What's the plan for a UN climate loss and damage fund?

Megan Rowling - As communities in countries rich and poor face soaring costs from extreme weather and rising seas, governments are due to launch a new U.N. fund to tackle "loss and damage" driven by global warming at this December's COP28 summit in Dubai.

The issue was hotly debated at successive UN climate conferences, as wealthy nations rejected demands to pay compensation for the impacts of their high historical share of the planet-heating emissions that are turbo-charging heatwaves, floods, droughts and storms around the world.

However, at the COP27 climate summit in Egypt last November, a group of 134 African, Asian and Latin American states and small island nations finally won agreement on a new fund that will pay to repair devastated property, relocate threatened communities or preserve cultural heritage before it vanishes.

But the details of where the money will come from and how it will be disbursed were left to be worked out by this December's COP28 UN climate conference in Dubai.

In early November, a committee tasked with deciding how to design and manage the fund overcame deep divisions between developed and developing nations to agree on a set of recommendations that governments still need to approve at COP28.

Climate policy experts had warned that failure to deliver a new loss and damage fund in Dubai would threaten wider progress on climate action at the summit, which starts on 30 November.

Here's why the issue of "loss and damage" has grown in importance this past decade - and where the sticking points in finding finance to address it could lie.



‘Loss and damage’

"Loss and damage" refers to the physical and mental harm that happens to people and places when they are not prepared for climate-driven impacts, and cannot adjust how they live to protect themselves from bigger threats and longer-term shifts.

It can occur both from fast-moving weather disasters made stronger or more frequent by warming temperatures - such as floods or hurricanes - as well as from slower-developing stresses like persistent drought and sea levels creeping higher.

A large share of "loss and damage" can be measured in financial terms, like the cost of wrecked homes and infrastructure.

But there are other non-economic losses that are harder to quantify, such as graveyards and family photos being washed away, or Indigenous cultures that could disappear if a whole community has to move because its land is no longer habitable.

A June 2022 report released by a forum of 55 climate-vulnerable countries - from Bangladesh to South Sudan - found they would have been 20% wealthier had it not been for climate change and the US$525 billion in losses inflicted on them by shifts in temperature and rainfall over the past two decades.

Often the poorest people lack the means to recover what they have lost, particularly as aid fails to keep up with growing needs, as seen in 2022 with Pakistan's huge floods, or the drought that left tens of millions hungry in the Horn of Africa.



Funding

So far there has been very little money available apart from aid provided through the international humanitarian system to respond to disasters - which every year faces shortfalls.

A 2022 study by anti-poverty charity Oxfam found that aid needs in response to weather disasters had jumped more than eightfold in the last 20 years.

But UN-coordinated appeals to meet emergency needs are, on average, only 60% funded.

"There is not enough money for humanitarian action - even to do the first-phase response [to disasters], never mind the preparedness, resilience [and] longer-term early recovery piece," said Debbie Hillier, who manages flood resilience programmes for Mercy Corps.

According to a 2018 study by researchers at the Basque Centre for Climate Change, the costs of loss and damage in low- and middle-income countries could reach between US$290 billion and US$580 billion a year by 2030.

But rich countries are already struggling to meet a goal to channel US$100 billion annually to vulnerable countries for reducing emissions and adapting to climate change.

Some donor governments, including a few in Europe, Canada and New Zealand, have agreed to provide loss and damage funding to poorer nations - although so far, their pledges total only about US$275 million, while developing countries have proposed the new fund should programme at least US$100 billion by 2030.



Innovative sources

Given this, climate justice activists have long argued for the need to find innovative sources for loss and damage funding, based on levies and taxation.

Those include a controversial proposal - backed by the UN chief - for rich governments to tax the windfall profits of fossil fuel companies.

Other ideas that have gained ground include levying a small fee on international flights - which contribute to climate-heating emissions - and a global tax on financial market transactions, which could be distributed by the new fund.

The most concrete loss and damage funding scheme so far, the "Global Shield Against Climate Risks", aims to boost insurance coverage for vulnerable countries and communities, attracting about US$200 million at its COP27 launch, largely from Germany.

It will expand initiatives - from subsidised insurance coverage to stronger social protection schemes and pre-approved emergency financing – that can swiftly channel support to disaster-hit poorer countries' own contingency plans.

But many climate campaigners say insurance cannot be a lasting answer, with losses expected to soar and even become uninsurable as climate disasters intensify.



Obstacles

A "transitional committee" met regularly this year to work out the form and scope of the new loss and damage fund, and how to fill its coffers, but struggled to agree on a plan.

The 24-member committee was divided over whether the fund should be hosted by the World Bank, as proposed by the United States backed by other rich nations.

Developing nations argued this would tip the balance of power towards wealthy governments, which dominate at the bank, and make it hard for them to tap into the funding.

Developing countries had preferred an independent fund that sets its own rules, or one housed at a UN agency.

But in November the committee made a last-ditch attempt at a compromise, agreeing that the fund could be hosted by the World Bank for its first four years, with conditions to ensure it serves the needs of particularly vulnerable developing nations.



Recommendations

While climate justice campaigners expressed concern at the outcome, the committee issued a text on governing the fund's operations which countries will be asked to adopt at COP28.

The talks on the fund were also beset by a row over where its resources should come from, with some wealthy nations - notably the United States - pushing back against pressure to be the main donors and arguing that emerging economies whose emissions are now among the largest should contribute too.

The committee's recommendations say developed countries should lead with pledges to get the fund up and running, but that it will be able to receive contributions from a wide variety of funders, including private and innovative sources.

A 2023 report by the Zurich Flood Resilience Alliance urged donors not to re-label their disaster aid as loss and damage funding, and to find new sources of additional finance.

It also stressed the need to use existing systems to deliver loss and damage funding fast, find ways to get money to fragile and conflict-hit states, and work with groups on the ground. – Thomson Reuters Foundation