Finance for Loss and Damage has been a longstanding issue at COP but matters are anticipated to come to a head at COP27 in Egypt in November. Developing countries are seeking to have loss and damage financed and addressed separately from adaptation in the form of a dedicated loss and damage finance facility. Developed country support is mixed, but the US remains against it and the EU position is unclear.
While the issue of loss and damage and who pays for it is raised at almost every COP, the overall picture since the Paris Agreement in 2015, has been one of stagnation.
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This month, floods in Nigeria killed more than 600 people and displaced 1.3 million. Five cyclones have impacted Madagascar and its African neighbours in this year alone. Tropical Storm Ana and Cyclones Batsirai and Emnati have destroyed thousands of houses and fields. South Africa experienced its deadliest storm on record which killed more than 400 people in April this year, and an unprecedented drought is underway in the Horn of Africa. The impacts of these events and ensuing costs are the losses and damages wrought by climate change.
While the issue of loss and damage and who pays for it is raised at almost every COP, the overall picture since the Paris Agreement in 2015, has been one of stagnation. Calls for loss and damage finance were made as far back as the early nineties, but at last year’s 26th Conference of the Parties of the UNFCCC (COP26) the issue rose to prominence again. At the negotiations the G77 and China, on behalf of 135 countries, put forward a proposal for a dedicated loss and damage finance facility, asking for it to be financed by developed countries in a manner that was accessible and needs based. Developed countries, including the US, the EU and the UK rejected the proposal, and instead Parties agreed to a dialogue to discuss “the arrangements for the funding of activities to avert, minimise and address loss and damage”. It is set to take place over a two-year period ending in June 2024. Many are concerned that a dialogue will not only delay the urgent action that is needed, but that it will be yet another repeat of the unsuccessful Suva Dialogue on loss and damage in 2018, which did not result in the reaching of any concrete solutions to the question of finance. In the lead up to COP27, civil society and developing country governments have been active on the topic, with small island states such as Vanuatu seeking an International Court of Justice advisory opinion on legal responsibilities of developed countries to prevent and redress the impacts of climate change. As the effects of climate change are felt with increasing urgency across the world, it is anticipated that the issue will remain high on the agenda of developing countries at COP27 in Egypt in November.
Providing finance for loss and damage has been resisted by some developed countries for a host of reasons. Historically one of the primary concerns has been that agreeing to dedicated finance would amount to a concession of liability and open the floodgates to limitless damages in the courts. The United States (US), which has a long history of stymieing efforts to finance loss and damage took a position in 2015, that “Congress [would] never buy into an agreement” that allowed for any type of loss and damage liability to be invoked. These fears are coupled with a view that not only is the quantum of finance too great, but that the money would be better spent on mitigation and adaptation. In a recent interview for a New York Times event, John Kerry the US Special Presidential Envoy on Climate stated in response to a question on loss and damage finance that:
“the most important thing that we can do is stop, mitigate enough that we prevent loss and damage. And the next most important thing we can do is help people adapt to the damage that’s already there. And we have a limited, you know, we’re not—you tell me the government in the world that has trillions of dollars, cause that’s what it costs.”
Kerry’s comment underscores the definitional murkiness that has plagued loss and damage discussions to date and its relationship to adaptation. The Paris Agreement reiterates the importance of “averting, minimising and responding to” loss and damage. Flowing from this, developed countries have emphasised the need to “avert and minimise” (things we would think of as being in the realm of mitigation and adaptation). By comparison, developing countries underscore that “responding” to loss and damage is what is really needed, i.e. that loss and damage is all about what takes place and what is needed after the impact has occurred, not before. Developing countries argue that there are climate impacts that are already happening and at a scale and in a manner that go beyond adaptation. In that context they argue that loss and damage finance is all about finance for impacts that have already taken place.
Another point of departure is the form in which finance is provided. To date, specialised forms of regional insurance and humanitarian aid and disaster risk reduction have been the primary means of providing financial relief. In the past year, the G7 has sought to champion the Global Shield (which is effectively a scaled up form of existing disaster and insurance schemes) in response to the call for dedicated loss and damage finance. Whilst insurance can be effective in some rapid onset events, it has multiple challenges. It is unaffordable to many developing countries, even with premium support. It is also ill equipped to address slow onset events such as rising sea levels or small scale cumulative events, nor does it address migration and non-economic loss and damages such as a loss of heritage. Regional insurance schemes also have a chequered history of practical implementation, sometimes only covering a fraction of the cost. For example in the case of Malawi’s flood and drought in 2015, insurance from the African Risk Capacity only addressed 2% of the total humanitarian need. Humanitarian aid equally cannot fully respond to the scope and nature of loss and damage needs. It is in any event, largely underfunded with most donors failing to meet their existing Official Development Assistance (ODA) commitments this year.
Given these challenges developing countries are calling for a dedicated loss and damage finance facility that overcomes not only the challenges with insurance and humanitarian aid, but that also addresses their concerns with the broader climate finance architecture. Some developed countries such as New Zealand, Denmark and Canada are open to this notion, however the position of the EU is less clear, and the US is unsupportive.
Moving beyond agreement on the facility in principle, is a wider discussion on the principles that should underpin the finance. For example, thinktanks and civil society are calling for loss and damage finance that is based on an underlying set of core principles, such as the need for finance to be new and additional, predictable, adequate and needs based, accessible, balanced and comprehensive, with its distribution having an element of national ownership. African countries are also underscoring that it must be in a form that does not exacerbate the existing and very high debt burden in African countries. In other words, it must be mostly grant funding.
As momentum on the issue of loss and damage grows in the lead up to COP27, it will be important for African countries together with the G77 and China, to retain their unified position on loss and damage finance, and ideally build on these principles as a basis for agreement.
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As momentum on the issue of loss and damage grows in the lead up to COP27, it will be important for African countries together with the G77 and China, to retain their unified position on loss and damage finance, and ideally build on these principles as a basis for agreement. No doubt the issue of increased mitigation ambition and the COP27 Presidency’s desire to ensure “no backsliding” on past commitments, the war in Ukraine and ensuing global energy crisis, and developed country (at times equivocal) concerns around oil and gas exploitation and exports from Africa, will see parties trading positions on enhanced ambition and net zero targets in exchange for climate finance for developing countries, including dedicated finance for loss and damage. This deliberation and exchange, in various shapes and forms, has always tended to dominate the COPs. However, now that the extreme impacts of climate change are reverberating worldwide, the question of loss and damage finance is likely to propel the respective concessions that Parties are willing to make.
Olivia Rumble and Andrew Gilder are both directors at Climate Legal
