Following COP 27, a financing mechanism to address losses that can no longer be avoided and compensated has been established. These losses and damages, which are the irreversible consequences of climate change, affect mainly geographically but also economically vulnerable countries of the South.
A long-awaited historic decision
This financing mechanism has been requested by the countries of the South since the beginning of the 1990s. Until now, the fight against climate change has focused on two areas: mitigation (reducing emissions to limit global warming) and adaptation (to the unavoidable effects of this warming). Loss and damage is therefore the next step: financial compensation for damages that could not be avoided or reduced, and which have effects such that adaptation is impossible.
Refusal persists from northern regions (Europe and the US) to establish this fund, as it could obligate them legally for their role in global warming. After accepting to study this funding mechanism during COP27, it was ultimately validated at the end of the conference in Charm el-Cheikh. The pressure has already intensified at COP26 were we had never talked this much about loss and damage.
A major step forward
The terms of this fund still need to be specified and its financing will be a real test to really asses the effectiveness of this mechanism. According to projections, the cost of losses and damages could reach 580$ billion per year by 2030 in developing countries and up to 1.7 trillion by 2050. Creating a dedicated fund official acknowledges that certain climate-related damages exist and deserve an International response which creates a precedent that could influence international law over time.
This fund enshrines the idea of a new logic of climate solidarity. In fact, the most vulnerable countries should not bear alone the cost of damages they did not cause. The responsability should be shared.
The many shortcomings of this fund
First, the lack of decisions on the exit of fossils fuels still weakens the ability to achieve the goal of limiting global warming to +1.5°C. No mechanism explicitly links fossil fuel revenues to the financing of the fund. Major oil companies can continue to generate profits without contribution. All tax on fossil proposals have been rejected.
No State is legally obligated to contribute. The estimated needs of country in Global South could reach hundreds of billions per year. Without a binding mechanism, the fund relies entirely on the political goodwill of States. Add to that the fact that the term « liability » was carefully avoided in all negotiating texts. Northern countries refused any legal link between their historical emission so this fund therefore look like a charity rather that real climate justice.
The role of the World Bank is also controversial. This fund being hosted by the World Bank lead to complex and bureaucratic access conditions and generate distrust regarding to the neutrality of this Bank which is perceived as serving the interests of powerful countries.
In addition, the definition of eligible losses is vague. Non-economic losses remain difficult to quantify and compensate.
Involving the private sector ?
Fossil fuel companies, has long been absent from the Loss and Damage financing mechanism. Major oil and gas corporations have, in recent years, logged record profits, primarily fueled by the very actions that exacerbate climate change.
Extending the polluter-pays principle globally might allow for requiring these companies to make mandatory contributions. Various proposals have been put forward, including a global windfall tax on fossil fuel profits, which could be directly allocated to the Loss and Damage Fund
This mechanism is a step forward that, however, suffers of shortcomings. We must remain vigilant for the upcoming COPs to see how this will be handled by countries
https://www.nytimes.com/2022/11/19/climate/un-climate-damage-cop27.html
https://unfccc.int/fund-for-responding-to-loss-and-damage
https://media.un.org/unifeed/en/asset/d298/d2985736
