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Beyond COP28 – loss and damage: From ambition to reality

Brooke Moore

Date: 15/12/2023
COP28 saw progress in establishing a novel loss and damage fund. Negotiations surrounding the shape of the fund offer promising ambitions for countries vulnerable to climate change. Going forward, the EU and its member states must work alongside vulnerable countries to turn the ambitious goals outlined at COP28 into reality.

Leaders from around the world have been meeting in Dubai at the annual UN climate conference, COP28, to discuss the current state of the climate crisis and what climate action should look like. Discussions were expected to cover a loss and damage fund intended to help countries vulnerable to climate change address the economic and non-economic impacts of climate change. There were two priorities: the operationalisation and the shaping of the fund. Though COP28 saw the establishment of a fund, specifics on the operation and procedure of the fund are urgently needed to realise ambitions through a fully functioning, effective and inclusive fund.

What is loss and damage?

Loss and damage refers to the economic and non-economic losses and damages countries face as a direct consequence of climate change. Within the international fora, loss and damage can be traced back to 1991 when the nation of Vanuatu, on behalf of the Alliance of Small Island States (AOSIS), suggested using insurance-like remuneration for countries experiencing rising sea levels. Though the proposal was not pursued, loss and damage have risen as a pillar alongside adaptation and mitigation. In addition to aiding countries to avoid future losses and damage, it also helps to address those that occur despite adaptation and mitigation efforts. As climate change increases in severity, so too will losses and damages.

Though formally introduced in 2013 through the Warsaw International Mechanism for Loss and Damage with Climate Change Impacts, limited action was seen on loss and damage until COP26 when vulnerable countries through groups such as least developed countries, AOSIS, and the G77 and China pushed heavily for a loss and damage specific financial mechanism. In other words, they advocated for the creation of a fund distinct from adaptation and mitigation that would provide resources for countries to address unavoidable losses and damages. Instead of a fund, COP26 saw the establishment of the Glasgow Dialogue, introduced as a conversation on loss and damage financing that would last until 2024. However, the conversation on the merit of a fund was cut short at COP27 when the EU changed their stance by agreeing to a fund.

What happened at COP28?

Loss and damage discussions at COP28 prioritised establishing and outlining a loss and damage fund. COP28 saw the establishment of a fund through start-up pledges from various nations. Though this is positive, the financial pledges were categorised as being too low to properly address the real cost of loss and damage, with estimates on the annual cost of losses and damages ranging from $100-580 billion. Outlining the ambitions and framework of the fund, however, began just before COP28.

Negotiators convened to develop a proposal on funding arrangements that was then discussed and welcomed with the finalisation of COP28. The proposal was seen as a concessional document, demonstrating concerns for donor countries like the US and nations who would be recipients of the fund. The largest concession centred around the suggestion that the World Bank (WB) host the fund. This was an idea championed by the US and EU. They argued that the WB would provide a faster setup than the alternative, being a stand-alone fund. Opponents, particularly the G77 and China Group, who were in favour of a stand-alone fund, objected to the WB due to concerns such as independence.

The desire for a fund independent from the WB and its methods arises from objections to the international lending system. UN Secretary-General António Guterres classified the system as one that exacerbates inequalities by requiring countries to often choose between paying their debts or putting money towards social services. The selection of the WB was also criticised by 68 organisations as representing the unequal weight given to the interests of donor countries. This concern stems from the sway donor countries hold within the WB, as the five largest shareholders of the WB are the US, followed by Japan, Germany, the UK, and France, with the US alone nominating the WB president. Unequal weight is concerning, given the slow progression loss and damage that has been seen, coinciding with the historical reluctance by those such as the EU and the US, in addition to the US’ recent reluctance. The proposal thus represents a compromise in that the WB was only made interim host, leaving more time to debate if they will become the permanent host. It is nevertheless crucial to recognise this divide, as it epitomises the two camps of actors and opinions that may continue to shape post-COP28 decisions.

What does the proposal mean?

The proposal represents a text with concessions from potential donor and recipient countries. Arguably, the largest feat of the proposal for recipient countries was the Governing Board for the loss and damage fund. It was decided that the Board would comprise 26 members, with only 12 being representatives from developed countries. As the Board will oversee the operation and general framework of the fund, this decision brings a balance to shaping the fund. Issues could potentially arise because the Board requires consensus, or in rare cases a four-fifths majority, leaving room for countries to drag their feet on more ambitious proposals.

The proposal also discussed where funds would be sourced from, encouraging pledges from non-state actors. This is critical, as pledges from nations will not be enough to address loss and damage adequately. While the proposal urges funding from developed nations, contributions are still voluntary with no long-term financial commitments. The proposal includes several other ambitions including, the involvement of vulnerable countries during the fund’s programme and project cycles, a streamlined and rapid approval process, and pledges that are new rather than redistributed from current funds. The proposal also attempts to address the issue of debt cycling caused by our current lending system. It did so by emphasising a lenience towards grants. However, the proposal still included loans via ‘highly concessional loans,’ meaning loans with generous terms, though these terms and criteria have yet to be established.

These points demonstrate that while the proposal provides promising pathways to a more inclusive and effective fund, it lacks a tangible roadmap to realising these ambitions. Such a roadmap is needed urgently for countries to benefit from the fund.

What do we need going forward?

The proposal consists of ambitions that now require a concrete work plan to be implemented. It is crucial that the EU and its member states enable the fund to be led by the needs of countries vulnerable to climate change rather than the interests of donor countries when planning how these aims will be executed. COP28 indicated a shift in the right direction towards this goal, specifically through establishing the fund and agreeing on a Board that is balanced between developed and developing countries. Requiring the Board’s consensus on decisions means that getting the fund fully up and running could be dragged out due to the divide of opinions exemplified by COP28’s WB discussions. If WB accepts the position as interim host, officials must hold themselves to a strict deadline to avoid drawn-out decisions or stalemates. Specifically, by COP29, there needs to be the nomination of officials to positions within the fund and a finalisation of the fund’s operating procedures. This would allow for a consequent trial run to ensure the process works effectively and concerns are adequately addressed before fully launching the fund.

Criticisms surrounding the WB also demonstrate the importance of establishing parameters that ensure the fairness and effectiveness of the fund. Rather than loaning money from countries driving climate change to those disproportionately impacted by climate change, often exacerbating inequalities, the fund should rely primarily on grants. When loans are necessary, it is essential that the Board ensures they do not contain fiscal stipulations like austerity measures that often lead to decreased social spending and increased inequalities. These stipulations remain distinct in monitoring and evaluating criteria that will be important in assessing the proper use of funds. Looking at the long term, the Board should work towards phasing out loans entirely.

For the fund to work, pledges also need to be sufficient to address the needs of loss and damage. The EU and its member states should make long-term commitments made up of annual contributions. Additionally, though the text mentions non-state contributions, the EU and its member states should push for publicly controlled private contributions to avoid relying solely on voluntary contributions. This should be based on a polluter pays principle, using methods such as taxes on oil extraction.

The loss and damage fund has potential, but there is too much uncertainty for it to be heralded as a success just yet. For the fund to begin fulfilling its potential, it is now critical to move with urgency, inclusivity, and transparency to correct rather than repeat the mistakes of our current lending system.

Brooke Moore is a Policy Analyst in the Sustainable Prosperity for Europe Programme at the European Policy Centre.

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