Climate change has become the issue of the times, with each year’s Conference of the Parties (COP) of the United Nations Convention on Climate Change (UNFCCC) standing out as a major highlight of the year. The COP is a chance for world leaders and policymakers to get things done (or not done, as is often the case), make promises, and make their intentions clear when it comes to the environment. It is also supposedly a chance for small states, developing states, civil society, and activists to get their voices heard. This happens less than it ought to, so when it does, it is noteworthy.
There was a sense of excitement for COP27 as an “implementation COP” and a follow up to a fairly eventful COP26 in Glasgow. Moreover, since it is hosted in an African and Middle Eastern developing state, there was an expectation that COP27 was going to deliver for the Global South. In this context, the decision to establish a loss and damage fund became the defining moment of the conference. Laila Iskandar, co-founder of CID Consulting and former Egyptian minister of state for environmental affairs, described this decision as “overdue”. Iskandar explained to Business Forward that many communities have already suffered due to the negative impacts of climate change, having “experienced loss to biodiversity, arable land, water resources and are currently experiencing climate change impacts that go beyond what they can adapt to.”
However, the journey towards a just and effective system for loss and damage is just beginning, and the battle for an international climate order based on due responsibility, adequate assistance, and fair compensation continues.
What is “Loss and Damage”?
To assess the significance of the agreement reached during COP27, and of the complicated process still ahead, it is important to understand what loss and damage is exactly, and what it entails.
Carolina Cecilio, a policy advisor for the Risk and Resilience team at the climate think tank E3G, defined loss and damage as the potentially-irreversible “impacts caused by human-induced climate change”. Cecilio told Business Forward that loss and damage can be divided into two categories, economic and non-economic, where economic loss and damage is easily quantifiable, while non-economic is not. She cited damage and destruction to infrastructure, houses, and agricultural sites and livelihoods as economic impacts.
Naturally, when one thinks of a loss and damage fund one thinks of it addressing the economic aspect, which is easier to quantify and compensate. Nonetheless, non-economic impacts should not be neglected, perhaps particularly because it is more difficult to quantify and compensate. “Non-economic losses can be the most devastating—such as the incalculable toll of losing family members, the disappearance of cultures and ways of living, or the trauma of being forced to migrate from ancestral homes,” said Iskandar. The former minister added that “while harder to quantify and monetize, non-economic losses have severe and detrimental effects on communities’ well-being.”
On her part, Cecilio cited the disappearance of the Pacific Islands due to sea-level rise, inducing forced migration, as a case of non-economic loss and damage.
It would seem that the distinction separating economic from non-economic loss and damage is the difference between losing a house and losing a home.
A third category
Loss and damage occurs due to inadequate mitigation—the failure to slow down the effects of climate change—and reaching the adaptation limit. “Without scaling efforts to address the root cause of climate change, the costs of loss and damage over time will become untenable for all countries,” Iskandar said.
The adaptation limit is the idea that adaptation can only go so far, that we can only be so resilient in the face of climate change. When adaptation ceases to be effective, there is loss and damage. Peter Jacques, a professor at the University of Central Florida’s School of Politics, Security, and International Affairs and an expert on environmental politics, explained to Business Forward that “if we mitigated climate change earlier there would be less loss and damage. If we can adapt, then loss and damage does not happen (by definition). If we continue on the business-as-usual trajectory and fail to mitigate, places like North Africa may be uninhabitable. Imagine rainfall cut in half, with temperatures much hotter.”
“Agriculture may simply not be viable in [North Africa] or not reliable enough to sustain poorer rural populations. Villages in Morocco actually ran out of drinking water this prior summer,” Jacques said.
Another striking example is the fact that the Intergovernmental Panel on Climate Change (IPCC) estimates that 70-90 percent of tropical coral reefs will disappear even if warming is limited to 1.5C. “This will lead to irreversible losses of biodiversity and have a major impact on coastal communities that eat and sell fish that live along reefs,” according to Iskandar.
“Losses and damages are already happening, and many communities lack the resources to deal with them. Climate plans and policies should account for loss and damage alongside mitigation and adaptation,” the former minister added.
“We know that climate impacts are hitting faster and harder, and that communities who have contributed the least to climate change are the ones being affected the most,” Cecilio said.
Loss and damage can therefore be seen as a third distinct but intertwined category to the traditional two used to address climate change. Cecilio explained the dynamics between the three by saying that “averting loss and damage can be seen as mitigation actions; minimising loss and damage as successful adaptation implementation; and addressing loss and damage are the actions taken to deal after the impact has hit.”
“Mitigation, adaptation and loss and damage are all pieces of the same puzzle,” the E3G policy advisor said. “The more we invest in the first two, the less loss and damage will occur.”
Loss and damage is therefore not a tool used to combat climate change, but rather an idea based on justice and increased awareness of the negative impacts of climate change on the most vulnerable.
Loss and damage in the past
Loss and damage has been in the discussion for decades, Cecilio explained, put forward in particular by small island developing states. However, it has clearly not been given the due attention it deserves for those same decades. The concept was integrated into the Paris Agreement, and is, in fact, “one of [its] three pillars” according to Cecilio.
The Agreement’s Article 8(1) states:
Parties recognize the importance of averting, minimizing and addressing loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events.
So there has already been recognition of the importance of loss and damage on the official level. Surprisingly, there has been a mechanism for loss and damage since its establishment during COP19. Unsurprisingly, the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts did not have a funding component; its functions were only along the lines of “enhancing knowledge and understanding” and “strengthening dialogue,” and although its third pillar does mention finance, it is in a context of making recommendations and not funding.
It is telling that the very next article of the Paris Agreement, Article 9, states that countries will “provide financial resources to assist developing country Parties with respect to both mitigation and adaptation”—with no mention of loss and damage, which addressing was marked as important just one article earlier.
Nevertheless, the building blocks were slowly being laid down through these climate instruments. It all eventually came together in COP27. Cecilio said that while there was a sort of “political shift” at COP26, “the historical moment was at COP27” with loss and damage finance being an official agenda item for the first time, and then reaching an agreement to establish a fund and funding arrangements.
It is important to understand that developed countries also had an interest in establishing a loss and damage fund. Iskandar said that its establishment has “allayed the fears of developed countries that they would be called to compensate for losses and damages” caused by the negative impacts of climate change “as part of an admission of legal liability, triggering litigation and compensation claims on a major scale.”
Establishing the fund therefore precludes, for the moment, the legal element which could have been invoked should developing countries have remained wholly dissatisfied.
Yet, the road ahead is still complicated, to say the least.
In Decision 2/CP.27 coming out of COP27, parties decided to establish funding arrangements to assist developing countries “that are particularly vulnerable to the adverse effects of climate change” in addressing loss and damage. Furthermore, states also decided to establish a fund for responding to loss and damage, which means directly financing loss and damage. A transitional committee “on the operationalization of the new funding arrangements… and the fund” is set up to make recommendations for consideration and adoption at the upcoming COP28 in Dubai. Here, it is important to note that there seems to be a direction towards limiting loss and damage financing to the most vulnerable countries. Whether this conceptualization may be expanded in the future or not remains to be seen.
The committee is comprised of 24 members, 14 from developing countries and 10 from developed ones, and adopts its recommendations by consensus. The committee, co-chaired by a member from a developed country and one from a developing country, must hold at least three meetings between COP27 and COP28. It has, in fact, already had its first meeting in Luxor at the end of last month, and decided to hold four meetings before COP28, with two workshops, a Glasgow dialogue, and a ministerial consultation sandwiched in between. In reference to the different formats for discussion, Cecilio said that “countries need to avoid duplication of work and make sure work done outside the [transitional committee] serves as input to progress the negotiations on what the fund should be.”
During the meeting, the first of the four, the workplan was laid out for the upcoming meetings, the next of which is scheduled to take place in May. Cecilio summed up the monumental task the committee faces by stating that “so far, the only thing that is clear is that there’s a lot of work and little time.”
The Overseas Development Institute identifies six pertinent questions regarding the operationalization of the fund: what constitutes loss and damage, how much financing is needed, who will get the funding, how will the funds be delivered, how will funds be mobilised (who pays?), and how will the fund be managed. These are all critical questions that must be adequately answered for the loss and damage fund to work as hoped for. There will undoubtedly be a proverbial tug of war between developed and developing countries who have diametrically opposed short-term objectives when it comes to loss and damage, with developing countries wanting a robust system to address loss and damage claims with adequate financial support, while developed countries will likely look to limit as much as possible the extent of their contributions, as well as seek to expand the pool of contributors to the fund to countries such as China and perhaps Gulf Cooperation Council states—the latter of which have some of the highest GDP per capita and CO2 emissions per capita rates in the world.
The question of who should pay is probably the most significant sticking point alongside “how much?” The recommendations made by the transitional committee will undoubtedly impact how these questions are answered. Western countries will not want to carry the load alone, and there is a good argument for GCC states contributing to the fund. When it comes to large polluters like China and India, the argument is less clear, as their per capita rates are still significantly lower than the West’s.
Jacques is “not convinced” that “the OECD and other Global North countries are serious about restitution” and thinks that the fund “will attempt to look restorative but will be empty.”
The challenges facing the fund are great. When it comes to the United States’ contribution, the UCF professor stated that “there is a strong, well-organized effort to derail ANY [sic] response to climate change let alone ‘redistribute wealth’.” He continued to say that the ability to adequately pay for loss and damage is “impossible because the loss and damage is essentially infinite in scope. We literally cannot even imagine what is to come. So the question is, how much suffering can we avoid?”
“Some,” he said, but given his viewpoint, “not much”.
For Iskander, the question isn’t as much about derailing meaningful progress as it is about “misappropriating” the fund and “mis-reporting” contributions. She also said that “it is important that the fund does not use financing instruments that increase vulnerable countries’ indebtedness,” explaining that “current financing for adaptation and mitigation includes sizeable concessional and non-concessional loans,” explaining that “this would not be an appropriate response [to] vulnerable countries suffering from loss and damage due to climate impacts.” In addition, Iskandar agreed that “without scaling efforts to address the root cause of climate change, the costs of loss and damage over time will become untenable for all countries.”
COP28 and beyond
“COP27 established the fund and funding arrangements, but they are still an empty bucket,” Cecilio said, adding that “COP28 will be a test for ambition and solidarity.” The work of the transitional committee will be pivotal in determining outcomes in Dubai. It all depends on the meeting point between developed and developing countries. “Discussions are still under way to establish that this fund should not include ‘humanitarian aid’ nor ‘developed aid,’” Iskandar said.
The former minister mentioned that several states have already pledged various sums towards the loss and damage fund, with Germany pledging 170 million euros as the largest current contributor by far. It is important, however, that these sums are not redirected from other areas, and are instead provided in addition to existing contributions.
The voluntary nature of contributions so far has meant that countries are unlikely to provide their fair share of climate finance. For this reason, the mechanism to be adopted at COP28 will be of paramount importance in ensuring the smooth and fair functioning of the loss and damage fund. What is clear is that the more states join in contributing to the fund, including rich non-Western countries such as GCC members, the more Western states will feel encouraged—or pressured—to contribute. There is no doubt that increased public awareness and pressure on governments and world leaders when it comes to loss and damage will bring positive results for establishing the fund.
“The IPCC report is clear: the window to achieve climate resilient development is narrowing,” Cecilio said, adding that “ensuring adequate finance towards economic and non-economic loss and damage is a matter of climate justice and international security.”
“I am pessimistic, but I hope I am very wrong,” Jacques said.
Overall, there is reason to be cautiously optimistic, and reason to be pessimistic. Nothing is decided yet, and the road ahead is long, yet the need is urgent.