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Africa Confidential, October 2023

Fight over control of loss and damage fund dominates pre-summit talks
Key questions are whether the World Bank or the UN will control the new fund – and the cost of its loans | Special Report by Tim Concannon

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The schism between the west and developing economies over compensation for the damage caused by climate change is dominating preparatory talks ahead of the UN COP28 Climate summit due to open in Dubai on 30 November.

When the idea of a fund to compensate those countries whose economies were worst hit by climate change was agreed in the closing stages of last year's UN Climate summit in Sharm el Sheikh, delegates promised to have agreed on the organisation of the facility, which institution would manage it and how much its loans would cost before the next summit.

Of the 198 countries that have signed up to the United Nations Framework Convention on Climate Change (UNFCCC) most are developing economies, many of them badly hit by climate change. Most of them favour the UN playing the lead role in managing the fund and determining the terms of its lending and, perhaps, grant-making.

Western countries led by the United States, Canada, the European Union and Britain favour the World Bank taking control of the fund which would lend on similar criteria to current forms of finance offered by the Bank and the IMF.

Loss and Damage tops the agenda which has been agreed for the COP28 in Dubai but western states are eager to sew up the key questions on it before the summit opens. If that's not done, they fear that the issue could split the delegates and delay progress on many other issues such as emissions targets, carbon pricing and the role of technology.

The G77 of developing economies +China want the UN to take the lead on the loss and damage fund but has internal disagreements on eligibility and the lending criteria. Until now, the two biggest economies in this grouping – India and China – have taken the lion's share of climate finance.

But on the loss and damage funding, western states are demanding that China should contribute instead of benefitting from the loans.

It will be up to Sultan Ahmed Al Jaber, the COP28 President, to referee the arguments in Dubai. As chief executive of the Abu Dhabi National Oil Company (ADNOC), Jaber has strong views on how to resolve the loss and damage issue. His government, the United Arab Emirates (UAE), is on a well-funded charm offensive funding renewable energy projects and carbon trading projects across Africa and Asia.

With its considerable resources, the UAE would be targeted as a heavyweight contributor to the loss and damage fund and that would fit with its close ties with the G77 and China.

But a red line for the UAE, as it is for many fossil fuel-exporting economies, would be the ban on subsidies for international oil, gas, and coal projects that Britain and the EU are to propose to the Organisation for Economic Co-operation and Development (OECD) in Paris next week.

That could prove to be another dividing line in the pre-summit talks with G77 states – along with the oil-rich Gulf States and international oil companies (which don't have a vote) – opposing the EU-Britain subsidy ban. Some of the trade-offs on this could shape an agreement on the loss and damage fund.

The fund is intended to assist countries in the aftermath of cyclones, floods, famines – the impacts of a rapidly changing climate which the places being the worst affected weren't responsible for.

Of the top 10 countries most at risk from climate change, four are in Africa, with Mozambique at number one. Africa's 54 states on average generate 2-3% of global greenhouse gases. The unfairness of this reality isn't lost on the world's climate diplomats.

The Transitional Committee charged with setting up the 'loss and damage fund' met in Bonn in June but failed to agree to anything, including a location for its advisory facility. Subsequent meetings in the Dominican Republic and Aswan in Egypt have still failed to resolve the central question of which institution controls the fund: the UN, the World Bank, a hybrid of the two, or an entirely new mechanism under its own management.

The facility – an upgrade to the existing Santiago Network – would give technical support on the allocation of funds and resources. One plan was to locate it at the Barbados-based Caribbean Development Bank (CDB) or at a Kenya Office for Project Services within the United Nations Office for Disaster Risk Reduction/United Nations Office for Project Services (UNDRR /UNOPS).

Mottley's initiative
Housing the technical network at the CDB in Barbados could be a problem as well. The objections of Barbados hosting would come from the traditional gatekeepers of development finance: the World Bank, IMF, the US, the EU, Britain and Canada.

The UNOPS choice may sit more happily with the G20, on which the African Union now has a special seat, which have pushed trillions of dollars of loans as the solution to funding climate mitigation and adaptation plans (switching from dirty to clean fuels, and adapting to environmental changes like coastal erosion that can't be stopped).

These are more of a priority in Dubai for richer countries than sorting out a 'loss and damage' fund that satisfies everyone. The EU conceded the case for a 'loss and damage' fund but only to move on rapidly to items with bigger price tags, such as the wider energy transition, the move from high to low emissions power generation.

On loss and damage, Barbados has other historical resonances. The island republic, which broke from the British monarchy in 2021, is 'located along the hurricane belt where most transatlantic hurricanes pass, which makes Barbados vulnerable to all the major impacts associated with them', according to the World Bank's Climate Change Knowledge Portal (CCKP).

Prime Minister Mia Mottley called in July 2020 for a 'Caribbean Marshall Plan' evoking the Second World War reconstruction effort, with the Caricom slavery reparations commission as the vehicle for the rebuilding of the region's economy, physical and social infrastructure. The Caricom commission is the only costed reparations programme to be endorsed by nation states and their leaders in the wake of the global Black Lives Matter movement.

Mottley took centre stage at Emmanuel Macron's New Global Financing Pact in Paris in June with her Bridgetown Initiative document (AC Vol 63 No 23, Delegates haggle in Egypt as the planet burns). Among its recommendations is the call for multilateral development banks such as the World Bank/IMF to boost lending by US$100 billion to loan to the most vulnerable countries.

It also called for a substantial percentage of the IMF's Special Drawing Rights (SDRs, the IMF's reserve currency) to be reallocated to multilateral development banks so that they can boost lending to a broader range of at-risk nations.

Mottley got this and more: as well as $100bn for eligible countries from the IMF's Special Drawing Rights, the World Bank and IMF say they will unlock an additional $200bn in 'lending capacity' over the next decade. Now repayments on new loans from the World Bank can be 'suspended' but that concession doesn't apply retroactively.

Other debt relief measures and funding ideas for the 'loss and damage' fund showcased at the Paris summit included: debt-for-nature swaps to protect environmental assets that will limit carbon in the atmosphere, such as marine ecologies; plus a carbon levy on shipping.

The International Maritime Organization (IMO) estimates it can halve greenhouse gas emissions by 2030 without damaging trade. The World Bank reckons that a carbon tax on shipping could raise $50bn to $60bn a year (about a tenth of the annual planetary 'loss and damage' plus adaptation bill, if the higher estimates prove correct).

The shipping levy is broadly supported by Japan, the world's largest shipping nation, and by Eamon Ryan, environment minister of Ireland and the EU's chief negotiator on loss and damage. But Brazil has voiced strong concerns.

US President Joe Biden's envoy for climate John Kerry said at the Paris conference he would back some form of carbon pricing. 'I support some kind of revenue raising on a broad basis, but this is not administration policy'. Other forms of carbon levy on aviation, fossil fuel extraction and some kind of global wealth tax would be even harder to sell for Biden going into a presidential election.

There is also the matter of which countries would be eligible for 'loss and damage' funds. EU negotiators within the first 'loss and damage' fund Transitional Committee meeting, held at Luxor, argued that a country like Pakistan, devastated by floods, should be included and not only the Least Developed Countries (LDCs) and low-lying island states.

The sticking point is that China wants to be included in this rejigging of the rules, to become a net recipient of funds not a donor, something which was aggressively criticised by Germany at the Bonn meeting in June.

Given the wide gaps between the US and Europe on one hand and the G77 including the African Union on the other, that the negotiations for loss and damage will go down to the wire in the final days before the COP28 summit opens.

COP Chairman Jaber has a strong incentive to broker a compromise deal for this summit to be hailed as a success for the UAE. The alternative would be a breakdown in the negotiation process – and no one wants to bear the responsibility for that.

This article was developed with the support of Journalismfund Europe
Journalismfund Europe