Why the success of COP28 depends on the fund for loss and damage

The climate crisis continues to intensify worldwide: 2023 saw a series of temperature records in the atmosphere and oceans, as well as extreme ice loss in Antarctica. The series of unusual extreme weather events reached a sad peak in Libya – 11,000 people lost their lives and 43,000 their homes to heavy rainfall. Those hit particularly hard are the poorest and most vulnerable in developing countries – those who are least responsible for the climate crisis.

Loss and damage fund vital for success of COP28

However, the main culprits of the climate crisis have so far shown a lack of financial support for dealing with loss and damage. The decision to set up a loss and damage fund at COP27 was a historic milestone after several developed countries had blocked the fund for many years. At COP28 in Dubai, the fund must now be made operable and filled adequately. Those who want to work with vulnerable countries to achieve constructive results for renewable energies, energy efficiency and the downscaling of coal, oil and gas must deliver here. The failure of developed countries to deliver on their pledge to mobilize 100 billion US dollars in climate finance every year from 2020 has tarnished the trust of developing countries. Progress on the fund is the glue needed to restore that trust. If the negotiations around the fund fail, COP28 also risks failing on other key issues.

This week (November 3–4), the transition committee is meeting to negotiate the details of the fund’s structure, in which Germany also has a seat. It is an additional fifth meeting after no agreement could be found on key issues during the last meeting in October. Now the answers to highly political questions must be found before COP28.

Polluters should pay: Developed and wealthy emerging countries

The most important questions are: Who pays into the fund? Here, the industrialized countries must take the lead. Their emissions mean they bear the main historical responsibility for the climate crisis. The fund was adopted by the parties to the Framework Convention on Climate Change and the Paris Climate Agreement. The principles of common but differentiated responsibilities and polluter pays apply.

However, these principles mean that wealthy emerging economies – especially the oil and gas countries – should now also contribute to climate financing. The host country of COP28, the United Arab Emirates, could break the ice here and play a pioneering role.

Financial contributions to address damage and loss must be reliably provided through grants, in addition to existing development cooperation and climate finance funds.

To cover the extreme financial needs of developing countries in dealing with damage and losses – estimates put the amount at up to 580 billion US dollars from 2030 – additional funds must also be mobilized. These include innovative financial instruments such as a tax on international shipping and payments from carbon majors – the 100 largest oil, gas and coal companies, which together account for 70 percent of global emissions.

Which countries are eligible to draw money from the fund? According to the proposal of developed countries, only least developed countries and small island states should have access to the fund. However, it would be unacceptable if, for example, countries such as Libya and Pakistan, which have suffered massive damage and losses, did not meet the fund’s eligibility criteria. The most vulnerable people and communities must be at the core of the fund, and the money must reach them.

Funds must be independent of the World Bank

Where should the fund be set up? While developing countries want to set up the fund under the umbrella of the Framework Convention on Climate Change, developed countries advocate a solution via the World Bank, i.e., outside the Convention. It is essential that the fund – as the centerpiece of the financial architecture on loss and damage – is geared to the needs of the most vulnerable and provides them with direct access. The fund should operate under the principles of the Framework Convention on Climate Change and the Paris Climate Agreement, which means, for example: Developed and developing countries must make equal decisions. The World Bank does not meet these criteria. For this reason, the World Bank can act as a trustee, but the fund must be set up autonomously and independently.

What should the fund cover? The financial gaps in dealing with damage and loss are huge, even though an additional mosaic of support mechanisms, some of which already exist, such as the Global Shield, has been launched. Therefore, the new fund must support comprehensive, self-directed and prioritized solutions by affected countries for economic and non-economic loss and damage. Clarifying these issues is essential to make the fund capable of acting – but an empty Fund is of no use to anyone. It is therefore also crucial to adequately fill the fund very soon – if possible already at COP28. Germany and other developed countries need to prepare their contributions now.

This blogpost was published as Opinion in Climate.Table #74 on 19 October 2023 and was updated for the fifth Transitional Committee meeting. Editing by Climate.Table.