The Breakthrough Agreement on Loss & Damage Finance Facility at COP27

Feb 26

Authored By: Isabel de Kiewit & Tonichi Regalado

Edited By: Hailey Campbell

The fundamental principle guiding international climate politics is that countries that grew wealthy by emitting greenhouse gasses have an obligation to reduce emissions more quickly than those that emit less. It’s particularly well-known that richer countries, usually in the global north, are historically the biggest contributors to global emissions. However, greenhouse gasses don’t limit themselves to national borders; the global climate is affected by emissions everywhere.

Nations that are least responsible for the historical emissions of greenhouse gasses tend to be the world’s most climate-vulnerable countries. These nations, especially small island states, are constantly preparing for slow-onset events like sea-level rise, land subsidence, probable relocation, and resource insecurity in addition to extreme weather events including more frequent and violent typhoons, floods, and droughts.

Such climate-related disasters can result in unrecoverable economic, physical, social, and environmental losses and damages, such as loss of life and beaches. While “loss and damage” (L&D) has no strict definition yet, in the context of the Paris Agreement, it is generally used in the UN climate negotiations to refer to the consequences of climate change that go beyond what people and the environment can adapt to.

It has been estimated that by 2030, vulnerable countries will need $2 trillion per year to cope with climate-related losses and damages. After contentious and overtime negotiations, the long-awaited Loss and Damage Fund for countries vulnerable to climate disasters established at COP27 is the first step in tackling this problem. Though textually established, a lot of questions still remain around how it will function as well as exactly how much money wealthier nations will provide to the vulnerable.

Climate Injustice and Loss and Damage

At its core, Loss and Damage is a real-world application for climate justice. Climate-vulnerable countries, mainly located in the Global South, experience the direct impacts of the climate crisis while contributing the least to global emissions.

Take for example how in 2019, the US produced 19% of global CO₂ emissions compared to Africa’s 3.8%. Or how in Pakistan, which contributes to about 1%, the communities are still reeling from ravaging floods brought about by intensified rainfall, leaving a third of the country’s population virtually underwater, 4 million acres of farmland damaged, and 1700 inhabitants dead. In the Philippines, extreme weather events and destructive supertyphoons have decimated coastal communities and have reaped untold damage to local government systems - all in a country that contributes 0.35% of global emissions.

When you stack those up against the US and the EU’s combined historical 42% - well, it doesn’t take much to see that it isn’t a fair shake.

The lives and livelihoods of those affected have been destroyed by the very worst impacts resulting from climate change. However, amid the growing number of voices both in and out of the negotiations, a decision on loss and damage was adopted at COP27. Although there are still a lot of issues to work out, the importance of this development shouldn’t be underestimated.

COP27 and the Loss & Damage Fund

For nearly 30 years, vulnerable countries have called for financial assistance to help deal with the most severe effects of climate change but developed nations have consistently refused to provide it. Relentless political will from small island and climate-vulnerable nations first cracked a hole in the wall of resistance at COP26 in 2021 when a two-year Dialogue to talk about Loss and Damage funding arrangements was established.

After the UN climate negotiations in Bonn (SB56) in July 2022, developing nations expressed their concerns that the dialogue itself felt like it wasn’t a part of the formal procedure; instead, it was described as a side-conversation. The major lack of resolution for holding richer countries accountable, lack of progress in dialogues, and recent climate disasters, put Loss and Damage in the spotlight at COP27 in Sharm-El Sheikh, Egypt in 2022. Before COP27 even began, Egypt, this year’s host country, emphasized the need for progress on the loss and damage financing debate.

Achieving the creation of the Loss and Damage Fund was an uphill battle from the start. Despite global calls for action on Loss and Damage, it wasn’t until just a few days before the negotiations started that countries agreed on including Loss and Damage on the official agenda. In the first week, seven developed countries – Scotland, Austria, Germany, Belgium, the UK, New Zealand, and Canada – pledged to prevent the creation of the special fund. With negotiations extending into the early morning hours of the night and overtime into the second weekend of the Conference, the outlook for an agreement on Loss and Damage looked grim. Thanks to relentless efforts from small island states and climate-vulnerable countries combined with the power of civil society, COP27 ended with a turn in the tides on loss and damage.

By the end of the conference, there was a major breakthrough agreement in which countries formally acknowledged that currently existing loss and damage funding arrangements are insufficient. They agreed on the “urgent and immediate need for new, additional, predictable and adequate financial resources to assist developing countries that are particularly vulnerable to the adverse effects of climate change.” The new agreement consists of two related matters; the establishment of a fund and the establishment of new funding arrangements. Countries have also come to an agreement regarding the institutional arrangements for the operationalization of the Santiago Network for Loss and Damage, which will provide technical assistance to developing nations particularly vulnerable to climate change.

Future Expectations

Though COP27 saw the breakthrough agreement of a finance facility, there are more questions than answers regarding the details of how the fund will operate. Ultimately, it’s important for the fund to be accessible rather than reactive or in the form of humanitarian aid that often falls short of what’s needed to avoid loss of life and empower building back better following climate disasters. Loss and Damage is about anticipated financing that ensure vulnerable communities do not have to continuously endure the same misfortune over and over again.

Countries have until COP28 in Dubai to iron out all the details of the finance facility. This will include reaching a consensus on who pays, who receives funding, and what types of Loss and Damages will be eligible for funding. One significant hurdle is deciding whether high-cumulative emitting countries, like India and China, will be included in those who should provide funding. Recognizing that developed countries have continuously failed to deliver $100 billion a year for climate finance, which isn’t even enough to cover the current global damage, it will be interesting to see how countries will deliver on the funding.

As the world is still alarmingly far from meeting the 1.5 degree goal of the Paris Agreement, the next few years will serve as proof of concept for climate justice. Immediate and collective action to decrease global emissions is critical in preventing and limiting future destruction for the most vulnerable communities. The Loss and Damage at COP27 victory was a welcome outcome, but there’s still much to look out for and significantly more action we are looking forward to in the next year.

Resources

COP27ReflectionsClimate ActivismAdvocacyClimate Justice

Care About Climate

The Breakthrough Agreement on Loss & Damage Finance Facility at COP27

COP27: Largely Excluded from Negotiations, Women Got Together at the Panels to Share Solutions

Reflections From COP27 in Sharm El-Sheikh, Egypt