Three ideas on the Loss and Damage Fund

Financing appears to be flowing into the Loss and Damage Fund. Placed on the agenda at CoP27 in Egypt, it aims to help developing countries meet the costs of the increasing damages caused by climate change.   

EU member states, Japan, the United Arab Emirates, the UK, Norway and Canada have to date collectively pledged around $769 million, according to the tally maintained by the Loss and Damage Collaboration. Developing countries expect more will follow and have accepted that, for now, the Fund will be hosted by the World Bank. The World Bank’s hosting fees – reported to be 17% of the total value to the Fund - is another topic for discussion.  

What is less talked about - and still to be decided - is how the Fund will be designed. Loss and damage is about the unavoidable consequences of climate change – prolonged heatwaves, desertification, ocean acidification, species extinction, to name just a few - that are directly affecting hunger. If the Fund disburses on a “trigger-based mechanism” following claims in the immediate wake of extreme weather events, where is its additionality? Is emergency humanitarian aid not best placed to respond to these circumstances?  Instead, shouldn’t the Fund spend on medium and longer-term resilience building and better preparedness and adaptation?  Land degradation neutrality, for example, urgently merits financing.  

There is also the question of how much money countries will be able to claim from the Fund. Should it be determined by vulnerability or by attribution of science-based evidence on how climate change is affecting the severity of the problem. Determining claims based on attribution science is problematic. Developing countries will find it extremely difficult to prove that a catastrophe is directly caused by climate change and richer nations will not want to be held liable for losses.   

Anticipation also mounts on the instruments. Will the Fund use traditional grants and cheap loans for social protection? Or will it dish out contingency money for emergency preparedness? Will it work through catastrophe insurance and catastrophe bonds?  The EU is studying options on windfall taxes on energy companies while others tout international carbon taxes and, perhaps, even debt- for loss-and-damage swaps.  The Shamba Centre has argued that indebted countries must do more to build their institutional strength to administer the proceeds of these swaps. Increasing proportions of sovereign debt today are held by private creditors who will not tolerate the mismanagement of proceeds.  

The Shamba Centre raises three additional points for discussion: 

1. All nations, both rich and poor, that produce and earn revenue from fossil fuels must contribute to the Fund.   
2. The Fund must be ringfenced and managed by an existing public fund under a given mandate. Taxpayers’ money must not be spent on setting up another institution that might not be fit for purpose. 
3. A part of the Fund is designed as a results-based or an outcome-based payment. All countries will then have skin in the game to mitigate, adapt and prepare.  

In reality, we are already living through global warming of 1.2 degrees.  Desperate times call for desperate solutions. The Loss and Damage Fund must indeed, be a solution.