What will it take to deliver substantive progress on Loss and Damage at COP27?
Expectations are high for substantive progress on Loss and Damage at the upcoming COP27 UN climate negotiations in Egypt. Adeline Stuart-Watt explains why this is an opportunity that must be seized through establishing a finance fund to support those most vulnerable to the impacts of climate change.
For two decades, climate-vulnerable developing countries have called for finance and technical support to minimise and address their loss and damage from climate change. However, developed countries have viewed providing finance for ‘Loss and Damage’ – the name given to policy in this area in the international climate arena – as a major red line, in case it is seen as an acceptance of legal liability. This is despite the fact that a COP decision in 2015 based on the Paris Agreement ruled out any requirement for developed countries to provide compensation.
This year, Egypt, the host of the UN climate conference COP27, is pushing for Loss and Damage to be high on the agenda. The G77+China, currently chaired by flood-impacted Pakistan, and the coalition of Small Island Developing States, are advocating for concrete outcomes. Meanwhile, the EU and United States have expressed openness to formal negotiations, despite not supporting finance for Loss and Damage at COP26. The G7, under the German Presidency, and Vulnerable 20 Group (V20) have been collaborating on Loss and Damage and will launch their new Global Risk Shield Initiative at COP27.
COP27 is an opportunity to leverage this momentum and formalise Loss and Damage finance and monitoring within the UNFCCC architecture. Finance would go towards unavoidable or unprevented loss and damage that is not eligible for adaptation finance. This has the potential to positively alter the lives of those most vulnerable to climate change. Importantly, it could also bolster greater climate mitigation action by elevating the significance of the human and economic costs of loss and damage in climate negotiations and public discourse.
Why progress on Loss and Damage matters
Due to insufficient global efforts to reduce greenhouse gas emissions, vulnerable communities are already being severely impacted by climate change. The 2022 floods in Pakistan are a stark example. The floods affected 33 million people, caused 1,600 fatalities, and are estimated to have cost up to $40 billion in loss and damage, including $2.3 billion in crop loss. Recovery from the floods is expected to take years and the poverty rate could rise by between 2.5 and 4 per cent as a result. Climate change exacerbated the floods in Pakistan by increasing rainfall intensity by an estimated 50 to 75 per cent.
More severe and irreversible climate change impacts are unavoidable even if we meet the 1.5 or ‘well below 2 degrees’ global temperature targets of the Paris Agreement. Indeed, global temperature will continue to rise until the world reaches net zero emissions of carbon dioxide and other greenhouse gases. As a certain amount of climate change is already locked in, we will see an increase in extreme-weather events over the coming decades, and sea levels will continue to rise for millennia.
Many developing countries have limited capacity to prepare for these climate change impacts and are left by themselves to recover from the damage caused. For members of the V20 Group, climate change loss and damage are estimated to have already cost 20 per cent in lost GDP over the past 20 years. Increasing loss and damage may undermine their pursuit of sustainable development. As the biggest health threat of the 21st century, climate change is likely to further compromise the health and food security of vulnerable populations, including through the spread of diseases and reduced access to clean water and sanitation.
The creation of the Warsaw International Mechanism on Loss and Damage in 2013 helped establish greater political buy-in to advance action on Loss and Damage. Yet there has been little progress on financial support for developing countries to meaningfully address loss and damage – a core function of the Mechanism. Lack of meaningful progress on providing this finance is likely to increasingly hamper the climate negotiations, especially as climate-related disasters in developing countries escalate.
Progress via additional adaptation finance
According to the Intergovernmental Panel on Climate Change, the widening disparity between the cost of adaptation and the current finance allocated contributes to the gap between current adaptation levels and those required. Developing countries need around $70 billion per year to cover adaptation costs, and will need $140 to $300 billion by 2030. By comparison, in 2021 adaptation finance reached about $20 billion, whereas the world spent $423 billion subsidising fossil fuels, which directly contribute to loss and damage.
Developed countries must deliver on their commitment to mobilise $100 billion in climate finance annually and their commitment at COP26 to double finance for adaptation. Without additional mitigation and adaptation finance from developed countries, developing countries will continue to face loss and damage that could have been avoided. Existing climate finance mechanisms, such as the Adaptation Fund and Green Climate Fund, have extensive scope to fund measures to prevent, minimise and address loss and damage. Finance for developing countries could be enhanced by reducing the barriers that many face in accessing existing funds, expanding the breadth of adaptation initiatives eligible for funding, and considering debt forgiveness alongside a shift away from loan-based financing.
Progress on finance for Loss and Damage
Greater support is also needed to address loss and damage that are currently not covered by adaptation finance, such as the immediate impacts from climate-related disasters and social impacts including forced migration due to sea-level rise. Humanitarian aid is inadequate to address loss and damage from climate change due to increasing costs – appeals related to extreme weather are eight times higher than 20 years ago – and limited coverage, such as for reconstruction. Support is needed to pay for loss and damage from climate change that is unavoidable or was not prevented due to inadequate adaptation efforts. Estimates suggest that these unavoided impacts could cost developing countries from $290 to $580 billion in 2030 and exceed $1 trillion by 2050.
COP27 has the potential to address these gaps. Countries could commit to establishing a fund to finance initiatives that address unavoidable or unprevented loss and damage in circumstances that do not otherwise qualify for adaptation funding. Finance would be provided based on the principle of common but differentiated responsibilities and respective capabilities – a foundational tenant of the global climate treaties. This could sidestep the deadlock on compensation that has been a roadblock to progress.
The fund should provide finance for post-disaster recovery as under existing climate finance mechanisms there is limited funding available for this kind of support. Plus access needs to be immediate, thus it differs from the typical project-based, climate funding with its long lead-times. Finance could also support initiatives that are already working to address these gaps, such as the Global Risk Shield and the African Risk Capacity.
A core foundation of the fund would be to integrate the adaptation principle of ‘build back better’ into post-disaster recovery, rehabilitation and reconstruction. This would prevent and minimise further loss and damage in the future and would help meet developed countries’ preference for prioritising loss and damage prevention (as opposed to ‘compensating’ for past events).
The decision to establish a finance fund must be accompanied by a timeline of concrete steps and outcomes for its operationalisation. Countries will need to decide where the fund would be located institutionally, what is its scope for financing, who would be eligible for funding to ensure finance is distributed equitably and reaches those most vulnerable, and how it would be financed in a sustainable, predictable way.
Countries could entrust the Glasgow Dialogue to deliberate these questions to help inform decisions at subsequent UN climate negotiations. This would build off extensive, relevant work already undertaken though the Warsaw International Mechanism, the Suva Dialogue and the Standing Committee on Finance.
Until a formal mechanism for financing Loss and Damage is established, developed countries could make solidarity-based finance pledges to signal goodwill and provide some of the immediate funding needed. ‘Solidarity finance’ would build on the small but symbolically significant $19.5 million already committed to Loss and Damage by the governments of Scotland, Wallonia and Denmark plus several philanthropists.
Setting targets and monitoring Loss and Damage
COP27 could also deliver a commitment to include Loss and Damage as part of the post-2025 New Collective Quantified Goal on Climate Finance. This would help deliver funding to initiatives that may not be covered by adaptation finance, while accounting for the fact that finance for adaptation and Loss and Damage often overlap and can be mutually beneficial. The inclusion of Loss and Damage in the finance theme of the Global Stocktake would complement this by gathering information on the extent to which international public finance goes towards addressing Loss and Damage.
While this year, more than ever, there is goodwill to progress discussions on finance for Loss and Damage, it seems likely that some developed countries will continue to oppose a dedicated fund at COP27. Dragging out the debate rather than progressing on common ground will only risk fracturing negotiations in an already fragile political world. Conversely, greater support for developing countries to minimise and address their loss and damage will contribute to a sustainable, resilient and inclusive global economy. As current climate pledges put the world on track for around 2.5 degrees of global warming, ultimately, more ambitious action to reduce global emissions is the most effective way to reduce the extent of loss and damage experienced by those most vulnerable to climate change.
The author would like to thank Elizabeth Robinson, Declan Conway, Timo Leiter, Erica Thompson and Alice Bian for helpful review comments.