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COP27: A focus on loss and damage

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Townsend Matthew
Matthew Townsend

Partner

London

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Jasmin Fraser

Associate

London

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Ming Zee Tee

Trainee

London

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10 November 2022

“Loss and damage” is a key topic of COP27, and one of the most politically contentious among the negotiating blocs. The idea of an international loss and damage financing facility has been opposed by the EU and U.S. in the past. However this year, loss and damage has made it on to the agenda. This post explores the history of the topic, and why it being itemised on the agenda is so important.

What is loss and damage? 

The phrase originated four years before the first COP, where a call was made to the UN General Assembly in 1991 calling for an insurance scheme to “compensate small island states along with low-lying developing countries for loss and damage resulting from the consequences of sea level rise”. There is no official definition of “loss and damage” from the UNFCCC or Paris Agreement. It generally refers to the climate change-induced losses and damage that nations and communities will unavoidably suffer, even after best efforts at mitigation and adaptation have been exhausted.

Where’s the money? 

Loss and damage finance is a separate ‘bucket’ from adaptation and mitigation finance. In its Sixth Assessment Report in 2022, the Intergovernmental Panel on Climate Change (IPCC) recognised that losses and damages are “not comprehensively addressed by current financial, governance and institutional arrangements, particularly vulnerable developing countries”. The two existing finance facilities under the UNFCCC, the Green Climate Fund (GCF) and the Global Environmental Facility (GEF), do not have scope under their institutional mandates to consider loss and damage elements. Even if such mandates were broadened, the methods of delivery of such finance are ill-suited towards the reality of loss and damage in vulnerable countries. For instance, the long lead-times and highly administrative application process to access finance are unable to respond to catastrophes requiring quick responses.

Historically, only Scotland, Denmark and the Belgian region of Wallonia have recognised the need for a loss and damage-specific fund, and committed a total sum of USD19.5 million pre-COP27. Scotland has since committed a further GBP 5 million, and Austria EUR50 million, announced during this year’s conference. Nonetheless, these figures fall far below that required: some reports estimate that climate warming will cause between USD290 billion and 580 billion in economic damages, per year, from 2030 onwards. These figures exclude non-economic loss and damage, such as the loss of culturally-significant ancestral burial sites due to sea level rise in small island states, or the loss of languages due to climate-induced migration and the resultant dispersion of communities.

Progress at COP27?

After more than forty hours of negotiation, the hotly-debated agenda that emerged on Sunday 6 November 2022, included loss and damage for the first time in any COP (item 8(f)), with a deadline signalled of 2024 to deliver a plan. 

Notably, the COP27 President Sameh Shoukry prefaced the agenda with the caveat that “the outcomes of this agenda item are based on cooperation and facilitation and do not involve liability or compensation”. This appears to address the U.S. and EU’s reason for their reticence thus far – that conceding on loss and damage may open the floodgates to potentially unlimited liability on compensatory claims for climate harms. This preface recalls the Paris Agreement negotiations, where the concept of loss and damage was only recognised in the eventual agreement on the understanding that loss and damage “does not involve or provide a basis for any liability or compensation” (Article 8, Paragraph 51). 

Nonetheless, this is a considerable achievement for negotiating blocs - the G77, China and the Association of Small Island States, who have long called for loss and agenda finance to be expressly addressed during COP conferences. It also demonstrates the gradual shifting positions of the U.S. and EU: reports from COP27 state that the U.S. is now open to the concept, on the condition that China also pays.

What next?

While loss and damage has made it onto the agenda, a deal has yet to be struck. There are several big questions that need to be answered by all parties on the negotiating table. 

  • Financing: the energy crisis and rising inflationary pressure will likely make a commitment to financing a bitter pill to swallow when leaders return home to their domestic problems. UN Secretary General António Guterres has mooted a windfall tax on oil and gas to fund such activities, or debt swaps for middle-income countries experiencing the worst of climate change impacts, such as Pakistan. 
  • Structure: will a discrete loss and damage facility be set up, and if so how will its remit be scoped? How can it remain accessible to communities who most need it, while ensuring the right funds flow to the right people? How are principles of transparency, accountancy and recipient ownership to be guaranteed? 

Luckily, several mechanisms under the UNFCC and Paris Agreement already exist or are being set up to coordinate the provision of such finance.

  • The Warsaw International Mechanism for Loss and Damage, established in COP19 in Poland, is a platform for promoting implementation of approaches to address loss and damage and strengthen dialogue and coordination among stakeholders.
  • The Santiago Network, established in COP25 in Madrid, is a body (not yet operationalised) that provides technical support directly to developing countries.
  • The Glasgow Dialogues, emerging from COP26, is another discussion forum on funding activities, although it has no decision-making authority.

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