Published on: 19/12/2023
Photo caption: Drought (Brazil) - Pablo Alfredo de Luca, WIN photo competition 2009
By: Barbara Schreiner, Water Integrity Network; Tim Brewer, Water Witness International; Patrick Moriarty, IRC; and Malesi Shivaji, KEWASNET. Originally published on the Water Integrity Network (WIN) website.
A “landmark deal” on the Loss and Damage Fund was agreed at the start of COP 28, to a standing ovation from delegates. We welcome progress on this fund – it aims to help the poorest and most vulnerable countries pay for the irreversible impacts of the climate catastrophe, many of which will be felt in the water sector. However, history suggests that a healthy dose of scepticism is in order.
That’s because it enters into force in a context in which existing commitments have not been met. And, at a time in which aggressive tax avoidance and illicit financial flows continue to undermine the financial health of developing countries.
To combat this, transparency and accountability are critical for the loss and damage fund, and, indeed, all climate funding. Equally important is the need to curb the ongoing outflow of dirty money from the south to the north.
As organisations active in water, we are seriously concerned about the world's ability to manage these impacts and move forward with meeting SDG 6 and realising the human rights to water and sanitation.
In July and August 2022, massive floods inundated one third of Pakistan, driving millions from their homes. The flood caused ongoing food shortages and outbreaks of waterborne disease, and a $16.3 billion reconstruction bill. Pakistan is responsible for less than 1% of global carbon emissions, hardly commensurate with the devastation it suffered due to climate change. Unsurprisingly, Pakistan has been a leading voice in the call for a Loss and Damage Fund, a call that has been resisted for many years by wealthy nations.
Carbon emissions continue to climb and it is increasingly unlikely that we will meet the 1,5 degree target. Adaptation processes are not up to speed. Vast numbers of poor people in developing countries are suffering from the impacts of climate change which they did not cause. Funding for adaptation, and for loss and damage are essential. The bill for the Pakistan flood in 2022 - in the billions, for one event - is indicative of the desperate need.
At COP28, just over $700 million has been committed to the Loss and Damage Fund so far, as a once off (noting that it is still early days). This is a drop in the bucket when set against the projected economic cost of loss and damage by 2030; estimated at USD 400 billion a year by one study and between USD 290 and 580 billion in another - in developing countries alone. By 2050 this cost rises to USD 1 to 1.8 trillion. The type and timing of these pledges is still unclear.
This is important, as wealthy, polluting countries are failing to meet the pledges they have already made. In the 2015 Paris Accord, 196 countries pledged to provide $100 billion a year in new funding for low- and middle-income countries to adapt in the face of climate change. By 2021, six years later, the OECD reported that total annual climate finance amounted to USD 89.6 billion, approaching, but not yet meeting the Paris Accord target.
However, Oxfam reports that up to a third of these funds are repurposed development aid, not new funding. In addition, a large proportion of the funding is in the form of loans, which must be repaid. At the same time, adaptation finance (critical for the water sector) dropped by USD 4 billion, reducing the adaptation share of total climate finance from 34% to 27%. This is a major concern since effective adaptation will significantly reduce the requirements from the Loss and Damage Fund.
The provision of climate financing through loans is particularly problematic. It means that poor countries must pay twice (if not three times) for climate change: once through the devastating impacts of a climate crisis that they did not cause; again through the payment of loan interest, adding to the debt burdens of already heavily indebted countries; and, sometimes even a third time, through the currency risks related to foreign currency loans. The Green Growth Fund is to be lauded for its initiative to provide green finance in local currency for the markets where it operates. Such an initiative could well be adopted far more widely by climate financiers.
All of this takes place in a context in which illicit financial flows continue to move vast sums from the global south to the global north every year. UNCTAD's Economic Development in Africa Report (2020) said Africa could gain $89 billion annually if it curbed illicit financial flows. A new report confirms this possibility, revealing that African countries have generated €1.7 billion in additional revenues from tackling tax evasion and illicit financial flows since 2009 – a real start, but with a long way remaining to go. This is not a problem that should be on the shoulders of developing countries alone. The international tax regime, and the laundering of money by northern based banks make these outflows of capital possible.
Against this sorry background, sensible questions to ask include: where all those billions for the Loss and Damage fund are to come from, whether they will constitute new funding or a further repurposing of existing development or humanitarian finance, and whether they will be sufficient to meet the needs of affected countries and to offset the flow of funds from the south to the north.
The track record of climate finance to date does not provide food for optimism: development finance repurposed as climate finance; finance provided through loans not grants; failure to meet commitments.
In conclusion, we welcome the overdue establishment of the Loss and Damage Fund, but we call for stronger mechanisms to hold wealthy nations to account for their commitments to funding the disaster that they have and continue to impose on poorer nations.
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