Who will cover the cost of climate-related “loss and damage?”

SHARM EL-SHEIKH: After decades of resistance from wealthy nations whose historic emissions have fueled climate change, the COP27 summit of nearly 200 countries agreed on Sunday to set up a “loss and damage” fund to support poorer countries being ravaged by climate impacts.

Sherry Rehman, the climate minister of Pakistan, praised the historic decision as “a downpayment on climate justice” after she helped lead the campaign by developing nations to win the commitment at the two-week UN summit in Egypt.

However, the agreement leaves a number of important questions, such as who will pay into and who will receive the fund, open for resolution in the following year and beyond.

The essentials of the contract are as follows:

To what extent do we suffer “loss and damage?”
The term “loss and damage” is used in UN climate talks to describe financial losses caused by climate-related weather extremes or impacts, such as rising sea levels.

About a third of climate funding has gone toward projects to help communities adapt to future impacts, but most of this money has gone toward efforts to cut carbon dioxide emissions to slow global warming.

Funding for loss and damage is distinct because it is meant to compensate for losses that countries cannot prevent or mitigate on their own.

Damage to infrastructure and private property, as well as natural ecosystems and cultural artifacts that are more difficult to put a price on, may qualify as “loss and damage” due to climate change, but there is no consensus yet on what should be included in this category.

Five-hundred-and-twenty countries that are particularly vulnerable to climate change released a report estimating that their combined losses from the last two decades totaled $525 billion. By 2030, these losses could cost an estimated $580 billion annually, according to some studies.

Which party is responsible for footing the bill, exactly?
Historically, vulnerable nations and their allies in the climate justice movement have argued that the rich nations whose greenhouse gas emissions are responsible for the bulk of climate change should bear the financial costs of adaptation.

Before the COP27 summit, the United States and European Union had resisted the argument out of concern for rising liabilities. The European Union (EU) has argued that China, the world’s second-largest economy but still considered a developing country by the United Nations (UN), should contribute to it.

Denmark, Belgium, Germany, Scotland, and the European Union have all made token contributions to cover losses and damages. China has not committed any payment.

Some existing UN and development bank funding does help states facing loss and damage, though it is not officially earmarked for that goal.

Also remaining to be worked out are the details on which countries or disasters qualify for compensation.

What does the COP27 agreement say?
The fund agreed at the UN summit in Egypt will be aimed at helping developing countries that are “particularly vulnerable” to climate change, a language wanted by wealthy nations to ensure the money goes to the most urgent cases while also limiting the pool of potential recipients.

The deal lays out a roadmap for future decision-making, with recommendations to be made at next year’s UN climate summit for decisions including who would oversee the fund, how the money would be dispersed – and to whom.

The agreement calls for the funds to come from a variety of existing sources, including financial institutions, rather than relying on rich nations to pay in.

Some countries have suggested other existing funds could also be a source of cash, although some experts say issues like long delays make those funds unsuitable for addressing loss and damage.

Other ideas include UN Secretary-General Antonio Guterres’s call for a windfall profit tax on fossil fuel companies to raise funding.