Existing challenges: What after the first meeting of the “Loss and Damage Fund” committee after – COP27

Prepare: Mona Gamal Sholqamy – Bachelor’s degree in political sciences from Beni Suef University, specializing in political affairs

Democratic Arabic Center

The first meetings of the committee responsible for examining the details of establishing the “Loss and Damage Financing” Fund, which was approved at the Twenty-Seventh Conference of the Parties (COP27) in Sharm El-Sheikh, were held in the period 27-29 March 2023. During which it was agreed that a transitional committee consisting of 24 members (14 members from developing countries and 10 from developed countries) would develop a specific definition of losses and damages, as well as details of construction and sources of financing, and that the committee would hold three meetings throughout the year to discuss these details, with Providing clear recommendations for adoption at COP28, which will be held in the UAE, as well as workshops to discuss how to activate the Fund’s work and the issue of financing.

Current status of “Loss and Damage” financing

The issue of “loss and damage” was one of the main issues discussed at “COP27”, although this issue was in dispute before the adoption of the United Nations Framework Convention on Climate Change in 1992. The issue of loss and damage is fundamental to achieving climate justice. Especially since developing countries bear the greatest burden of the effects of climate change.

Hence, there was a strong push on the part of Egypt for the necessity of recognizing the losses and damages and establishing a fund to finance them at the COP27 climate summit, which was actually achieved, but so far no agreement has been reached on determining who will finance it, who will benefit from the financing, and what its form will be. This financing. Many proposals have been made regarding financing this fund. In September 2022, the Secretary-General of the United Nations, António Guterres, proposed imposing a tax on fossil fuel companies located in developed countries for the benefit of countries affected by climate change.

Although there is international recognition of the issue of loss and damage, as well as the issues of adaptation and mitigation of climate change, these discussions will be the most difficult during the upcoming meetings. Due to several reasons, including: the lack of a specific definition of loss and damage, and there is no dividing line between funding to address loss and damage and providing humanitarian aid.

While these two things overlap, they are not the same; Humanitarian aid is essentially a reaction to an event, while addressing loss and damage is taking proactive measures or responding immediately. To distinguish between the two, a specific definition of addressing loss and damage must be developed. But it is expected that discussions may focus more on supporting affected countries through resource mobilization in the case of humanitarian aid.

With the lack of an agreed upon definition and the lack of identification of activities that fall under the heading of loss and damage, it is difficult to determine sources of funding. During the COP27 climate summit, countries agreed to create a new fund to address losses and damages. An IPCC report issued in March 2022 showed that about 24% of all approved GCF projects indirectly reference loss and damage, while a subset of 16% of all projects explicitly reference loss and damage. In its 2020 annual report, the Green Climate Fund highlighted: its support for combating sea level rise, weather index-based agricultural insurance, and addressing non-economic losses, such as restoring wetlands for ecosystem services.

Challenges presented

First: Type of fund

The committee must determine what type the loss and damage fund should be, and there are options such as: the gap fund, the incentive fund, or the mixed model. Examples of these funds can be reviewed:

1. Gap Fund: In September 2020, the Republic of Germany and the Global Climate Compact of Mayors partnered with the World Bank and the European Investment Bank; With the aim of supporting cities in developing countries in planning, prioritizing, and implementing climate change mitigation and adaptation projects, and facilitating communication between cities and financing partners, such as the World Bank, the European Investment Bank, or external financiers, with preference to investments that will help build green and healthy cities. And safe. Its capital has currently reached 55 million euros, and it is targeted to reach 100 million euros, and to work on opening investments estimated at approximately 4 billion euros. For example, in Dakar, Senegal, the Fund provided assistance in developing and building affordable green housing. Also, in Kolar, India, he provided technical assistance on solid waste management and an action plan to improve and finance low-carbon solid waste management services.
2. Catalytic Fund: It works to provide technical assistance and initial financing, for example, the Asian Development Bank’s ASEAN Green Catalytic Fund in cooperation with the European Investment Bank, the European Union, the French Development Agency, and the Green Climate Fund. By the end of 2022, the partners had provided $1.8 billion in cofinancing and technical assistance funds. The Fund uses its financing to de-risk green infrastructure projects, especially since this region faces an investment deficit of more than $100 billion annually, and therefore to bridge this gap, private capital must play a much greater role in financing infrastructure projects.
3. A combination fund: A combination fund is possible and could support greater resource mobilization, which in turn could translate into faster disaster-related responses as well as capacity building and climate activities.

Therefore, the type of fund must be appropriate to support countries most affected by climate change, and also be appropriate to respond appropriately to different types of loss and damage, from meeting immediate needs in the event of a sudden disaster to responding to slow-onset loss and damage, in addition to supporting responses to each from economic damage, which includes property and standard of living, and non-economic damage, which includes loss of life and cultural heritage.

Second: The scope of the Fund’s work

It should be kept in mind that loss and damage are intrinsically linked to adaptation, where increased adaptation reduces loss and damage, and similarly, responses to loss and damage that increase long-term adaptive capacity help avoid them in the future. However, when the committee is working, it is necessary not to confuse adaptation financing with loss and damage, or to rename financing loss and damage with adaptation financing.

It is also important for the committee to consider how losses and damages intersect with other funding objectives, such as humanitarian funding, because there is convergence in their activities and fields. In December 2022, Oxfam published a report that highlighted that humanitarian needs resulting from climate change, conflict and economic failure, outweigh the ability of the aid system to respond.

Third: Fund financing was issued

So far, the sources of financing for the Loss and Damage Fund have not been confirmed, but other sources of financing have been proposed, such as private equity or taxes on profits from fossil fuels, but there is still no global mechanism for the Fund’s work. The Committee could draw on the experiences of other non-UN funds that could provide expertise and lessons learned on different financing approaches, such as taxes, or via special drawing rights from the IMF.

In conclusion, although during the COP27 agreement it was not defined what should be considered “losses and damages” resulting from climate change, which could include damaged infrastructure and properties, as well as natural ecosystems or cultural assets that are difficult to assess; The inclusion of the item of losses and damages for the first time on the summit’s agenda, and the agreement to establish a loss and damage fund to help the most affected countries, reflects the strenuous Egyptian effort to push the parties to agree on the one hand, and the continued attempt of developed countries to evade their climate obligations on the other hand.