COP27: ‘Loss and damage’ fund agreed to at Egypt’s climate summit

24 November 2022, Category: All insights, News, Tags: , , , , , , ,

Loss and damage fund

For the first time, a loss and damage fund has been announced and will be established by developed nations. On Sunday, 20 November, the climate talks culminated in the announcement that states financial assistance for developing nations that will bear the brunt of climate change impacts will be created.

However, the news doesn’t come without controversy. While many parties celebrate the news, others still believe that what has been promised won’t adequately meet the challenges being faced. Additionally, it comes 30 years after small island states called for this type of funds to aid their communities in bouncing back from extreme weather events.

Ultimately, there are several questions to answer; What exactly is a loss and damage fund? What does this mean for both developed and developing nations? Does the promise of a fund fully represent the needs of those most vulnerable?

What is a loss and damage fund?

Loss and damages are the economic and non-economic costs that can be attributed to climate change. It could occur in the form of soil degradation, crop destruction, flooding, livestock reduction, amongst many others.

A loss and damage fund is a financial mechanism set up to provide compensation to climate-vulnerable and developing countries for the losses and damages that will occur as the climate continues to change.

A fund like this would specifically provide financial aid to Small Island Developing States (SIDS) and Least Developed Countries (LDCs). The reason for this type of fund is that, unfortunately, not all climate impacts will be accounted for by existing and proposed adaptation and mitigation projects.

Where are loss and damage funds most needed?

As many climate impacts are now ‘locked in’, there will be many instances where loss and damage will occur, and it will be unavoidable. But where will this be? It’s hard to say exactly as estimates, while accurate and in most cases, highly likely, there’s no accounting for human error. That being said, loss and damage may occur when adaptation strategies do not adequately meet the security needs.

A current example of climate change-induced extreme weather causing loss and damage is the extensive, extreme flooding in Pakistan, caused by an estimated 50-75% increase in rainfall intensity. The current appeal from Pakistan seeks USD 816 million to respond to the damage caused. This appeal actually doesn’t cover the total estimated losses, currently valued at USD 2.3 billion.

Why is it important to establish a loss and damage fund?

At first glance, a loss and damage fund is important in regard to the concept of climate justice. SIDS and LDCs make up a historically minute contribution to global carbon emissions, with countries such as the UK, Germany, Russia, China, and the US being the biggest drivers. The fund in question recognises these huge discrepancies in footprint and is expected to level the playing field in terms of how SIDS and LDCs recover from climate impacts in comparison to developed nations.

In an article with Carbon Brief, Mohamed Adow, the Founder and Director of Power Shift Africa, stated on the need for a loss and damage fund:

“Addressing the climate crisis is a three-piece puzzle between mitigation, adaptation and loss and damage… The emergence of loss and damage as the third piece, and the increased focus as a distinct issue is primarily as a result of the failure to mitigate and inadequate support for adaptation efforts. If you’re a pastoralist in Northern Kenya and your livestock get decimated by devastating droughts or your home in Mozambique is destroyed by Cyclone Idai, these are not things that can be adapted to. They are permanent losses for which you deserve to be compensated.”

In this regard, a loss and damage fund ensures greater equity can be had by vulnerable nations who are the most likely to be affected by climate change, not only in terms of their geographical location, but in their ability to respond adequately.

Furthermore, while a loss and damage fund does apply to losses and damages that have occurred, meaning the damage has to have taken place for those funds to be accessed, it does cover the space where the limitation of adaptation funding has been felt. A funding arrangement for loss and damage is inherently new and additional, another avenue for vulnerable communities to pursue should they need to.

A loss and damage fund also secures additional funding for sustainable development. Should development be required after a disaster, sustainable avenues can be pursued and adequately paid for.

Controversy surrounding the COP27 announcement

The controversy surrounding a loss and damage fund comes from two camps. The first are those who believe that this announcement is still too little, too late. This mirrors claims regarding climate finance in general, with detractors arguing that the numbers promised are far less than what is needed to adapt to and mitigate climate change.

More importantly is the push-back the idea of a loss and damage fund has received from developed nations. For example, in an article by The Guardian, Paul Blesdoe, a former Clinton White House climate advisor, noted the issues the US has with how the loss and damage fund is referred to and proposed as:

“Labels matter. Such payments to other nations must always be described as general foreign aid, never climate compensation or reparations, in order to gain US support. With that proviso, they stand a decent chance of gaining support from the Biden administration.”

For many, this kind of stance represents the same kind of inaction experienced from developed nations at previous COP summits, where blame or responsibility is conveniently avoided in favour of weaker obligations and weaker clarity. Another leading emitter, China, takes a similar position, and has up to now avoided the call to provide climate finance to developing nations. This is potentially influenced by a grey area of delineation that China experiences, currently still being defined as a developing country by the 1992 United Nations Framework Convention on Climate Change.

A lot of the push-back lies within the legal clarity included within in any loss and damage agreement. An article in the Guardian reads:

One of the key issues is whether the agenda item should include the terms “liability” and “compensation”. The developed countries want a footnote that says the ideas of liability and compensation are excluded. This goes back to article 8 of the Paris agreement. In paragraph 51 of the decision text on the Paris agreement, it says liability and compensation are excluded from loss and damage.

But in the original treaty, the 1992 UNFCCC, they are not excluded. So we want to leave this open, to be freer in our discussions, by not having these exclusions referred to in the agenda item. Developed countries won’t agree.

Regardless of the controversy, the establishment of a loss and damage fund is evidently an incredibly valuable move, one that is vital for developing nations who experience the impacts of climate change more and more frequently.

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