What is Loss and Damage?
Loss and damage is not a new topic at the Conference of Parties (COP), yet it is the first time to be an agenda item at COP. According to the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report, loss and damage refer to the destructive impacts of climate change that can not be prevented by adaptation efforts. The concept of loss and damage was first proposed in 2007, and it was not until the 2014 Warsaw International Mechanism that the issue became prominent. The slow progress on loss and damage was mainly because many developed countries feared that the ideas of compensation and liability underlying loss and damage could set off a wave of lawsuits by developing countries.
Why is Financial Mechanism for Loss and Damage Needed?
Climate-vulnerable countries express the need to establish an independent loss and damage fund since the existing mechanisms do not provide adequate financial support. The existing mechanisms for loss and damage, such as Warsaw International Mechanism and Santiago Network, mainly provide non-financial support, such as risk management and technical support. Even though Glasgow Dialogue requires parties to discuss the financial arrangements for loss and damage every two years, no financial mechanisms have been developed yet.
Currently, the funds for loss and damage mainly come from developed countries’ donations. For example, Scotland, Belgium, Canada, Denmark, and Germany, have committed to providing over a total of 195 million euros to the loss and damage fund. However, there is a huge gap in the funding arrangements. Assuming the temperature rises to 2.5°C and 3.4°C by the end of this century respectively, the loss in developing countries is estimated to fall in the range of 290 to 580 billion in 2030, and the amount of loss will reach up to 1.1 to 1.7 trillion in 2050 (Markandya et al., 2019).
During the Negotiation: What Has been Made, What Has been Blocked?
Most countries have agreed that the funding source of loss and damage should be predictable, adequate, accessible, and transparent. However, little progress was made on the funding structure for loss and damage during week one. Divergences revolve around the following few points.
First, some countries, including the European Union, stated that the loss and damage fund should be independent of current climate finance mechanisms. Countries that support an independent loss and damage fund are worried that loss and damage funds may be crowded out by other funds if the funds are under current financial facilities. However, some countries, including the United Kingdom, Canada, and Norway, disagree with the argument. Those countries argue that current financial mechanisms have supported some projects for addressing loss and damage; thus, setting a new mechanism will spend more time and administration costs on discussing the operation of the new funding facility.
Second, developing countries, such as Ecuador and the Philippines, stated that the form of the funds should be grant-based finance. Developing countries are worried that more loans will let them fall into a quagmire of the debt crisis. According to the International Monetary Fund (IMF) estimates, around 60% of low-income countries will be facing debt difficulties in 2021. However, developed countries, such as the United States and Switzerland, argue that the form to be in-kind donation, bilateral, or multilateral aid.
Third, developed countries, such as the United States and European Union, argue that developing countries should quantify the needs and elaborate on the use of the fund. However, measuring non-economic loss is challenging and time-consuming. Loss and damage can result from short-term extreme weather events, such as floods or hurricanes, or long-term climate change, such as rising sea levels. Before counting the loss, economists will need to specify the time frame and the value of the goods. For the loss caused by long-term climate change, it is hard to specify when the starting point was. In addition, the values of the loss of non-economic goods, such as the loss of traditional culture, loss of biodiversity, and mental health, are subjective and difficult to generalize the methodology. Thus, even though each developing country has the capacity to do the evaluation, it might take years to finish the assessment.
Personally, I hope progress could be made in the second-week negotiations.