Thursday, July 18, 2024

Can developing countries rely on the Loss and Damage Fund mechanism?


After nearly three decades of talks and cries from developing countries to develop a loss and damage mechanism, a significant step was taken with COP27 and CMA4 announcing the creation and operationalization of the Loss and Damage Funding arrangement for developing countries.  

Loss and damage refer to climate impacts that cannot be avoided by mitigation or disaster risk management or those that cannot be addressed through adaptation or are too difficult to quantify. For example, loss of land to sea level rise, loss of agricultural areas to desertification, or loss of culture and biodiversity. These include economic, non-economic, slow onset events, and extreme weather events that adversely affect developing countries. Despite their minute contributions to carbon emissions and even less ability to mitigate and adapt, these events have devastating effects on the economies, livelihoods, and environment of these countries. A glimmer of hope for developing countries as the loss and damage mechanism can almost be equated to the Responsibility to Protect (R2P) equivalent for climate change where countries can gain assistance to address adverse climate change impacts. 

Historical data however shows that developed countries will act to serve their geopolitical and socioeconomic interests and maintain/gain power leading to prolonged wars, failure to intervene, neocolonial exertions, and political interference propagating realism. With this backdrop, developing countries ought to question if the Loss and Damage Fund will aid them in combatting climate change or if it will be yet another tool used for propaganda and to control/enforce the rule of the powerful while leaving developing countries debt-stricken with high-interest rates.  

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As of COP28 (Conference of the Parties 28), the fund had raised over 700 USD in pledges from states and inter-governmental organizations. It is however estimated that climate change damages will amount to 1 trillion dollars by 2050, putting into question the long-term sustainability of the fund. Tasked with establishing recommendations for considerations in COP28, the Transitional Committee comprised of 24 countries, 10 developed and 14 developing countries, set forth to establish a structure of how the funding arrangement and fund would operate while attempting to address the following challenges: 

Firstly, the definition and methodology for calculating loss and damage present a significant challenge. Unless the international community and relevant mechanisms can agree on what climate change effects qualify or are categorized under loss and damage; How to address the degree of severity and compensation; The capacity of the affected nation to respond to the impact; The extent to which the loss and damage can be claimed; And the process of applying and receiving the funds, the loss and damage mechanism will not stand the test of time. Steps in the right direction have been made with a recommendation that the fund be grant-based to avoid further exploitation of the financial vulnerability of developing countries. 

Furthermore, the criteria for who can benefit from the Loss and Damage Fund ought to be agreed upon. Several discussions alluded to the fund being accessible to only Least Developed Countries (LDCs) and Small Island Developing States (SIDS). The recommendations set out by the transitional committee however stated that the fund be accessible to developing countries that are particularly vulnerable to climate change, which leaves room for contention as to who and what determines the level of vulnerability of developing countries. A minimum percentage allocation floor was nonetheless proposed for LDCs and SIDS.  

Another major point of contention remains that of who should contribute to the Loss and Damage Fund with developed countries championed by the US calling for contributions to be purely voluntary and not based on assigning responsibility and liability as this would open the gates to litigation against developed countries particularly US for their contribution to carbon emissions and climate change. This, however, goes against the principle of common but differentiated responsibilities as we all have a responsibility to address climate change. Nevertheless, those with a greater contribution to its effects ought to bear greater responsibility.  

Apart from states, non-state actors such as companies ought to be held responsible, especially fossil fuel and shipping companies, for the damage their products have caused and continue to cause. As countries work to establish new Nationally Determined Contributions by 2025, aimed towards ensuring the 1.5-degree target is achieved, contributions to the Loss and Damage Fund proportional to carbon emissions from companies and countries ought to be considered as a deterrence method to reduce emissions. In addition to this, other funding mechanisms such as insurance facilities, international pricing mechanisms, grants and contributions from humanitarian organizations, and a voluntary carbon market should be put in place to ensure long-term sustainability. 

The location of the Loss and Damage Fund arrangement an uproar in the transitional committee as developing countries sought to house the fund in an independent body under the United Nations Framework Convention on Climate Change while the US championed to house the fund at the World Bank. After concessions, it was agreed that the fund would be housed in the interim at the World Bank for four years with eleven conditions set out in the recommendations that the bank must adhere to in its capacity as an interim host. The question remains as to what will happen after the four years when the fund will permanently operate and whether developed countries will agree for the fund to leave the World Bank. 

Lastly, there is a need to consolidate the efforts and mechanisms established over the years into one multifaceted loss and damage network that will work cohesively and complementarily to address the adverse climate change effects that developing countries face. These efforts include the Warsaw International Mechanism that established the Executive Committee during COP19 in 2013 to enhance knowledge and understanding on comprehensive risk management approaches to loss and damage. They also include the Paris outcome on loss and damage that was added to Article 8 of the Paris Agreement. COP21 set out to establish a clearing house for risk transfer with COP23 launching the Fiji Clearing house for Risk Transfer to help countries design and implement risk transfer approaches. Thereafter, in COP25, the Santiago Network was established to catalyze technical assistance for the implementation of approaches to avert, minimize and address loss and damage. The Glasgow Dialogue in COP26 created a platform for discussions on funding activities between parties, relevant organizations, and stakeholders. COP28 resolved that the UN Office for Disaster Risk Reduction and the UN Office for Project Services would house the Santiago Network Secretariat.The recommendations put forth by the Transitional Committee fail to mention how the above mechanisms will integrate. However, congruency is needed to ensure the success of the loss and damage mechanism. 

A lot more remains to be done to operationalize the Loss and Damage Fund , but the efforts put in place in the last three decades can catalyze the fund to implementation by further addressing the bottlenecks. If the international community can comprehensively address the above challenges to ensure the fund is up and running, then there is hope for developing countries to receive support to combat the adverse effects of climate change they face.  


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