As communities in countries rich and poor face soaring costs from extreme weather and rising seas, governments are grappling with how to set up a new fund to tackle “loss and damage” driven by global warming.
The issue has been hotly debated at successive at UN climate talks, as wealthy nations rejected demands for “compensation” for the impacts of their high share of the planet-heating emissions that are turbo-charging floods, droughts and storms around the world.
However, at the COP27 climate summit in Egypt last November, a group of 134 African, Asian and Latin American states and small island nations finally won agreement on a new fund that will pay to repair devastated property, relocate threatened communities or preserve cultural heritage before it vanishes.
But the details of where the money will come from and how it will be disbursed were left to be worked out by this December’s COP28 UN climate conference in Dubai.
A committee tasked with working out how to design and manage the fund has struggled to agree on recommendations that are crucial if the fund is to be launched at COP28, due to deep divisions between developed and developing countries.
Climate policy experts are warning that failure to deliver a new loss and damage fund in Dubai would threaten wider progress on climate action at the summit, which starts on Nov. 30.
Here’s why the issue of “loss and damage” has grown in importance this past decade - and where the sticking points in finding finance to address it could lie:
What is climate change “loss and damage”?
“Loss and damage” refers to the physical and mental harm that happens to people and places when they are not prepared for climate-driven impacts, and cannot adjust the way they live to protect themselves effectively from longer-term shifts.
It can occur both from fast-moving weather disasters made stronger or more frequent by warming temperatures - such as floods or hurricanes - as well as from slower-developing stresses like persistent drought and sea levels creeping higher.
A large share of “loss and damage” can be measured in financial terms, like the cost of wrecked homes and infrastructure.
But there are other non-economic losses that are harder to quantify, such as graveyards and family photos being washed away, or Indigenous cultures that could disappear if a whole community has to move because its land is no longer habitable.
A June 2022 report released by a forum of 55 climate-vulnerable countries - from Bangladesh to South Sudan - found they would have been 20 per cent wealthier had it not been for climate change and the US$525 billion in losses inflicted on them by shifts in temperature and rainfall over the past two decades.
Often the poorest people lack the means to recover what they have lost, particularly as aid fails to keep up with growing needs, as seen in 2022 with Pakistan’s huge floods, or the drought that left tens of millions hungry in the Horn of Africa.
What funding is on offer when loss and damage happens - and how can more be raised?
So far there has been very little money available apart from aid provided through the international humanitarian system to respond to disasters - which every year faces shortfalls.
A 2022 study by anti-poverty charity Oxfam found that aid needs in response to weather disasters had skyrocketed more than eightfold in the last 20 years.
But UN-coordinated humanitarian emergency appeals are, on average, only 60 per cent funded.
“There is not enough money for humanitarian action - even to do the first-phase response (to disasters), never mind the preparedness, resilience (and) longer-term early recovery piece,” said Debbie Hillier, who manages flood resilience programmes for Mercy Corps.
According to a 2018 study by researchers at the Basque Centre for Climate Change, the costs of loss and damage in low- and middle-income countries could reach between US$290 billion and US$580 billion a year by 2030.
But rich countries are already struggling to meet a goal to channel US$100 billion annually to vulnerable countries for reducing emissions and adapting to climate change.
Some donor governments, including a few in Europe, Canada and New Zealand, have agreed to provide loss and damage funding to poorer nations - although so far, their pledges total only about US$275 million, while developing countries have proposed the new fund should programme at least US$100 billion by 2030.
Given this, climate justice activists have long argued for the need to find innovative sources for loss and damage funding, based on levies and taxation.
Those include a controversial proposal - backed by the UN chief - for rich governments to tax the windfall profits of fossil fuel companies.
Other ideas that have gained ground include levying a small fee on international flights - which contribute to climate-heating emissions - and a global tax on financial market transactions, which could be distributed by the new fund.
The most concrete loss and damage funding scheme so far, the “Global Shield Against Climate Risks”, aims to boost insurance coverage for vulnerable countries and communities, attracting about US$200 million at its COP27 launch, largely from Germany.
It will expand initiatives - from subsidised insurance coverage to stronger social protection schemes and pre-approved emergency financing – that can swiftly channel support to disaster-hit poorer countries’ own contingency plans.
But many climate campaigners say insurance cannot be a lasting answer, with losses expected to soar and even become uninsurable as climate disasters intensify.
What are the obstacles to setting up a loss and damage fund?
A “transitional committee” has met regularly this year to work out the form and scope of the new loss and damage fund, and how to fill its coffers, but has struggled to find agreement.
The 24-member committee failed in October to issue a set of recommendations as expected, after clashing over whether the fund should be hosted by the World Bank.
Developed countries, led by the United States, are pushing for the fund to be based at the bank, while developing nations argue this would tip the balance of power towards wealthy governments and make it hard for them to tap into the funding.
Developing countries would prefer an independent fund that can set its own rules, or one housed at a UN agency.
The committee will meet again in early November, in a last-ditch attempt to find a compromise and craft a joint proposal for countries to finalise and adopt at COP28.
Views also differ on whether all developing countries should have access to the fund or just a smaller group of climate-vulnerable nations, as well as on what types of support should fall within the new fund’s remit.
Some countries, notably the United States, want the fund to focus tightly on two key areas less well-covered by humanitarian aid agencies - “slow onset” disasters, from desertification to islands sinking as seas rise, and “non-economic losses”.
That would also include assistance for communities - or even whole island nations - to relocate should they no longer be able to continue living in their current homes.
Climate justice campaigners and others, meanwhile, are pushing for the new fund to have a broader scope, which would help finance the humanitarian response to climate disasters, preventive measures and efforts to build longer-term resilience.
A 2023 report by the Zurich Flood Resilience Alliance outlined lessons learned by the aid sector that could help the new loss and damage fund operate effectively.
Its recommendations included a warning to donors not to re-label their humanitarian aid as loss and damage funding, and to find new sources of additional finance.
It also stressed the need to use existing systems to deliver aid on the ground fast, find ways to get funding to fragile and conflict-hit states, and work with local groups on the ground.
This story was published with permission from Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, climate change, resilience, women’s rights, trafficking and property rights. Visit https://www.context.news/.
