Five big disagreements on loss and damage as COP27 clock ticks on

The issue of loss and damage finance is the most high-profile theme at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC) at Sharm El-Sheikh (SES), Egypt.

It was adopted as a ‘formal agenda item’ at the conference this year. It was termed as “matters relating to funding arrangements for addressing loss and damage”.

This has been considered a major win for the developing world at the UNFCCC’s intergovernmental climate negotiations since it allows discussions on climate reparations to be deliberated under the formal mandates of the Convention and the 2015 Paris Agreement.

The first discussions after the adoption of the agenda item took place on November 8 in SES. The popularity and attention assigned to the issue was reflected in serpentine queues lined up outside the meeting and spillover rooms.

At the first discussion, countries made statements on their expectations from the agenda item. Island countries and other developing countries emphasised the need to operationalise a loss and damage finance facility by 2024.

Finance must be new, additional, predictable, publicly funded, grant-based, and eligibility should extend to all developing countries.

It was also proposed by some that funds for loss and damage must be rapidly disbursed within 24 to 48 hours of a disaster.

Loss and damage must focus on resilient recovery and reconstruction after a disaster by building back better. Historical emissions and the UNFCCC’s principle of Common But Differentiated Responsibilities (CBDR) should be the benchmark of funding, India stated.

Discussions continued; and on November 14, at the fifth consultation, co-facilitators of the negotiations produced an ‘elements paper’ to capture inputs from various countries (Parties). The following points of dissonance have emerged across the discussions:

1.Housing a new financing facility within the UNFCCC or outside of it

The first is the question of funding arrangements within or outside of the UNFCCC. The Convention, adopted in 1992, enshrines the principle of CBDR. Developed countries should take the lead in combating climate change according to the principle, in line with their historical emissions.

This offers the protection of an equitable climate agreement and justifies the transfer of money to help developing countries cope with climate impacts.

Housing a loss and damage finance facility under the UNFCCC’s Finance Mechanism (which currently consists of three funds — the Green Climate Fund, Global Environment Facility, and Adaptation Fund) guarantees adherence to this equity principle.

So far in negotiations, developing country blocs like G77 and China, LDC (Least Developed Countries), and ABU (Argentina, Brazil and Uruguay) have emphasised that the new facility must be established under the UNFCCC.

“We need predictable and adequate financial sources for developing countries; ABU sees it as a fully UNFCCC-led process, equity and CBDR,” Brazil said  November 10.

Developed countries on the other hand, are keen to explore options like the Global Climate Shield, multilateral development banks, and humanitarian agencies outside of the Convention.

The US spoke about the role of the International Monetary Fund’s Resilience and Sustainability Trust or the Pacific Resilience Fund, while the European Union (EU) spoke broadly about “mapping funding actors within and outside UNFCCC”.

The UK spoke of adding the private sector and philanthropy to the elements paper as well, on November 14, while Switzerland mentioned adding “financing under development corporations or international aid”.

2. Outcome of COP27: A new facility or a new process

In its ask at COP26, the G77 and China bloc was clear — the establishment of a loss and damage finance facility at COP27. But developed countries have since then suggested workshops, dialogues and synthesis reports to gather more information.

At a consultation on November 10, Australia stated the need for “a space and process to map the current landscape so discussion can focus on accurate information around gaps”.

The US focused on being clear about ex ante and ex post loss and damage concerns, identifying the key institutions and entities, and mapping all potential sources of finance.

“We envisage that we will launch a process to identify ways to address loss and damage,” said the EU. And this process will conclude in 2024.

Developing countries differed. On November 10, Pakistan stated that “the outcome of this COP should not be a process but a concrete one where a facility is established”.

On November 14, India highlighted how the elements paper had references to “a lot of mapping, technical papers, and gap analysis which did not seem to stem from any of their submissions”.

G77 stated that “we maintain the expectation that the outcome of this (COP27) will be funding arrangements for loss and damage, but we are getting more technical workshops, dialogues and synthesis reports”.

The sentiment has been that developed countries are deploying delaying tactics via the addition of procedural elements to prolong the discussion, rather than commit to establishing a new fund.

3. Including ‘liability and compensation’ in the text

There has been disagreement about the reference to liability and compensation, a controversial link that was previously deleted from the Paris Agreement in 2015. It thereby rendered the Agreement’s reference to loss and damage toothless, according to many.

The elements paper prepared by the cofacilitators at COP27 contained a footnote stating that “the outcomes of this agenda item are based on cooperation and facilitation and do not involve liability or compensation”.

Bangladesh highlighted on November 14 that this was not implicitly agreed upon on November 5 when the loss and damage agenda item was adopted. Burkina Faso supported the deletion of the footnote as well, adding that “it will be difficult for us to go back home with no outcome on this agenda item”.

The US argued that the footnote should instead be added directly to the final text, “recalling the understanding during the adoption of agenda item”. Canada supported this, stating that it was a “gentleperson’s agreement” during the fixing of the agenda item to add the clause on no liability, and thus it should reflect in the final decision text.

4. Need for a financing mechanism or a “broader comprehensive approach”

Developing country blocs have been clear about the outcome expected from COP27 — a new and dedicated financing facility for loss and damage. But developed countries have spoken about a broader approach covering existing, as well as, and new and innovative funding arrangements.

On November 10, EU stated that “a mosaic of solutions is needed”, and that Parties will need to look within and beyond what is in the Paris Agreement and UNFCCC.

The US said rather than a single new global fund, Parties should take a “whole of agency, whole of financial institution approach so we can be as precise as possible”.

On November 14, upon receiving the elements paper, the US further added that the call for a new operating entity or financial mechanism “does not reflect this broader comprehensive approach that we need to be taking for funding arrangements”.

Canada added that there isn’t one single solution to funding arrangements for loss and damage, so any singular poposals shouldn’t “prejudice the work coming”.

Most developing countries and island nations on the other hand have one singular demand — a facility.

“We need the need the operationalisation of a new, fit-for-purpose, multilateral funding facility. You cannot ask us to go hungry because you have not heard our calls. You have asked for empathy on this item, we have shown our goodwill to reach agreement on this. We cannot use empathy or goodwill to stop negotiations on an issue so crucial for climate and developmental politics”, said the Dominican Republic on behald of the Alliance of Small Island States, on November 15.

5. Linking mitigation to loss and damage

The elements paper published on November 14 by the co-facilitators opened with a line stating that “insufficient mitigation contributes to increasing loss and damage”.

The G77 submitted a strong response. “It is not pertinent to tell countries that you are experiencing loss damage because you are not mitigating enough, countries can be carbon neutral and still suffer. Connecting loss and damage to mitigation is inappropriate”. Switzerland argued that mitigation is critical to reducing damage due to loss and damage.

On November 15, at ministerial consultations, Maisa Rojas of Chile and Jennifer Morgan of Germany appointed to facilitate the discussions, explained that there was significant divergence about establishing a new facility or fund at COP27, and that the next step would be to focus bilateral meetings to get political guidance from Parties.

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