The first meeting of the Transitional Committee for the establishment of a fund for losses and damages caused by climate change was held between 27 and 29 March.
Last November, in Sharm-el-Sheik, the twenty-seventh Conference of the Parties (COP27) had great potential to be an “African COP”, capable of placing the most important dossiers for the continent and other developing regions at the top of the negotiating agenda, primarily the issue of climate justice, i.e. the responsibility of developed countries to financially support developing countriesmore vulnerable to the effects of global warming, given their limited contribution to climate change.
However, Russian belligerence in Ukraine and the ensuing energy crisis have set government priorities on energy issues energy security, with the risk that decarbonisation targets will be overshadowed and strengthen the negotiating position of fossil fuel producing countries; in addition, parallel issues such as the American midterm elections and controversies about i World Cup in Qatar they took away media space from the proceedings within the Conference.
In this context, what the emerging countries have been able to achieve has been the agreement for the establishment of a fund assigned to repair the losses and damages caused by climate change, the so-called loss and damage.
Loss and Damage
Third pillar of climate policies, together with mitigation (reduction of emissions) e adaptation (prevention of the effects of climate change), loss and damage is a term used by the United Nations (UN) to indicate the losses and damages caused and not remediable by climate change. These can be of an economic and non-economic nature: in the first case, they include damage to commercial resources, goods and services; in the second, the loss of cultures and ways of life, the death of people, and the need to migrate.
During the climate negotiations of the last few decades, developed countries have strongly opposed the logic that identifies them as those responsible for the damages and losses caused by climate change, worried that this could translate into economic compensation and trigger a compensation mechanism more extensive in developing countries.
Already in the 1990s, a group of island states made proposals for financing the damage suffered by rising sea levels, without obtaining success; in 2015, Article 8 of the Paris Agreement recognized the importance of loss and damage, but this recognition did not translate into practical indications on how to deal with it; at the COP26 in Glasgow in 2021, the proposal to create a fund by the Scottish Prime Minister Sturgeon did not meet with the approval of the other more advanced economies.
COP27 allowed for a change of pace: in the months preceding the Conference, the 46 least developed countries in the world defined the creation of a fund assigned to loss and damage as a fundamental priority of the negotiations and, after two weeks of strenuous diplomatic activity, found an agreement on these issues.
The problems of climate finance
The Sharm el-Sheik Implementation Plan adopted contains indications on what needs to be done – setting up the fund, in fact – not how to do it. The fund needs to be made operational and, in this respect, a Transitional Committee (Transitional Committee) that within the next COP28 it will have to establish its functioning and governance, as well as the origin, conditions and amount of funds available.
The difficulties are not few and reflect the critical issues of the current climate finance system, the main problem of which consists in the failure to disburse the promised financing flows. As recalled, within the COP15 of 2009, the most developed countries adhered to the allocation of 100 billion dollars a year to support adaptation and mitigation programs in developing countries; however, the funds totaled only 58.5 in 2016, 71.1 in 2017, 78.3 in 2018, 79.6 in 2019, and $83.3 billion in 2020.
Furthermore, the order of 100 billion dollars is not suitable for the real needs to address the adaptation problems of developing countries, for which the UN estimates a need of 160-340 billion dollars a year by 2030, and more than 560 by 2050.
To this it should be added that the funds allocated by global financial institutions, such as the World Bank and the International Monetary Fund (IMF), often take the form of loans, with the consequence that the countries receiving funds end up in a vicious circle whereby, on the one hand, they must finance the work to repair the damage suffered and, on the other hand, repay their creditors. While this leads to a growing level of debt which makes it increasingly expensive to borrow money, it also hampers investment in adaptation projects, thus increasing the possibility of sustaining major damage and losses in the future and hence the need for additional financing.
Bridgetown initiative
The financing conditions for climate action in developing countries therefore need to be rethought, so that the most vulnerable countries can receive substantial financial support without going into further debt. In this regard, it is important to mention the Bridgetown Initiative (BI) – the initiative presented by Mia Mottley, Prime Minister of the Isles Barbadosa Sharm el-Sheik.
The BI proposes concrete solutions to restructure the architecture of the system for financing developing countries, focusing mainly on the inconsistency of financial flows with respect to real needs.
Among other things, BI proposes that the occurrence of natural disasters justifies the temporary suspension of the payment of interest on the debt and that funding is granted in the form of grants and not loans; he also suggests recovering the funds aimed at supporting countries vulnerable to climate disasters through a tax on CO2 emissions applied to the most polluting companies, estimating an annual revenue of 200 billion dollars – double those promised in 2009.
Finally, the BI envisages the creation of a Global Climate Mitigation Fund with the capacity to 500 billion dollars drawn from the use of Special Drawing Rights within the IMF to finance climate-related projects, for which this type of funds would not contribute to the increase in the indebtedness of vulnerable countries and would reduce their risk of debt unsustainability.
Finally, initiatives such as BI propose solutions to the flaws in the global climate finance system, and the loss and damage fund promoted during COP27 can be a first step towards the restructuring of the system coherently with the real needs of developing countries and the BI proposals.
The meetings of Transitional Committee they are therefore key appointments to follow. During the first meetings, the agenda and work plan were adopted and the official officials were elected. In future meetings, however, the Committee will be required to define who will be the lenders, how extensive the funds will be and what the financing conditions will be, thus having the opportunity to take significant steps towards a more adequate structuring of the financial system for the climate.
Cover photo EPA/LEGNAN KOULA