the Deputy Assistant Secretary for Climate and Energy Economics at the U.S. Treasury.