Perhaps the best way of summarizing COP27 was that, in the end, it boiled down to solving a tension between competing views of global priorities in addressing climate change. The Developed World was primarily focused on improving mitigation (emissions reduction offers at COP27 in the shape of a welter of improved Nationally-Defined Contributions (NDC). However, the Developing World was focused on the need to address the impacts of increased global temperatures which climate change is already inflicting on them – the now famous ‘Loss and Damage’ issue (broadly, unavoidable losses and damages caused by climate impacts that are not tackled through adaptation and risk reduction strategies).
The fact that COP27 will be remembered for the historic creation of a Loss and Damage Fund (LADF) perhaps demonstrates a recognition that without addressing climate justice now, it will be difficult to achieve progress on mitigation (even though any delay in taking aggressive emissions reduction action is likely to increase dangerous global warming and therefore cause greater climate-changed-related damage in the future).
The History of the LADF
The creation of a dedicated LADF was proposed more than three decades ago, by the Alliance of Small Island States (AOSIS). Although discussions on the issue since then had remained superficial and highly technical, in retrospect there were some important developments which prepared the ground for the agreement in Sharm.
The first step was the establishment of the Warsaw International Mechanism (WIM) for Loss and Damage, at COP19 in 2013. WIM operates through an Executive Committee, mandated to improve knowledge and understanding of the impacts of climate change and its risk management and thus to strengthen action to address loss and damage through dedicated provision of finance and new technology.
The debate on Loss and Damage took another step forward at the 2015 Paris COP21, almost unnoticed, amongst the triumph at the 1.5 degrees pledge. Article 8 was included in the Paris Agreement – a carefully-worded provision on loss and damage which avoided mention of any liability or compensation.
The weakness of both WIM and Article 8 was the absence of any supporting funding mechanism. This weakness found voice at COP25 in Madrid, when the G77 and China demanded that the WIM be given teeth through the creation of both a technical research and support body and a fund through which rich polluting countries would pay poorer developing countries suffering from climate change impacts. The first proposal was accepted and led to the creation of the Santiago Network for Loss and Damage. The demand for the creation of a Loss and Damage fund was rejected (as it was again at COP25 and COP26) due to Developed Countries’ concerns that it could lead to legal liability.
But COP27 took the Loss and Damage Fund Over the Line
When all 196 countries present at COP27 welcomed the creation of the LADF in Sharm el Shaikh it was thus the end of a long struggle. But the landmark agreement did not mark the end of the process…
The final text is clear in according funding priority to countries which are “particularly vulnerable” to the effects of climate change (language apparently designed to limit the pool of potential recipients and ensure the money goes to the most urgent cases). However, beyond this, the text is thin on details and gives no guidance on issues such as:
- how the fund would be overseen;
- how or to whom the money would be dispersed;
- who would contribute to it;
- what might constitute a disaster sufficiently large to trigger payments;
- what damage might qualify – damaged infrastructure and property or harder-to-value natural ecosystems or cultural assets.
Whilst such vagueness of language does allow the LADF a certain flexibility to respond to both immediate disasters (flooding, wildfires) and ‘slow-burn’ climate-change related impacts (coastal erosion and sea-level rise), it also poses a significant challenge to the 24-member ‘Transitional Committee’ (composed of 14 countries from the Global South and 10 from the Global North – membership due to be confirmed today, 15 December) in preparing a set of recommendations in time for COP28 in Dubai.
Problems for the Committee – Definition of Donor Countries
Since 1992, climate negotiations have been founded on a distinction between Developed Countries – whose industrial revolution and post-industrial revolution emissions are largely responsible for global warming – and Developing Countries whose emissions have historically made the least contribution to global warming.
One reading of the absence of any definition of donor countries in the COP27 text is that the 1992 definition provides sufficient certainty. However, a number of the 1992 ‘Developing Countries’ have since undergone rapid economic growth and are now substantial contributors to overall global total emissions. The EU has noted the increased current emissions of China India, Brazil, Saudi Arabia, and Qatar in particular, arguing they should now qualify as donor countries.
Definition of ‘Particularly Vulnerable Countries’
How the Committee identifies the ‘particularly vulnerable’ countries is similarly problematic. It could start with the 39 members of the Alliance of Small Island States (AOSIS) – globally recognized to be in the front-line of climate vulnerability – and add in the UN’s 46 of the least developed countries (LDC) – defined according to their GDP or indicators of human development. However, a list based on GDP would be highly restrictive – as the case of Pakistan clearly illustrates. Pakistan’s GDP prevents its inclusion in the list of LDCs and it is clearly not a small island state. But Pakistan has been hugely affected by climate change – the recent floods left more than a third of the country under water and needing an estimated $30 billion in reconstruction aid to rebuild: additional debt which would be suffocating for a nation which is already overburdened with debt.
And a list based on the GDP of a whole county would risk missing particularly vulnerable sections of that country’s population. Neither China and India would qualify on the basis of a simple reference to their GDP. But both countries have huge internal disparities of development: the Committee may have to decide whether to so structure the LADF as to enable it be precise enough to target vulnerable populations within ‘non-vulnerable’ countries (which raises the question of to which authority the Fund would disburse the money.
Where Should the Money Come From?
Whilst the text of the decision fails to set out a list of donor countries, it does specify that the Committee should ‘identify and expand’ sources of funding. The text also emphasises the need for the Committee to identify ‘innovative sources’ of funding and it stresses that any funding must be ‘new’ and ‘coordinated’ with and ‘complementary’ to existing sources of funding. Finally, the decision text makes no connection between provision of finance and historical emissions. This wording is important:
- The inclusion of the wording ‘expand’ was a key condition for the abandonment of long-held Developed World opposition to the creation of a LADF as it opened the door to money being raised from the private sector, as well as (voluntary) contributions from Developing Countries -China has indicated it might make ‘non-financial’ contributions;
- The emphasis on finding ‘innovative’ sources of funding enables the Committee to consider ideas such as a global tax on hydrocarbon energy; a tax on the air and maritime sectors; a levy on some financial transactions; or a windfall profit tax on fossil fuel companies. This mosaic approach offers some degree of protection to the Developed World through the possibility of sharing funding burdens more broadly;
- The emphasis on ‘new’ addresses Developing World concerns that the Committee might simply repackage existing funding commitments (such as the $100 billion per annum for addressing climate change that has been promised by the Developed World since COP21, without ever achieving it). There is general agreement that the focus should be on grants, rather than loans to avoid further increasing the debt burden of Developing Countries;
- The absence of link between payment and historical emissions addresses Developed World concerns about possible claims for legal liability based on historic responsibility for emissions.
The text is realistically silent on mechanisms to compel payment, given the economic headwinds facing many Developed Countries (recession, large budget deficits, and cost-of-living crises) who’s Governments might struggle to persuade domestic audiences of the value of spending money overseas instead of addressing domestic priorities.
And how Much?
The text contains no indication of how much money will be necessary to address loss and damage – and indeed it is difficult to make such an assessment as the damage climate change will inflict on the world depends on how quickly the world can reduce its emissions. But it is clear that the sums involved will be huge – dwarfing the $300 million already pledged to COP27’s Global Shield initiative (a form of insurance offering protection to the most vulnerable populations). Research quoted in Le Monde newspaper suggests that the economic damage already caused by climate change will cost between $290-$500 billion per year by 2030 and could reach $1,700 billion by 2050.
The Bridgetown Initiative and International Financial System Reform
Another focus of COP27 was the reform of the international financial system in order to enable it to raise greater funding to address climate change. In this context, the Bridgetown Initiative (BI) launched by Barbados PM Mia Mottley in the summer of 2022 has been gaining traction, with the French President, Emmanuel Macron offering to co-host a Summit in June 2023 to agree a new financial pact with the Global South.
The BI has two main parts:
– The IMF should issue one a one-off disbursement of $650 billion in special drawing rights (which can be exchanged for hard currency and do not need to be paid back), and other development banks should issue a further $1 trillion in low-interest loans for adaptation and mitigation climate spending in developing countries; and
– There should be a global a tax on oil companies that would be dispensed to developing countries as reconstruction grants after climate disasters.
The growing importance of the BI’s appeal for reform of international development banks not only aligns with calls in the final text of the COP27 Implementation Plan for multilateral development banks and international financial institutions to reform their practices and priorities to provide ‘channels and instruments that …adequately address the global climate emergency…with a view to substantially increasing climate finance’ and ‘significantly increase climate ambition…to …accelerate impact’, but it also responds to COP27’s calls for new and innovative financing solutions.
There is a risk that the ‘new’ and ‘innovative’ funding arrangements could create a confusing array of international funding opportunities. In that context, the COP27 Decision to ‘operationalize’ the Santiago Network is important. The Network could become a vital resource to help countries navigate the different sources of international technical and finance support available to create emergency warning systems; re-build more climate-resilient economies after natural disasters; or manage climate-related health risks.
COP27 was criticized for a failure to deliver on its promise of ‘implementation’ of improved NDCs. But if COP27 proves to be successful in creating new sources of funding and reforming international financial institutions and directing their existing funding to addressing loss and damage, it would go a long way toward repairing trust between Global North and Global South: such an outcome may prove vital in delivering real progress on mitigation.