COP27 falls short on Loss and Damage funding

We are soon headed towards the closure of the Climate Change Conference (COP27) in Sharm el-Sheikh, Egypt. The Conference began with high expectations to see actions on the ground and transition away from political rhetoric, negotiations, and endless planning. Egypt’s COP27 presidency vision statement clearly emphasised rapidly moving towards full, timely, inclusive, and at-scale action.

There was much talk about picking up on some crucial areas that remained inconclusive in the Glasgow Climate Pact, which was the outcome of COP26 in 2021.

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One of these crucial issues includes specificities on “Loss and Damage” (L&D) and its financing so that vulnerable countries can deal with the consequences of climate change that are beyond what they can adapt to. Earlier this week, many countries pledged added support to the Global Environment Facility (GEF) by announcing a total of $105.6 million in new funding for the Least Developed Countries Fund (LDCF) and Special Climate Change Fund (SCCF), which target the immediate climate adaptation needs of low-lying and climate-vulnerable countries.

However, a week and a half into the conference, nothing has been delivered on L&D.

The question of what to really consider under L&D—impacts that some vulnerable countries face today, climate risks in the future, or both—is complicated. There are varying views on L&D, with very little scope for convergence.

There is general agreement that L&D refers to the climate-related impacts and risks, which include both sudden-onset events like floods and cyclones and slow-onset processes like sea-level rise, glacial retreat, and desertification. It is also the case that climate impacts and risks are discussed in the contexts of developing and vulnerable countries and include both economic losses (for example, loss of cattle, crops, and assets) and non-economic losses (for example, loss of biodiversity or cultural heritage, forced displacement, loss of identity and health, etc.).

However, one of the most crucial challenges is the inadequate science of valuing and accounting for non-economic losses. Many L&Ds are overlooked or omitted because they cannot be quantified.

Further, the science of valuation is inadequate as it does not fully account for non-economic losses. What also remains controversial in the discourse is assessing to what extent L&D are specifically attributable to human-induced climate change. The financing and transfer policies of L&D and their distinctiveness from adaptation policy and practice, remain particularly contested.

The Way Forward

There is a need for a comprehensive and official definition of L&D by the United Nations Framework Convention on Climate Change (UNFCCC) and to establish a position that represents L&D as the third pillar of climate action, mitigation and adaptation being the first two. This will pave the way for a detailed discussion around the financial compensation mechanism as well as the fundamental question of designing methodologies that would account for non-economic losses.

Second, COP27 should abort the politics of deliberate policy ambiguity, citing confusions on the temporal aspects of L&D. It is no longer about unavoidable losses or existential risks in the future; they are a reality now. There are many clear-cut examples, like the recent flooding seen in Pakistan.

Third, there is a need to aggressively push for financing L&D, distinct from climate adaptation funds. The creation of an L&D fund will directly address the losses to communities from climate change catastrophes such as floods and droughts. For example, an L&D fund can be used for infrastructure rebuilding, cash transfers, and humanitarian aid while also serving as a way of compensating for non-economic losses. Creating new innovative funding schemes such as climate risk insurance, climate bonds, disaster relief or contingency funds, a carbon tax, and redirecting fossil fuel subsidies are other viable ways to finance L&D.

Currently, there is a huge gap between the funding required for L&D resulting from climate change and the funding available. The developed world has not kept their promise of $100 billion in climate finance for low-income and vulnerable countries. As we come to the close of COP27, countries must address the elephant in the room and initiate a formal process of creating an L&D fund that would assist the countries most vulnerable to climate change in relief and rehabilitation.

(The writers teach Economics at Azim Premji University, Bengaluru.)