Rich countries agree to establish loss and damage fund at UN climate summit

Although questions remain on how the loss and damage fund will work, climate experts and activists welcomed the move agreed upon by nearly 200 nations

In what is seen as a historic development, wealthy nations on Sunday agreed to the longstanding demand by developing countries to establish a fund to pay for loss and damage due to climatic events that has been brought on by global warming at the end of the UN climate summit in Egypt.

Under the new pact agreed upon by all countries at the crack of dawn in the African nation, it was decided “to establish new funding arrangements for assisting developing countries that are particularly vulnerable to the adverse effects of climate change, in responding to loss and damage".

Despite the breakthrough at the climate talks, which pulled back from the brink of collapse on the final day, there was little progress on other aspects of the climate emergency at the 27th Conference of Parties (COP27) held in the Red Sea resort town of Sharm el-Sheikh, particularly on climate finance for adaptation and mitigation, and accelerated phase-down of all fossil fuels, even as negotiations went into overtime beyond the scheduled end on Friday to iron out the contentious issues.

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“This COP has taken an important step towards justice. I welcome the decision to establish a loss and damage fund and to operationalise it in the coming period,” UN secretary general Antonio Guterres said at the conclusion of the two-week-long conference. “Clearly this will not be enough, but it is a much-needed political signal to rebuild broken trust.”

“We supported the loss and damage facility and suggested that the fund benefit all developing countries,” India’s environment minister Bhupender Yadav said at COP27. “We played a constructive role, and the outcome is good.”

Although there are questions on how the loss and damage fund will work, climate experts and activists welcomed the move agreed upon by nearly 200 nations that are signatory to the landmark 2015 Paris Agreement that aim to keep global warming to “well below” 2 degrees Celsius and to make efforts to contain it within 1.5 degrees compared with preindustrial times.

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“With the creation of a new loss and damage fund, COP27 has sent a warning shot to polluters that they can no longer go scot-free with their climate destruction. From now on, they will have to pay up for the damages they cause and be accountable to the people who are facing supercharged storms, devastating floods, and rising seas,” said Harjeet Singh, head of global political strategy at Climate Action Network International, a coalition of over 1,300 environmental non-profits.

Lifeline for the poor and vulnerable

“This loss and damage fund will be a lifeline for poor families whose houses are destroyed, farmers whose fields are ruined, and islanders forced from their ancestral homes,” said Ani Dasgupta, President and CEO of the World Resources Institute, a Washington DC headquartered environmental think tank. “This positive outcome from COP27 is an important step towards rebuilding trust with vulnerable countries.”

To be sure, delegates will be leaving Sharm el-Sheikh without any clarity on how the new fund will work and how money will flow into it from the developed world historically responsible for causing global warming by burning fossil fuels. As of now, it is akin to declaring an intention to open a bank account but no funds yet to show in it. There are no assurances yet that wealthy countries will deposit money into the fund.

The 2022 climate summit failed to deliver on a statement to phase down all fossil fuels, and not just coal, as was stated in the 2021 Glasgow climate pact. The demand for an all-inclusive phase-down was India’s diplomatic offensive at the climate summit that was backed by the European Union. It would have put the spotlight on oil and gas-producing nations, as well as countries that rely on coal.

Although the rich nations acknowledged a need for a response fund for loss and damage, the failure of the final declaration to include the phase-out of all fossil fuels threatens these gains, experts said, as the continued use of fossil fuels will further fuel the climate crisis and lead to increased loss and damage.

“The hope at COP27, through India's proposal, was to include a phase-down of all fossil fuels including coal oil and gas,” said Shruti Sharma, senior policy advisor at the International Institute of Sustainable Development. “It is disappointing that COP27 did not build on the COP26 statement (on coal phase-down) to deliver a stronger message.”

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It is now well-established that drastic emission cuts are needed to get on track with the Paris Agreement goals and keep the 1.5 degrees temperature limit within reach, Sharma pointed out. The Egypt climate declaration has only called for a low-carbon development, which implicitly means that there is no global stricture on not expanding the role of natural gas.

“We needed a swift, just, and equitable phase-out of fossil fuels, and the COP has yet again failed to deliver,” said May Boeve, executive director at 350.org, an international environmental outfit.

This year’s climate summit also struggled with other important issues such as the new collective quantified goal on climate finance, the global goal for adaptation, and mitigation of ambition.

“Unfortunately, the final text merely keeps the processes alive till the next COP,” said former Indian negotiator RR Rashmi, now a distinguished fellow at the Energy and Resources Institute, a New Delhi-based research organisation. “While a notional funding arrangement for loss and damage has been agreed upon, its shape and scale are far from clear.”

It is unlikely that calls on other crucial issues will be taken before the conclusion of the global stock-taking of the planet-warming emissions situation due at the next climate conference scheduled to be held in Dubai in the United Arab Emirates, he said.

Despite the shortcomings, the decision to establish a loss and damage fund shows some real progress was made at COP27. “Countries must now work together to ensure that the new fund can become fully operational and respond to the most vulnerable people and communities who are facing the brunt of climate crisis,” Singh said.