Smoke and Mirrors: COP27 and The Agreement on Loss and Damage Funding

Read Time:7 Minute, 11 Second

Ishani Srivastava

Edited by David Forner

At the 27th Conference of the Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC), negotiations ended with an agreement to set up a global fund to aid vulnerable developing countries dealing with “loss and damage,” consequences of climate crises that go beyond the affected community’s ability to adapt. The deal has widely been touted as a “potential turning point” and a “ground-breaking decision,” especially in Western media. However, a closer look reveals several reasons to temper this optimism.

The notion of climate change-driven loss and damage has been an element of intergovernmental climate change negotiations since they first started around 30 years ago. It is based on a fairly straightforward premise that most developing countries are concentrated in the world’s tropical regions, making them the most exposed to the impacts of climate change, and are concurrently the least equipped in terms of institutional and financial capacity to effectively manage these impacts. Yet most developed countries have consistently pushed back against recognizing vulnerable countries’ right to loss and damage funding, worrying that they might be held legally liable for the impacts of their historic greenhouse gas emissions. Furthermore, climate change has been framed as an impending crisis rather than an ongoing crisis with serious impacts, and the spotlight has remained firmly on mitigation efforts – such as those to reduce greenhouse gas emissions – and more recently on climate adaptation measures. As a result, negotiations to even acknowledge loss and damage have been tortuously slow and meandering, peppered with apparent breakthroughs over the years that have ended up leading nowhere.

A proposal to address climate-related loss and damage for the most vulnerable UNFCCC Parties was first submitted in 1991 by Vanuatu on behalf of the Alliance of Small Island States (AOSIS) but was not accepted at the time.

It took 16 years for the issue to be recognized in the Bali Action Plan, adopted at COP13 in 2007, which included for the first time a mandate to “consider means to address loss and damage.” Three years later, the UNFCCC’s key agency for analysis, assessment, and review, the Subsidiary Body for Implementation (SBI), established a vertical called “work program on loss and damage. This vertical was tasked with making recommendations for setting up a mechanism for climate risk insurance, measures for resilience-building, and approaches for climate disaster rehabilitation. However, there was no follow-up on these efforts over the following years.

In 2013, the UNFCCC established a new entity called the Warsaw International Mechanism (WIM) to “promote implementation of approaches to address loss and damage associated with the adverse effects of climate change.” The role of the Executive Committee (Excom) of the WIM included “implementing approaches to manage when limits to adaptation are crossed.” Many welcomed this move, hoping that it indicated renewed interest and genuine political will in addressing loss and damage. In 2015, the topic of loss and damage was anchored in Article 8 of the Paris Climate Agreement, albeit with a clarification that it “does not involve or provide a basis for any liability or compensation.” This, too, turned out to be all optics and no substance.

The WIM busied itself with writing reports for the next few years, and no concrete steps were taken toward setting up a loss and damages fund of any kind. In 2016, the UNFCCC Standing Committee on Finance (SCF) – a body involved in the measurement, reporting, and verification of financial support mechanisms within the UNFCCC framework – held its annual forum on “Financial instruments that address the risks of loss and damage” at the request of the WIM Excom. In 2019, the UNFCCC Secretariat prepared another report, a technical paper titled “Elaboration of the sources of and modalities for accessing financial support for addressing loss and damage.”

Behind all this paperwork stood a house of cards; by the end of COP25 in late 2019, there was no agreement in place that detailed basic governance arrangements for the WIM. Developing countries argued that the WIM should operate under both the UNFCCC, whereby the Mechanism had originally been established and the Conference of the Meeting of the Parties (CMP) to the Paris Agreement. In contrast, developed countries argued to relegate it from the main UNFCCC umbrella, wanting that it should be governed only by the Paris Agreement CMP. At COP26, an agreement continued to prove elusive as the two sides remained entrenched in their positions.

COP27 took place amidst a perfect storm: the year had seen a series of extreme weather events, and the issue of climate disasters was at the forefront of the public discourse around climate change. Pakistan, which had been hit by devastating floods earlier that year following an erratic monsoon, led the bloc of 134 developing countries in a renewed push to operationalize funding mechanisms, the ideas for which had been languishing for a full 10 years under the WIM framework. While developed countries were hesitant to put the focus on loss and damage, they were aware of the big interest in this topic by developing countries, and in the very last minutes of negotiations, an agreement was reached to set up a fund for loss and damage. Several developed countries, including Belgium, Ireland, Canada, and New Zealand, made financial pledges targeting loss and damage. Nonetheless, some of these funds were diverted from existing climate finance and development cooperation commitments rather than commitments to provide additional funding.

While decisions could not be reached on the fund’s primary target countries or sources of funding, negotiations on these topics will resume in 2023. In the meantime, a transitional committee made up of 14 developing countries and 10 developed countries has been tasked with establishing governance arrangements for the fund – in particular, deciding whether the fund will be established under the financial mechanism of the UNFCCC – as well as exploring potential innovative sources for additional funding.

The agreement reached at COP27 is certainly a positive breakthrough, but one must exercise caution before proclaiming it an end to the long-running logjam of loss and damage negotiations. Several major hurdles remain before the proposed fund can come close to operationalization.

For one, the United States and the European Union are pushing for assurances that China will eventually contribute to any fund created, as well as that China would not be eligible to receive money from it. The United Nations currently classifies China as a developing country, and China has fiercely resisted being treated as a developed nation in global climate talks.

Second, there is no guarantee that wealthy countries will actually deposit money into the loss and damages fund. Over a decade ago, at COP15, wealthy emitters had pledged to mobilize climate finance to the tune of $100 billion per year by 2020. However, they continue to fall short of these pledges by tens of billions of dollars annually.

Mohammed Mahmoud, Director of the Climate and Water Program at the Middle East Institute, says, “The modus operandi for climate negotiations has been voluntary obligations. It’s led us to a place where we’re measuring milestones in terms of commitments and proclamations rather than operationalization. We’re focusing too much on the optics, kicking the can down the road and buying time.”

Lastly, while diplomats have agreed to create a fund, money will eventually have to be appropriated by legislatures in most countries. This is expected to be especially contentious in countries like the United States, where climate change remains a politically charged issue. Sen. John Barrasso (R-Wyo.), Chair of the Senate Republican Conference and former Chair of the Senate Environment Committee, said, “Sending U.S. taxpayer dollars to a U.N.-sponsored green slush fund is completely misguided. The Biden administration should focus on lowering spending at home, not shipping money to the U.N. for new climate deals. Innovation, not reparations, is key to fighting climate change.”

Mahmoud continues, “Things have reached a tipping point where I’m fairly optimistic that the requisite governance structures will be put in place over the next few months. However, the real pressure point is funding. For the governance to work, you need to have cooperation, collaboration, and information from the funding nations.”

If funding for loss and damage is not guaranteed to vulnerable developing countries, chances decrease that the world can unite on the already-difficult path to reduce emissions. Some climate finance experts argue that continued disagreement could lead to the loss of hard-won ground on major climate deals. Without consensus and compromise, several developing countries may be prepared to walk out of future climate negotiations altogether.