Loss and Damage Fund: The political card played by the global North

The long-awaited finance facility for loss and damage was established at the just concluded COP27. Participating countries at the latest UN Climate Change Conference, COP27, reached an agreement on an outcome that established a funding mechanism to compensate vulnerable nations for ‘loss and damage’ from climate-induced disasters. However, there are at least two big factors to be addressed regarding the fund. 

One is about the source of funding (who will pay) which is not identified and defined while another is the scope of engaging multilateral and international financial institutions in the finance facility.  

The first one will divide developing countries that were clamouring for the fund. As the EU mentioned China and some other countries have to pay as they are the polluters. Currently, China is universally regarded as the biggest polluter. China has already declined to pay. 

This is the main political card played by the EU. This can wash away the whole initiative. As is well known no decision can be taken if a single country refuses to agree to the funding mechanism.

The second one, the inclusion of financial institutions in the financing process creates the potential risk of creating a debt-trap for economically vulnerable countries. In the recent past, it was seen that most of the climate finance from these types of international or multilateral financial institutions came in the form of loans.

G77+ China, the combined group of all 134 developing countries placed the finance facility for loss and damage and the issue was included on the conference agenda list on November 6. Many observers believed that the proposal will not get approval. They organized a press conference on November 17 being frustrated. 

Later in the evening on the same day, European Union agreed to establish the finance facility but that was different from the proposal put forward by the G77. 

EU placed two critical conditions saying that big polluters have to pay apart from the developing nations. Now China is the biggest emitter and India is another big polluter. Both countries belong to the group G77+China block. 

EU also said that only vulnerable countries will be eligible for availing money from the fund. However, a recent flood damage worth $30 billion in Pakistan though the country is not categorized as a vulnerable one. Even, the proposal for establishing a finance facility placed by the G77+China group where Pakistan lead the group during this year’s COP. 

“I have to say this is our final offer. This is where the (EU) member states can find an agreement and I have to thank all of them for the courage to go this far. But this is it,” European Commission Vice President Frans Timmermans told the reporters on November 18 which was the last day of the conference. 

He mentioned that China has become wealthier since it was listed as a developing country in 1992.

Later the conference was extended by a day to November 19 as all the parties came forward to reach a consensus. 

And finally, on an extended day, all the parties reached in a consensus which decided to establish a new funding arrangement for assisting developing countries that are particularly vulnerable to the adverse effects of climate change, in responding to loss and damage. 

I want to stop here as the paragraph about the final decision that came from COP27 is too long. However, I would like to highlight two words: ‘developing’ and ‘particularly vulnerable. 

If we take a close look we will find both the proposal from G77 and EU is present here. The G77 proposal was for developing countries and the EU proposal was for vulnerable countries which should get “compensation”. According to the EU proposal, only particularly vulnerable countries will be eligible.

All the parties agreed to establish a new fund. They decided to establish a transitional committee on the operationalization of the new funding arrangements.  

This committee will be responsible for identifying and expanding sources of funding. They will give a report. The next COP will discuss this report to take the finance facility forward. If the committee recommends China for funding, China will deny it. The committee consist of 23 member of which 10 are from developed countries. 

Already China said only developed countries will pay the money. So, a dispute is already there. Now, developing countries need to fix the problem within them. A divide-and-rule policy must not be allowed to be established here. 

The committee will invite United Nations agencies, intergovernmental organizations, and bilateral, multilateral and international financial institutions to submit inputs on how they might enhance access to and/or the speed, scope and scale of availability of finance for activities relevant to addressing loss and damage, including potential limitations and barriers and options for addressing them.

Dr Saleemul Huq, the director of ICCCAD

(International Centre for Climate Change and Development), told me that climate finance must come in the form of grants. According to Huq when the finance comes in the form of a loan is not climate finance anymore. 

And after the conclusion of the conference, one of the negotiators from Bangladesh just beside the Plenary Hall in Sharm el-Sheikh, Egypt, expressed his frustration regarding the fact that the focus has changed. The fund is going to be a different one in nature and against the main spirit of the loss and damage financing originally thought about. 

The USA agreed on the condition that this money cannot be called compensation and developed countries cannot be termed as responsible. 

Thus, they are already avoiding the historical responsibilities of warming the globe and making millions of people vulnerable. 

There is still a long way to go in getting money from the loss and damage fund for the damage done by the developed nations. And of, course something much worse can happen with the finance facilities in future. 

The writer is a journalist. He can be contacted at [email protected]