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Published on: 05/02/2024

Fill the Loss & Damage Fund Now! Action by DIGO BIKAS INSTITUTE at UN CCC COP28, Dubai, 4 Dec 2023

Fill the Loss & Damage Fund Now! Action by DIGO BIKAS INSTITUTE at UNCCC COP28, Dubai, 4 Dec 2023. Credit: Flickr - Mahmoud Khaled, CC BY-NC-SA 2.0 DEED

On the opening day of the United Nations Climate Change Conference (COP28) in Dubai, the decision to operationalise the Loss and Damage (L&D) Fund to combat climate change, is widely seen as a win for developing countries. The initial corpus of the Fund will be over USD 400 million, well short of the estimated USD 400 billion required every year. The World Bank will be the interim trustee of the Fund. The Fund is expected to address the needs of developing countries hit hard by climate disasters. Its establishment would add a third layer to the global climate finance landscape – mitigation (funding to reduce emissions), adaptation (funding to minimise the negative impacts of emissions) and loss and damage (funding to address the harms caused by emissions).

The initial pledge of the meagre USD 400 million may have to be viewed in the context of the fact that, in 2022, global military budgets hit an all-time high of USD 2.2 trillion, according to the Stockholm International Peace Research Institute (SIPRI), the eighth consecutive year of increase, as the world is plagued by a duo of dangerous crises: climate and conflict.

Though creating a specific fund for loss and damage is quite significant, the devil is in the details. The critical challenge is to determine the size of the fund, its financing mechanism, what to prioritise and how to invest wisely.

How to operationalise the Fund and what to prioritise?

The operationalisation of the Fund, accepting that its meagre size would grow, is beset with a series of challenges that can even make it a non-starter. These challenges include, how to avoid fragmentation and thinly spreading resources across competing demands; how to normatively prioritise eligible countries and population; how to develop scientific methodologies to quantify loss and damage; how to deploy funds to countries (say, by budget support or project finance);  and how to find innovative financing options to top up the kitty inter alia, including from private corporates, by taxing the global commons like levies on international container shipping, financial transactions and/or airline travel etc.; imposing carbon tax, accessing trust funds and Special Drawing Rights (SDR) allocations from developed countries and so on. Most importantly, the L&D Fund may have to contest with the investment needs under mitigation and adaptation, thereby making it interchangeable and not an additionality.

In total, humans have pumped around 2,500 bn tonnes of CO2 (GtCO2) into the atmosphere since 1850, leaving less than 500 GtCO2 of remaining carbon budget to stay below 1.5 0C of warming. At COP 28, there were strong demands for carbon capture as a single focus.

However, there is no scientific consensus that all climate investment should focus on carbon capture, utilisation, and sequestration (CCUS) and/or Carbon Dioxide Removal (CDR). According to projections, if all the projects that are in development and ongoing, are completed, total CCUS capacity would be around 360 MtCO2/yr., which is around 0.7% of today’s global greenhouse gas emissions. If we go by the projections, by 2050, only about “6% of the mitigation needed to reach net-zero could come from CCUS”. And there are also a host of risks like prohibitive upfront costs and environmental concerns about CCUS.

The ‘climate industry’ particularly adaptation and mitigation, is emerging as a big business and the projects sometimes exacerbate the problems they try to solve. The least developed countries are more vulnerable for climate change and there are ‘quick-fix solutions’ floating around the market. The most critical priority is to choose the investments that scientifically mitigate the impact of climate change and make countries climate adaptive.

Studies have shown that, large investments to combat climate change have been generating unintended consequences; like the sea wall (Fiji) created to shield the communities has instead acted as a dam, trapping water and debris landwards; construction of flood barriers to counter climate induced floods and rising sea levels causing water logging and loss of soil fertility (Bangladesh). Preliminary findings from the analysis of seventy-nine adaptation projects show that managed retreat, structural flood protection and climate-resilient development projects are most at risk of maladaptation. If the Fund gets into the hands of advocates of poorly designed hardware solutions, this may lead to unintended consequences. Poor governance quality, weak institutional capacities and perverse incentives are the main hazards.

Globally maladaptation is a growing problem. Concern about unforeseen consequences of climate adaptation has emerged as a key issue in a recent report by the Intergovernmental Panel on Climate Change (IPCC). The report says that ’’evidence of maladaptation is increasing in certain sectors and systems, highlighting how inappropriate responses to climate change create long-term lock-in of vulnerability, exposure and risks that are difficult and costly to change and exacerbate existing inequalities for indigenous peoples and vulnerable groups’’. For instance, when cities have serious challenges of source sustainability and water quality, focus is on high-cost hardware solutions; when aquifers are empty, the investments are for high-cost dams; and the huge inequity in service delivery are a few glaring examples.

Given the experiences with mitigation and adaptation, the L&D Fund should also not exacerbate vulnerabilities and more harmful effects of emissions. Recipients managing the received funds should therefore be safeguarded from the "politics of defining solutions/interventions" to address damage caused by emissions. Despite the persisting huge appetite for poorly designed infrastructure, the utilisation of the Fund should be governed by meticulous protocols, safeguards and standards and should be singularly focused on mitigation of harmful effects on the vulnerable and the poor populations. Governance is what matters, and one needs deeper assessment as to whether any given project decreases or further increases vulnerability to climate change.

For climate risk assessment, currently there are multiple indices. For operationalising the Fund, the UN Framework Convention on Climate Change (UNFCCC) may evaluate, improvise and contextualise those indices and focus on extremely vulnerable countries such as the Pacific Islands, sub-Saharan Africa and within countries, the loss of the most vulnerable populations such as coastal fishers, slum dwellers, indigenous groups etc., with specific focus on water, food and livelihood security.  If the L&D Fund is not a ‘topped-up resource envelope,’ forcing it to compete with the mitigation and adaptation investments and targeted normatively to the most vulnerable communities and sectors adopting the principle of nature-based sustainable solutions, the Fund that was started with a bang, may end with a whimper.

The author, a retired IAS officer and former IRC India Country Director, is a well-known water and climate expert. The views are personal.


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