Discussions on matters relating to funding arrangements for loss and damage (L&D) will definitely be the make or break of COP27. Extremely huge media attention follows this topic, especially because of the Parties’ divergent positions on it and the fact that the discussions have already been elevated to the ministerial level.
Right before COP27, Parties agreed for the first time to include a sub-agenda item titled Matters related to funding arrangements responding to loss and damage associated with the adverse effects of climate change including a focus on addressing loss and damage under the agenda item titled Matters related to finance. The international community already agrees on almost everything, except whether we should create a new, dedicated fund (view of developing countries) or channel the existing funds and other supporting facilities into a common network (view of developed countries). Till the end of COP27, the question remains if ministers will be able to somehow relax this currently binary debate and diversify the solution options.
What the international community agrees on in connection with L&D is the Santiago Network. Parties have just managed to land a text that can now be forwarded to the Conference of the Parties. Previously, there have been several points of divergence on the funding paragraphs, on prioritising technical assistance to the most vulnerable countries/communities, on the role of national liaisons and human rights inclusion, but an agreement was finally reached. All negotiating groups celebrated the outcome as fairly strong and the result of constructive negotiations. The institutional arrangements of the Santiago Network for averting, minimising and addressing L&D associated with the adverse effects of climate change enable its full operationalisation and support its mandated role in catalysing technical assistance for the implementation of the relevant approaches at the local, national and regional levels in developing countries that are particularly vulnerable to the adverse effects of climate change.
What the international community does NOT agree on in connection with L&D is the matters related to its funding arrangements. To provide an overview of work to date, based on submissions and draft cofacilitator text, followed by bilaterals with groups, Parties and a briefing with observers, there are still a lot of areas of difference.
The Group of 77 (negotiating coalition of already 134 developing countries), China, the African Group of Negotiators (AGN) and the Alliance of Small Island States (AOSIS) laid out their position very early in need for a decision to establish a new and dedicated fund at COP27 under the financial mechanism of the Convention. They also expressed very loudly that they were not ready to leave COP27 without this new dedicated fund. Although they keep signalling that they do not have a maximalist position and that they are ready to recognise the global economic constraints, they also stress that the costs of L&D are so high that a separate fund is required, along with transformational solutions, especially via Multilateral Development Banks (MDBs) and Independent fiscal institutions (IFIs) by ensuring that these institutions are fit for purpose to deploy the required support for climate action in developing countries; and in connection with debts relief (the significant financial costs associated with L&D for developing countries result in increasing the burden of indebtedness, as it was also emphasised in the recent G20 text). The Group of G77 and China is divided on one issue: if the fund should focus only on the most vulnerable regions, or on all developing countries (that is, also on emerging countries with large emissions).
On the agenda point of matters relating to funding arrangements for addressing L&D the 2nd ministerial closed session yesterday was focusing on three questions to guide the discussion: around benefits and concerns establishing a fund; how support could be immediately mobilised; and how a mosaic/ecosystem approach could be operational by COP28. There were clear requests from developing countries for new, adequate, additional and predictable resources for responding to L&D. All developing Parties requested a clear political sign to establish a new fund.
Earlier during the discussions, it was only New Zealand that said that there had to be greater clarity on where the gaps in funding were and who stated that they would not stand in the way of a new finance facility. Overall, no developed Party rejected explicitly the idea of a new fund, however, they all reiterated that they wanted to explore all options, before deciding which option would be most suitable for the complexity and dimension of the problem at stake.
L&D is a global challenge that hits all countries in the world and all developed counties guaranteed their commitment to the field of L&D financing with a special focus on vulnerable countries. They also underlined the importance of the broader financial system and the fact that there was no need to rush into the creation of a single solution, before knowing the landscape of gaps and solutions and what could be covered by existing institutions. According to them setting up a new fund from “scratch” would be extremely time-consuming and would generate an excessive administrative burden, thus hindering the neediest regions from receiving support urgently. In addition, filling a new fund with money is typically more difficult than operating existing funds. They argue that if Parties really want the most effective, fastest solution, then setting up a new fund, which takes years, does not serve this purpose. For comparison: it took us six years to set the Green Climate Fund (GCF) up and running.
Overall, there has been some convergence of the acknowledgement of the needs and of the political will, but divergence remained on what will get funding to flow sooner. As of today, the Egyptian COP Presidency circulated a list of bullet points with the planned main elements of the cover decision of COP27, to which Parties could respond in the framework of an informal consultation. Most negotiating groups would consider a “Glasgow+” approach to be appropriate for the cover decision, meaning that their goal is to include all elements included in the Glasgow Climate Pact in a balanced fashion.
In this proposed cover decision text, there are already a lot of placeholders proposed by Parties on L&D. The text will definitely recognise that the implementation of the Paris Agreement must include actions related to averting, minimising and addressing L&D associated with the adverse impacts of climate change and the fact that the most vulnerable countries are at great risk to be significantly affected by L&D. Indeed, the projected adverse impacts and related L&D escalate with every increment of global warming, highlighting that L&D associated with the adverse effects of climate change take the form of extreme weather events as well as slow onset events and result in economic and non-economic losses and damages including through its impact on cultural values, human mobility and vulnerability of people forced to migrate and living in displacement and the lives and livelihoods of local communities and indigenous peoples. The text will most probably emphasise the urgency of scaling up action and support, as appropriate, including finance, technology transfer and capacity-building and that scaling up action and support requires significantly strengthened funding arrangements.
It is already a good sign that the text will acknowledge the relevant work undertaken outside the UNFCCC process in relation to activities of averting, minimising and addressing L&D, such as the V20/G7’s Global Climate Risk Shield, the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance solutions launched at the 2017 UN Climate Change Conference in Bonn and the WMO and UNSG’s Initiative on Early Warning Systems for All, considering them as useful contributions that can complement and mutually reinforce the progress aspired under the UNFCCC Framework, through a broader and diverse financial ecosystem which includes, but not limited to, innovative and hybrid sources of finance.
However, the dilemma remains: currently, no negotiating groups in this heated debate are willing to be bridge builders to the extent of destroying what they have already achieved, that is, results achieved by developed countries on emphasising the role of mitigation and on having a balanced package in the end; and the result achieved by developing countries to include a new sub-agenda item on L&D.
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