Negotiations at the 28th meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) in Dubai, UAE, wrapped up early last week. Much has been written about the “UAE Consensus” that was adopted on the final day of COP28 and met with mixed reviews. There was, however, an important decision reached on day one of the two-week meeting regarding operationalization of the Loss and Damage Fund. While the decision represents an important–and long overdue–step forward, there remains much work to be done.
While there is no formal UN definition of loss and damage, it is generally understood to encapsulate climate change impacts that cannot be addressed by mitigation or adaptation efforts. For developing countries and small island states, the consequences of stronger storms, rising sea levels, increasing temperatures and other climate-related phenomena will be difficult to endure, and the countries who will likely suffer the most are often the least responsible for climate change. The concept of a Loss and Damage Fund through which Parties provide monetary aid to those in need implicitly acknowledges this inequity.
Despite the fact that countries are already suffering losses due to climate change, the road to a Loss and Damage Fund has been relatively long. The formal concept of Loss and Damage originated in 2013 at COP19 in Warsaw, Poland, with the establishment of the Warsaw International Mechanism for Loss and Damage (WIM). WIM is the constituted body created to “address loss and damage associated with impacts of climate change, including extreme events and slow onset events, in developing countries that are particularly vulnerable to the adverse effects of climate change.” In 2019, at COP25 in Madrid, Spain, Parties established the technical arm of WIM, the Santiago Network, to catalyze technical assistance for loss and damage. In 2021, at COP26 in Glasgow, Scotland, in response to increasing calls for financing, the Glasgow Dialogue was established to facilitate discussions surrounding the funding of loss and damage activities. The following year at COP27 in Sharm El Sheikh, Egypt, Parties agreed to establish a Loss and Damage fund and a Transitional Committee to make recommendations for operationalization at COP28. The Transitional Committee met five times in 2023 prior to submitting a report to the COP for consideration.
A decade after its first introduction, Parties finally operationalized the Loss and Damage Fund on the first day of COP28. During the opening plenary, the COP adopted a decision (FCCC/CP/2023/L.1) based on the recommendations of the Transitional Committee. Key elements of the decision included the creation of a new and independent secretariat and governing board, the designation of the World Bank as interim trustee and fund host for a four-year period, and the approval of the Governing Instrument of the fund which provides factors to be considered in allocating resources. In the same session where the decision was adopted, several Parties made notable funding pledges including $100 million from the UAE, $100 million from Germany, £60 million from the UK, $17.5 million from the US pending Congressional approval, $10 million from Japan, and €225 million from the EU.
Operationalizing the loss and damage fund is a major breakthrough and, given its quick completion on the first day of COP28, it has been the focus of much positive press. However, it is important to acknowledge the weaknesses of the loss and damage decision as well. Developing countries have expressed doubts regarding both the long-term financing of the fund as well as the World Bank’s role as interim trustee.
On the decision to use the World Bank as interim fund host for a period of four years, at COP27 proponents included the US and EU who argued that using a pre-existing trustee would allow for immediate operationalization of the Fund, while opponents included the G77 and China Group who argued for an independent, stand-alone fund free from any bias. In the eyes of the delegates of some developing countries on the ground at COP28, the World Bank has a history of charging unjust interest on loans to developing countries, which is not a novel critique. Moreover, the six largest World Bank shareholders are the US, Japan, China, Germany, the UK, and France, which does not necessarily create the impression of impartiality—68 organizations sent a letter opposing the World Bank selection on these grounds.
At a COP28 side event entitled, “Minimizing and Addressing Loss and Damage with Locally Led Adaptation and Risk-Transfer Financing Solutions,” hosted by the Joint Sustainable Development Goals (SDG) Fund, panelists acknowledged these critiques of the World Bank and pointed to the independence of the loss and damage board as a means for small island and developing country delegations to provide oversight over the World Bank’s role in the Loss and Damage Fund.
When it comes to long-term financing, while the pledges of numerous donor Parties made headlines at COP28, the reality is that these are one-time donations that will eventually run out, yet there is no expiration date for the climate change-induced losses suffered by developing countries. This problem was the topic of conversation amongst delegates on the ground and potential solutions to the lack of permanent funding were discussed at multiple side events, including “International Climate Solidarity Levies: Innovative Funding Source for the New Loss and Damage Response Fund” hosted by the International Centre for Climate Change and Development, Innovative Finance Foundation, and Oxford Climate Policy, which advocated for national taxes imposed on aviation as a source of Loss and Damage funding. At the previously mentioned Joint SDG Fund event, a tax on aviation fuel and insurance were among possible solutions floated as well. We may see calls to establish a replenishment cycle and/or a long-term funding source from Parties and advocates in the coming weeks, and climate finance in general is likely to take center stage at COP29 next year.
In sum, operationalizing the Loss and Damage Fund is a key step in providing developing countries with the necessary support as the impacts of climate change become increasingly dire, but further steps are needed to ensure the longevity and effectiveness of this fund. While it is important to celebrate wins in the COP consensus process, it is equally important to remember that we are just getting started.
Emma Shumway is the Climate Justice Fellow at the Sabin Center for Climate Change Law at Columbia Law School.
