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Climate Negotiators Debate Finance for “Loss and Damage”

November 17, 2022
Est. Reading: 4 minutes

Will rich countries compensate poor developing countries for climate disasters?

Official image of the COP27 UNFCCC meetings.
Official image of the COP27 UNFCCC meetings (Facebook post)

For the first time in the history of the international climate negotiations, the agenda at COP27 in Egypt includes discussion of provision to fund developing countries for “loss and damage” — compensation for the residual impacts of climate change which mitigation and adaptation efforts are insufficient to prevent or alleviate. The issue was first raised by small island developing states in the 1990s but not formally recognized until the Bali negotiations in 2007. As climate change accelerates, the likelihood of what scientists have termed “hard limits” where “there are no reasonable prospects for avoiding intolerable risks” will increase rapidly.

As many developing nations have argued, the case for loss and damage payments is compelling. Countries responsible for only a tiny fraction of total greenhouse gas emissions are among the most vulnerable and least able to respond. “What we seek is not charity, not alms, not aid — but justice,” Bilawal Bhutto Zardari, Pakistan’s foreign minister, said in September. “What I’m looking forward to . . .is an acknowledgement that the industrialized world that became wealthy as they are today was as a direct result of their use of fossil fuels and coal,” said Philip Davis, prime minister of the Bahamas. “So should they not be held responsible for that?” Their argument has also been strengthened by attribution science, analytical methods that enable assignment of probabilities to the likelihood extreme climate events would have occurred in the absence of climate change.

A few developed nations including Scotland and Denmark, but not the United States, have announced commitments to loss and damage funds. The U.S. response to the issue has been evolving but reflects several concerns beginning with the potential for untold liability amounting to trillions of dollars; any provision that is “legally, statutorily required with some sort of legal process” has been termed a non-starter. (Note that, currently, total development assistance from all developed nations is on the order of $160 billion for all purposes.) U.S. climate envoy John Kerry also argues that “the most important thing that we can do is stop, mitigate enough that we prevent loss and damage. And the next most important thing we can do is help people adapt to the damage that’s already there.” On the other hand, helping developing countries recover from disasters may also be in the U.S. interest, reducing social conflicts and pressures for migration.

A second significant political issue is who pays. The U.S. and EU bear greatest responsibility for historic emissions, but China is now by far the largest emitter of greenhouse gases and, the U.S. and EU argue, increasingly able economically to contribute as well. (China has expressed a willingness to make voluntary contributions but rejects any obligation to do so.) However, the U.S. does agree that existing international financial institutions like the World Bank could and should be doing more to address the need. Finally, as a practical matter, any U.S. commitment to new funds would require approval by Congress — unlikely even before the mid-term elections. One answer may be to look to philanthropies and the private sector to provide substantial funds through the purchase of carbon offsets, a proposal not surprisingly met with skepticism from developing nations who propose taxing fossil fuels as a source of revenue.

There are also many practical questions about how loss and damage funds should be distributed and administered. The U.S. has opposed creation of new financial instruments arguing that existing funds, including the Green Climate Fund and Global Environment Facility, could take on this added scope. Yet the U.S. was supportive of a G7 decision in June to create the Global Shield initiative in partnership with the Vulnerable Twenty Group (V20) of Finance Ministers from the most climate vulnerable countries. The stated aim of the initiative, yet to be clearly defined, includes helping close the protection gap for poor and vulnerable people against climate-related losses and damages. Insurance mechanisms are often mentioned as possible ways to fund loss and damage, but begin from a very weak base — while more than 50 percent of disaster related losses are typically covered in the U.S., only a few percent are covered in the world’s poorest countries.

Given that the topic is on the negotiating agenda for the first time, it should come as no surprise that other potentially difficult issues have yet to be discussed. For example, should countries have some responsibility for a lack of preparedness that increases the consequences of natural disasters? For example, Pakistan had taken notably less action to enhance its climate resilience than Bangladesh, a factor partly responsible for the horrific impact of recent floods. There are also concerns about assuring funds are used effectively. Millions of dollars spent on weather stations in Africa, for example, are now labeled “non-reporting” due to the inability of those countries to maintain and operate the sophisticated equipment resulting in a lack of data fundamental for climate research and policy. Some of the poorest and most vulnerable countries are also known for corruption and mismanagement of development assistance.

Given the increasing frequency of extreme weather events and the human and economic damages they cause, high-level discussion of assistance to poor developing nations is likely to be a permanent topic on the agenda for the climate negotiations. Finding common ground on this contentious issue will be yet another test for climate diplomacy. As an editorial in the journal Nature recently concluded, “The need for loss-and-damage finance can no longer be denied. Yet it must not become a wedge issue, dividing nations. If that happens, COP27 and future summits risk failure.”

Alan Miller is a former climate change officer in the International Finance Corporation (2003–13) and climate change team leader, Global Environment Facility (1997–2003). Besides other engagements, Alan is an active editor for Climate Conscious submissions on Medium.

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