TWN Info Service on Climate Change (May23/02)
8 May 2023
Third World Network

Loss and damage funding should be new, additional and predictable – say developing countries

8 May, Kathmandu (Prerna Bomzan): At the first mandated workshop on addressing loss and damage which took place in a hybrid (in-person & virtual) format on 29-30 April 2023 in Bonn, Germany, Cuba speaking for G77 and China underscored operational principles such as making sure that the loss and damage funding is new, additional, predictable, and adequate, and not increase the debt burden of developing countries.

This first workshop is one of the two mandated in 2023 to inform the recommendations by the Transitional Committee (TC) to the UNFCCC’s 28^th Conference of Parties (COP 28) and the fifth meeting of Parties to the Paris Agreement (CMA 5) scheduled later this year, with a view to operationalising the loss and damage funding arrangements, including the fund established last year in COP 27.

The two-day workshop was presided over by the TC’s Co-chairs Richard Sherman (South Africa) and Outi Honkatukia (Finland) and focused on (i) actions to address loss and damage and current gaps and challenges related to existing landscapes of institutions providing support and (ii) sources and instruments of loss and damage funding.

Following presentations by various quarters on selected topics, deliberations saw developing countries clearly driving home the message that existing current financial resources and mechanisms are highly inadequate, difficult to access, not up to speed and that delivery of public funds by developed countries, specifically grants are essential to avoid further debt burden of developing countries.

Whereas, developed countries, while acknowledging current gaps in the scale and speed of availability of financial resources including existing financial architecture and mechanisms, stressed on improving and strengthening the existing systems and not reinvent the wheel, further highlighting innovative sources of funding and the private sector.

At the final session of the workshop which sought key takeaways from the workshop, Cuba speaking for G77/China said that it is clear based on the presentations and discussions and realities on the ground experienced by developing countries is the message that the loss and damage-related financing that may currently exist, including private sector-based risk insurance mechanisms, humanitarian assistance, or other means, are insufficient, inappropriate, inapplicable, or inaccessible for developing countries and their vulnerable communities and peoples to be able to effectively address loss and damage in developing countries”.

Further, for the TC to fulfill its mandate from COP 27, Cuba said that its work should be focused on being able to deliver clear recommendations that Parties can consider and adopt at COP 28.

“These recommendations should be in three key areas:

1. One is with respect to the principles that should be applicable to loss and damage funding arrangements and the Loss and Damage Fund. As these will support the achievement of the objective of the UNFCCC and the goals of the Paris Agreement, the principles of equity and common but differentiated responsibilities and respective capacities (CBDR-RC) would be foundational principles that need to be reflected in the design and modalities of the funding arrangements and the Fund, including with respect to sources of and eligibility for funding and the governance of the Fund.

2. Second is that there are certain operational principles that should be reflected to address the challenges that developing countries have raised with respect to existing loss and damage financing. These include, for example, accountability by the Loss and Damage Fund to the COP/CMA; making sure that loss and damage funding is new, additional, predictable, and adequate; not increase the debt burdens of developing countries; be simple and easy to access directly; provide direct budgetary support for developing country governments and targeted financing for the directly affected communities and subnational governments; be appropriate to different national contexts; be integrated and consistent with the national sustainable development priorities of developing countries; and have planning and implementation timescales that range from short- to long-term decadal timescales to address the different timescales of climate events and development processes.

3. Third is the need for loss and damage financing governance and operational modalities to be looked at in a systemic manner, such that while the Loss and Damage Fund would play a central role for the channeling of loss and damage-related funding to developing countries under the Convention and the Paris Agreement, other channels and sources should complement the Fund and be supportive of funding approaches that integrate loss and damage financing with developing countries’ broader national development and climate change actions”.

Cuba highlighted that “pre-2020 and current gaps in relation to the implementation of long-standing mitigation, climate finance, adaptation finance, and technology transfer commitments under the Convention and the Paris Agreement that have resulted inadequate mitigation and adaptation efforts, when coupled with historical emissions since the Industrial Revolution in developed countries, have created a situation in which the need to effectively and adequately address loss and damage becomes an imperative for the multilateral climate change regime”.

It further said that “the IPCC has pointed out that hard and soft limits to adaptation are being reached and, in many cases, have already been exceeded. Loss and damage due to climate change is clearly no longer a risk that can be averted or, in many cases, even minimized – it is now a certainty that needs to be addressed if the multilateral community is to help developing countries and their peoples and communities to continue to survive and thrive”.

Cuba suggested that in the next workshop and activities, greater focus and space be provided for discussions directly on the design and operational modalities of the Fund and its relationship to other loss and damage funding arrangements.

In conclusion, Cuba underlined that for the G77 and China, “a decision that will make operational the establishment of the Loss and Damage Fund that all Parties achieved together at COP27 will be a key benchmark of success at COP28. Achievement of this success relies in large part on the focused deliberations of the TC over the next seven months in order to produce recommendations that we can adopt at COP28”.

Argentina shared that developing countries are already taking action within their possibilities with their natural resources and that funding arrangements must be guided by “equity and CBDR, the principles of the Convention and the Paris Agreement. It stressed on “public funding specifically grants to avoid climate induced debt and setback to development” and urged the “TC to recommend financial resources that do not overly press developing countries’ fiscal accounts”.

Saudi Arabia said that the TC must make recommendations that “fall within the bounds of the principles and provisions of the UNFCCC and its Paris Agreement. Recommendations must embody the principles of equity, CBDR-RC and historical responsibility”.

Further, expanding on historical responsibility, it said that “centuries of emissions are responsible for instances of loss and damage. Past failures in meeting finance obligations to support adaptation action in developing countries has led to more instances in loss and damage. Failures to meet pre-2020 mitigation obligations have contributed to more instances of loss and damage as well. Ability to effectively respond to loss and damage is correlated to levels of economic development and according to the AR6 report of the IPCC, instances of loss and damage impede economic development”.

Saudi Arabia emphasised that there is a need to “differentiate between finance obligations and finance approaches when we discuss sources. Under the Convention and the PA, Annex 1 countries (under the Convention) are obligated to provide finance support to implement the agreements. Annex 1 countries can explore innovative approaches to provide support to developing countries, while mobilizing support from a variety of other sources”.

Highlighting that there is “no silver bullet”, it said that “there is no one-size-fits-all solution to the various challenges that developing countries face”. In response to proposals for levies and taxes to be considered as innovative sources of funding, it pointed to the recent IPCC’s 6^th Assessment Report which states that “for economic and regulatory measures, including taxes and levies, to be effective, they must be designed to fit the national context and national circumstances”, thus cautioning that the “TC should not overtly make recommendations that clearly contradict the science. Instead, developed countries can explore the policies that fit their national circumstances when providing and mobilizing support for loss and damage to developing countries whether that is through funding humanitarian organizations, subsidizing insurance premiums, direct bilateral support or by pledges to the fund”, it added.

Saudi Arabia also underlined the need for “transparency” in relation to “accountability” for the loss and damage funding arrangements, stating that “there can be no transparency regime in place on non-Party organisations”.

Nepal underscored that the mandate needs to be delivered and hence, the fund must be operationalised by COP 28. It suggested to focus on what can be delivered by the time frame and also work in parallel on the sources of funding to avoid an “empty” fund. It also stressed that “access is critical” when it comes to designing the fund and the funding arrangements.

Timor Leste (also a TC member) emphasised that the loss and damage fund must be from “mainly public funds, grants-based by developed countries”. It said that for the LDCs, its essential to “avoid further burden” due to loans and said that in relation to insurance payment for premium, it should come from public sources from developed countries.

Ecuador highlighted that when addressing sources of funding it should be guided by the principles of the Convention and the Paris Agreement. It pointed out issues of (lack of) predictability around aviation levies and of accessibility around insurance. Further, it underscored that there should be “no more debt for developing countries”.

Vanuatu said that the workshop highlighted important gaps particularly for Pacific SIDS who are already addressing loss and damage. It stressed on the urgency of the work saying that they “existentially” need delivery of the Fund at COP 28.

The Philippines made an urgent call for concrete action and measures to make funding “easily and readily accessible” and that access to all potential sources of finance for loss and damage must be “streamlined and simplified”. It said that while the potential contribution of the private sector is noted, it strongly suggested that the “developed countries deliver the means of implementation consistent with the principles of the Convention and the Paris Agreement”.

Honduras clearly stated that the “financial options and solutions ultimately avoid further increasing the levels of debt of developing countries” and that “the funding arrangements do not continually hinder our sustainable development”. It also stressed that the financing ensures the needs of “all” developing countries ensuring that they are fit for purpose for all types of events.

Belize stated that the SIDS have been advocating for a fund for loss and damage for thirty years and “it is very clear that existing funding arrangements are not meeting the needs of the most vulnerable countries”. It said that new fund therefore “cannot replicate and utilise the existing funding arrangements that have not been able to deliver finance at scale and speed and this should be the North Star in terms of how to design the Fund”.

China highlighted that “public funding” should be prioritised in terms of “appropriate” sources of finance, respecting the fundamental principles of equity and CBDR-RC. It stressed on mobilisation of “new, additional, sufficient, predictable grants and concessional, easily accessible funding”. It also said that while noting the importance of the private sector and other players’ engagement, it is essential to ensure that those financial resources do not undermine the principles of equity and CBDR-RC and that they are used to “complement rather than substitute public finance”. It added that its crucial to ensure that the responsibility of Annex 1 countries is not shifted when exploring innovative source of financing.

Kenya said that the funding modalities should not provide additional burden to developing countries, instead catalysing “structural and systemic transformation”. It pointed to the economic and financial challenges of developing countries thus emphasised on “overcoming the debt burden” and not add to it. It also underlined that TC recommendations must be in line with the principles of the Convention and the PA.

Australia, the United Kingdom, Germany, Sweden, Switzerland and the United States supported improving and strengthening existing mechanisms and build on what is already in place, with a view that the new fund and funding arrangements, fills in the gaps of the current financial landscape. These countries also shared that the new fund must be financed by a variety of sources including innovative sources and the private sector.

The first day comprised two sessions – the first session on actions addressing extreme weather events saw presentations by the World Meteorological Organisation, Caribbean Climate Risk Insurance Facility, African Risk Capacity, UN High Commissioner for Refugees and the UN Office for the Coordination of Humanitarian Affairs, including case studies shared by Parties from Samao, Honduras, Malawi and the European Union (EU); the second session on addressing slow onset events saw presentations by the Intergovernmental Panel on Climate Change (IPCC) Working Group II, United Nations Development Programme and the  UN Convention to Combat Desertification, including case studies from Vanuatu, Nepal and Bhutan, Morocco and Finland.

The second day comprised three sessions – the first session on insights from existing work under the UNFCCC saw a panel discussion with members from the Executive Committee of the Warsaw International Mechanism for Loss and Damage, the Least Developed Countries (LDCs) Expert Group, the Facilitative Working Group of the Local Communities, the Technology Executive Committee, the Adaptation Committee including a presentation on the Santiago Network on Loss and Damage workshop conducted in Latin America and the Caribbean; the second session on current landscape of sources and instruments saw presentations by the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, the Vulnerable 20 (V20) Secretariat and the Joint Sustainable Development Goal Fund, including case studies by the German Institute of Development and Sustainability and Sri Lanka; the third session on innovative sources of funding saw presentations by Seychelles and Oxford Climate Policy, including case studies by Fiji, Spain, SEEDS India and Mercy Corps/Zurich Flood.

In closing the workshop, Co-Chair Richard Sherman (South Africa) shared that in the upcoming second TC meeting scheduled on 25-27 May 2023 in Bonn, Germany, work will be advanced to conclude the mandate under paragraph 6 and start to deep dive on the   mandated work under paragraph 5 of decisions 2/CP.27 and 2.CMA.4.

(At COP 27 and CMA 4, Parties agreed to establish new funding arrangements and a fund for assisting developing countries that are particularly vulnerable to the adverse effects of climate change, in responding to loss and damage. The fund includes a focus on addressing loss and damage. The TC was established to operationalise the new funding arrangements and the fund, and to make recommendations for the consideration and adoption by Parties at COP28 and CMA 5. 

Under paragraph 5 of the decision adopted, it was agreed that the recommendations to operationalize the funding arrangements and the fund…shall consider, inter alia:

(a) Establishing institutional arrangements, modalities, structure, governance and terms of reference for the fund;

(b) Defining the elements of the new funding arrangements;

(c) Identifying and expanding sources of funding;

(d) Ensuring coordination and complementarity with existing funding arrangements

Under paragraph 6 of the decision, it was decided that the TC would be informed by, inter alia:

(a) The current landscape of institutions, including global, regional and national, that are funding activities related to addressing loss and damage, and ways in which coherence, coordination and synergies among them can be enhanced;

(b) The gaps within that current landscape, including the types of gap, such as relating to speed, eligibility, adequacy and access to finance, noting that these may vary depending on the challenge, such as climate-related emergencies, sea level rise, displacement, relocation, migration, insufficient climate information and data, or the need for climate-resilient reconstruction and recovery;

(c) The priority gaps for which solutions should be explored;

(d) The most effective ways in which to address the gaps, especially for the most vulnerable populations and the ecosystems on which they depend;

(e) Potential sources of funding, recognizing the need for support from a wide variety of sources, including innovative sources.)