COP27’s Success Hinges on Loss and Damage Finance Discussions
Authors: Ani Dasgupta and Preety Bhandari | Published by World Resources Institute (WRI) on 28 October 2022
Cover Image by: Abdul Majeed/EU Civil Protection and Humanitarian Aid
Since the monsoon season started in June, the worst floods in Pakistan’s history have killed 1,700 people and left more than 33 million homeless. One-third of the entire country was under water at one point, decimating its crops, destroying clean water sources and infrastructure, and causing $40 billion in damages. The destruction is projected to lower Pakistan’s GDP growth from 5% in FY2022 to 2% in FY2024.
This is not just an extreme weather event — it's an economic disaster. And while these numbers lay out the costs and scale of devastation, they fail to factor in the full impact — from the emotional and physical toll on affected families, to the effort and courage needed to rebuild.
Pakistan is far from the only country to experience climate-fueled disasters this year. Droughts in Somalia, Kenya and Ethiopia have killed millions of livestock and destroyed crops. Spiking temperatures in the Sahel — a region spanning 10 countries and home to 135 million people — are drying up water supplies and threatening to trigger a major food and migration crisis.
These are the devastating impacts communities around the world are living with under just 1.1 degrees C (2 degrees F) of global temperature rise — and the world is on track to warm far more than that. As Pakistan’s recent flooding illustrates, much of the destruction already goes beyond the limits of many families’ and communities’ ability to adapt. These “losses and damages” occur when climate impacts cannot be avoided, either due to reaching the climate tipping point of irreversible impacts or due to lack of resources to adapt.
Loss and damage disproportionally affects vulnerable populations — people on the front lines of the crisis with the least resources. Almost always, these are also the people who have contributed the least to the problem. Each dollar of damage has a more severe impact in a poor, vulnerable community than in a wealthier one. Climate impacts are happening across the world, but it is only the rich countries that have the resources to weather them. For example, the recent devastation of Hurricane Ian in the U.S. may have caused $67 billion in damages, but thanks to insurance coverage, property owners will be able to recover more easily. While cutting greenhouse gas emissions and adapting to climate impacts is crucial, it is clear that these measures are not enough to avoid significant losses and damages in many vulnerable countries.
For decades, vulnerable nations have called for financial support from rich countries to help them cope with increasingly alarming and damaging climate impacts that they hold little responsibility for causing. Yet many developed countries, including the U.S. and E.U., have long resisted their requests. The upcoming U.N. climate summit in Sharm el-Sheikh, Egypt (COP27) offers an opportunity to break the stalemate on this critical issue and start taking action. Here’s how:
1) Make loss and damage finance a standing agenda item in formal negotiations.
On day one of the COP27 summit, developed nations must answer the call of the G77 — a bloc of 134 developing countries currently chaired by Pakistan — and shift from “listening mode” into action mode.
While developed nations have agreed through the U.N.’s Santiago Network to provide technical support to developing countries for addressing loss and damage, last year at COP26, wealthy nations rejected the proposal for a loss and damage finance mechanism. Instead, they agreed to a two-year dialogue ending in 2024 to discuss possible funding arrangements. These are informal sessions with no decision-making authority. Adopting loss and damage finance arrangements as a formal agenda item at COP27 in Egypt can help reach consensus on solutions.
Encouragingly Frans Timmerman, the EU’s leading climate negotiator, has already signaled support for a “formal space on the agenda to discuss this challenge.” Similarly, U.S. Special Climate Envoy John Kerry has indicated that the U.S. is determined to make progress. It remains to be seen what the agreed formulation of this agenda item will be, and those details will matter. One thing is certain: If funding on loss and damage doesn’t get on the formal agenda, the climate summit could be derailed right from the start.
2) Developed nations must move on from the old narrative of liability and compensation and step up finance in solidarity with vulnerable nations.
Wealthy nations have long pushed back on the notion of providing finance for loss and damage, arguing that it may be construed as an obligation for liability and compensation. However, at the U.N. climate summit in Paris in 2015, countries agreed through the Paris Agreement decision that loss and damage does not involve liability and compensation. Progress on finance for loss and damage should not be held back at COP27 by an already-settled debate.
Developed countries should provide funds for addressing losses and damages not because of legal liability, but because supporting vulnerable countries is the right thing to do — not only for the people facing existential threats from climate change, but for the stability and security of the entire global community. In a recent interview, Dr. Saleemul Huq from the International Centre for Climate Change and Development and an ACT2025 partner said that what developing countries are asking for is “finance for loss and damage in the spirit of solidarity.”
Even if vulnerable nations all went zero-emissions tomorrow, past emissions from the G20 have locked in a high climate impacts scenario that disproportionately affects poorer nations. G20 countries represent about 10% of all countries but emit 75% of the world's greenhouse gases. In comparison, sub-Saharan Africa represents 25.5% of all countries, but only contributes 4.7% of emissions.
Furthermore, countries have vastly different capacities for mitigation and mobilizing finance, and global finances are incredibly skewed toward the richer, more powerful nations. When coupled with the existing debt crises in many vulnerable countries, large sums of losses and damages will likely push them into a severe financial crunch. We need solidarity to help address this critical challenge.
3) Countries must launch a process at COP27 to identify and establish funding arrangements at COP28 in 2024.
The most pressing steps for negotiators involve identifying where and for what financing is most needed, and how to quickly mobilize the necessary funds. Negotiators will need to examine whether existing finance channels such as the Green Climate Fund and Global Environment Facility can help, assess how a new dedicated financing mechanism could complement them, and explore new and innovative pathways for financing. One idea: U.N. Secretary-General António Guterres called on developed countries to tax the windfall profits of oil and gas companies and redirect some of those revenues to recovery efforts in nations affected by climate disasters.
Countries should apply lessons learned from funds and institutions established under the UNFCCC, including the Green Climate Fund and the Adaptation Fund.
Outside of the UNFCCC process, the past year has seen several promising new initiatives — including Denmark’s loss and damage finance pledge, the V20’s new funding program under its multi-donor trust fund, Germany’s G7 proposal on the Global Shield against Climate Risks, and Scotland’s continued push for loss and damage finance (on the heels of its own $2.2-million commitment). These efforts are welcomed and inspiring, but they should not detract from the need for a broader multilateral funding approach that prioritizes public sources of funding for addressing loss and damage.
COP27 should kickstart a timebound decision-making process for formalizing funding arrangements for responding to loss and damage under the UNFCCC, while ensuring coherence with the larger landscape of financing outside the UNFCCC.
No More Delay in Financing Loss and Damage
The number one litmus test for the success of COP27 negotiations is progress on mobilizing finance for addressing loss and damage. Further delay is indefensible — not only would it be a major loss for COP27, but the fallout would be felt in vulnerable nations and communities for years to come.
It’s time to stop avoiding the realities of the current global climate crisis. Loss and damage is the third pillar to addressing climate change, alongside curbing emissions and adapting to impacts. COP27 is an opportunity for all countries to act on that reality.
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