Who, what, where? The Loss and Damage Fund’s unresolved questions
Since the breakthrough agreement at COP27, developed and developing countries have remained at odds on key details.
At last year’s COP27 climate talks, governments agreed to set up new “funding arrangements” as well as a dedicated fund for loss and damage. After many failed “talk shops” on the issue since 2018, this was a significant breakthrough. To work out the details of the new funding arrangements and fund, the parties established a Transitional Committee with a tight mandate to report back at COP28 at the end of this year.
That group met most at the end of May. Loss and damage was also discussed earlier in June at the Bonn climate talks, the last chance for negotiators to meet before COP28. These meetings did not result in any firm decisions on loss and damage, but parties at least got to the point of putting detailed options on the table.
This is further than negotiations have ever proceeded before, but key questions remain unresolved. Here are the main ones.
Where will the Loss and Damage Fund sit?
Most developing countries want the Loss and Damage Fund to be an entirely new entity established under the financial mechanisms of the UN Framework Convention on Climate Change (UNFCCC). They hope that this will mean it is less likely to be encumbered by the institutional, legal, and procedural challenges that have plagued other existing funds, such as the Green Climate Fund (GCF), that it might otherwise sit under.
Setting the Loss and Damage Fund up in this way – under the governance of COP, the UNFCCC, and the 2015 Paris Agreement – would ensure it is bound by some of the principles developing countries hold dear, such as equity and common but differentiated responsibilities. It would also give developing countries a stronger basis for arguing that only developed countries are obliged to provide funds to it. Article 9 of the Paris Agreement stipulates that developed countries shall provide financial resources to assist developing countries although currently the scope of these duties is fiercely debated.
Developed countries, however, tend to prefer that the new fund is housed in an existing entity under the UNFCCC, such as the GCF. They say that this will avoid further fragmentation of the climate finance landscape and avoid delays that would arise from creating a new fund.
What kinds of funds and for what purpose?
Developing countries are agreed that loss and damage finance needs to be “new, additional, predictable and adequate” as well as “grants-based”. They are also aligned in the demand that all forms of loss and damage – and the full spectrum of economic and non-economic losses – are covered. They argue that funding should be simple, transparently governed, and demand-driven, and agree that developing countries should be able to access finance directly and have ownership over how the funds are spent.
By contrast, the US has suggested that loss and damage financing be more targeted and only fund slow onset events. New Zealand has also argued that finance also cover only slow onset events and added that it should only relate to non-economic loss and damage (e.g. the loss of heritage resources).
This disagreement goes to the broader question of how to ensure complementarity and coordination between the new fund and existing sources of disaster and humanitarian finance. There is a desire to create a mosaic of measures, accepting that some only serve limited purposes (by, for example, only funding certain types of loss and damage). The new fund would serve a complementary role in this wider scheme. The question is, however, how broad this role is, with developing countries wanting a full service fund that plugs the many gaps in the existing regime, and developed countries wanting something much narrower.
Who’ll provide finance and who’ll receive it?
Views are mixed and highly contentious on who should provide finance. Overall, developed countries emphasise the need to find new, scaled up sources of funding. Switzerland, for example, has suggested that funding should come from a wide array of sources such as innovative “polluter pays” style instruments levied at a national level, such as a national carbon tax, and that high emitting industries could also contribute. The European Union has similarly floated the possibility of a fossil fuel levy. Senegal has argued that the majority of the fund should come from public grant-based funding to avoid exacerbating existing debt burdens and that finances shouldn’t be conditional on donors’ ability to raise funds (i.e. the focus should be on developed countries making commitments, after which it is up to them to determine how to realise these funds at a national level).
In terms of who receives funds, developing countries want all developing countries to benefit from the fund. But others, like Switzerland, say only “highly vulnerable” nations should benefit, which they suggest means Least Developed Countries and Small Island Developing States.
Much at stake for Africa
Among other unresolved issues are the legal aspects of the fund, such as its privileges and immunities in countries (i.e. its agreed rights to operate within countries without it or its staff being subject to national legal action for undertaking its official work), as well as potential board structure. Some suggest it be modelled on the board approach of the World Bank’s Climate Investment Funds.
With many African countries among the most vulnerable to climate change in the world, the continent has a considerable stake in the design and operationalisation of the loss and damage fund. As Alpha Kaloga, representing the African Group of Negotiators, explained at the opening of the Bonn climate talks, it is estimated that “the GDPs of African countries are affected by between 5 and 15% by loss and damage from climate change”.
As we work towards COP28, and mindful of the tight work schedule of the Transitional Committee, parties will need to resolve their differences speedily if the key elements of the fund’s design are to finalised in time.
A version of this piece was originally published on African Climate Wire.