Glossario del clima

What is the “loss and damage” climate change funding agreed at COP27?

We explore how the loss and damage mechanism, agreed upon at COP27 to repay the countries worst affected by climate change, might work.

It was the great challenge of COP27 in Sharm el-Sheikh, Egypt. A challenge that, unexpectedly and at the price of hefty compromises, was won. In the night between Saturday 19th and Sunday 20th November, the twenty-seventh conference of the parties on climate change reached an agreement instituting a loss and damage funding mechanism to compensate the countries that are least responsible for global heating but suffer its worst consequences.

What is meant by “loss and damage”?

What exactly does “loss and damage” mean? We can find an explanation on the United Nations Framework Convention on Climate Change (UNFCCC) website. “Human-induced climate change, including more frequent and intense extreme events, has caused widespread adverse impacts and related losses and damages to nature and people beyond natural climate variability. […] Loss and damage arising from the adverse effects of climate change can include those related to extreme weather events (like hurricanes, cyclones, heatwaves, and droughts, ed.) but also slow onset events, such as sea level rise, increasing temperatures, ocean acidification, glacial retreat and related impacts, salinization, land and forest degradation, loss of biodiversity and desertification.”

Adaptation efforts can make regions less vulnerable, but the fact remains that some impacts are irreversible, because they push human communities and natural systems well beyond their capacity to respond. Even if the international community managed to cut greenhouse gas (GHG) emissions so as to maintain the increase in average global temperatures below 1.5 degrees, as scientists are demanding, the loss and damage would be reduced but not nullified. Hence, with a view to climate justice, there’s a need to quantify these losses and damages, establish who is responsible (through attribution science), and compensate those who have suffered or will suffer.

There are now 3 pillars: mitigation, adaptation, loss and damage

The policies that humanity can enact in the fight against climate change have, thus far, been divided into two main categories: mitigation and adaptation.

All actions aimed at curbing global heating by diminishing atmospheric GHG emissions that are responsible for it come under the umbrella of mitigation. Thus, mitigating means installing solar panels or wind turbines, driving electric vehicles, planting trees, and doing any other activity whose purpose is decarbonisation.

Conversely, adaptation consists of the technology and processes that limit the damage caused by extreme weather events. These include, for example, early warning systems that allow communities to find safe shelter before the arrival of a cyclone, drought-resistant crops, and so on.

COP27 has now officially established the third pillar: reparations for the damage that has already occurred due to the climate crisis or that will inevitably occur in the future. This is loss and damage funding, which will entail a transfer of financial resources from industrialised countries to lower-income economies.

Who is responsible for climate change?

If the increase in average temperatures happens on a global scale, why should some countries recompense others? Because the scientific data show that there is an imbalance between those historically responsible for the high concentration of GHGs in the atmosphere and those most vulnerable to the climate crisis that is its direct consequence. Specifically, between 1751 (i.e. the start of the industrial revolution) and 2017, the United States alone poured 399 billion tonnes of CO2 into the atmosphere, followed by the European Union and the United Kingdom at 353 billion, or 25 and 22 per cent of total global emissions respectively. In third place is China, with 200 billion tonnes of CO2, or 12.7 per cent of the total. However, despite the fact it is now the world’s second-largest economy by GDP, China is still classified as an emerging market and thus has hybrid status in this context. Meanwhile, the entire African continent is responsible for less than 3 per cent of historic global emissions.

Notably, however, the countries paying the greatest price for the climate crisis are not the major emitters. Since 1991, the number of climate disasters that have struck the world’s poorest regions has more than doubled, causing 676,000 deaths. Proportionally, this means that 79 per cent of confirmed victims lived in lower-income countries. What’s more, if we consider not just deaths but the people affected by the climate crisis more generally, for example, those who have suffered damage to their homes or the fields where they grow food, the number grows to 189 million people per year – 97 per cent of the total.

Alluvioni in Pakistan
Pakistan was devastated by floods in 2022 © Getty Images

The history of loss and damage negotiations

The first time the possibility of instituting a compensation mechanism for climate change damage was discussed was in 1991. At the time, it was Vanuatu that advanced the proposal to the United Nations Framework Convention on Climate Change (UNFCCC). The following year, at the Earth Summit in Rio de Janeiro, the principle of common but differentiated responsibilities was established and became one of the pillars of international environmental law. Thus, signatories enshrined the concept that everyone is responsible for combating the environmental crisis, but countries must contribute in a way that is commensurate to their socio-economic status and historic emissions.

It wasn’t until COP13 in Bali, in 2007, that the expression “loss and damage” appeared for the first time in an official UNFCCC document, albeit included under the umbrella of adaptation and without resulting in any actual allocation of funding. In 2010, the Green Climate Fund was established, with wealthier nations committing to helping lower-income countries with mitigation and adaptation. However, the project made slow progress and even now, in 2022, 12 years after the agreement, part of the promised funding is yet to be released.

In 2013, at COP19, the Warsaw International Mechanism for Loss and Damage associated with climate change impacts was instituted. The proposal was advanced by the G77 countries and China but ended up being watered down, with no financial mechanism agreed. The Paris Agreement was the first to separate loss and damage from adaptation, in Article 8, but the principle was only expressed in the abstract and remained unmentioned even in the 2021 Glasgow Climate Pact.

What was decided on loss and damage at COP27?

The matter thus appeared several times in negotiations over the past thirty years, but no formal commitments had ever been made. The historic step was made during the last, frenzied hours of COP27 and it’s no coincidence that such a measure was adopted at a Conference that took place in Egypt and was dubbed the African COP by its president, Sameh Shoukry.

For now, the agreement only established the creation of a loss and damage fund within the framework of the Paris Agreement. However, it is not clear who will provide the funding, who will manage the fund, how much money will be available, to whom, and with what conditions. A dedicated 24-country Transition Committee, with 14 lower-income countries represented, has been tasked with defining a taxonomy of loss and damage eligible for compensation. The Committee has very limited time to resolve these questions because the fund must be operational by the time COP28 is held in Dubai in 2023.

The rift between wealthy and lower-income countries

The profound divisions between wealthy and lower-income countries were apparent at COP27, with the latter concertedly demanding a fund that could provide financing quickly, as soon as the need would arise due to a natural disaster. The former, meanwhile, led by the European Union and the United States, would have preferred to use existing instruments and financial institutions, instead of creating a new one. On the morning of 18 November, the vice president of the European Commission Frans Timmermans announced an unexpected change of direction. The Union would support setting up a new fund.

To make such a financial instrument possible, however, the base of donor countries would have to be expanded to include even those countries that in 1992, when the UNFCCC was founded, had been exonerated from financial obligations in terms of emissions because they were classed as developing. First among these is China, which, according to the Guardian, still has the support of the 134 members of the G77 bloc of developing countries.

The core problem, also noted by United Nations Secretary-General António Guterres, lies in the fact that developing countries feel betrayed, for many reasons. Because the Green Climate Fund set up in 2009 never fully worked, because in the last two years they have received only the scraps of the massive measures to combat the pandemic (in terms of both vaccines and financing), because they are also in the grips of a severe energy crisis. Despite all this, no one has ever considered lightening their foreign debt.

The catastrophic flooding that struck Pakistan between September and October 2022 only reinforced this conviction and, most likely, was among the factors that contributed to an agreement being reached. 33 million people affected, 1,500 deaths, damages estimated at 40 billion dollars. All of this in a country that is responsible for just 0.28 per cent of historic CO2 emissions.

Will China be a contributor or a beneficiary of the fund?

China’s position is the most uncertain. The choices made in this regard might determine the success or failure of the loss and damage fund. The data tell us that in 2021, the country emitted 11.47 billion tonnes of CO2, compared to the European Union’s 2.79 and the United States’s 5.01. Looking at per-capita emissions, however, the US storms back to first place, with 14.86 tonnes of CO2 for every one of its citizens, compared to 8.05 for every Chinese individual. The latter figure is similar to that of other developing economies, like Turkey and Iran, and to many European countries, like Italy.

Formally, China is a developing economy and insists on still being considered as such. Even during COP27, China’s special climate envoy Xie Zhenhua stated that his country has no obligation to contribute to the fund, despite being committed to supporting lower-income countries. The United States believes the opposite.

How much money is needed and who will provide it

Thus, at the moment, there are still no certainties about how the fund will operate. Firstly, damages must be estimated. A report drafted by 55 vulnerable countries quantifies them at 525 billion dollars over the past two decades, equal to 20 per cent of their cumulative GDP.

Several suggestions have been set forth about who should pay, and how. Barbados prime minister Mia Mottley stated at COP27 that oil companies should be faced with their responsibilities. In her speech, she asked this question: “How do companies make 200 billion dollars in profits in the last 3 months and not expect to contribute at least ten cents in every dollar of profit to a loss and damage fund?”

Once the subjects responsible for supplying the funds and those who will receive them have been established, a managing body must also be set up to define, concretely, when and how the payments are to be made. One possibility, also supported by the Italian government, is to set up a sort of insurance fund.

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