Financing the Shift to a Sustainable Future

  • 14th November, 2022
  • 4 min reading

Among the most contentious topics affecting international cooperation on climate change is the question of what responsibility richer countries bear for helping poorer countries deal with the costs of a warming planet. The question of how to finance the costs associated with climate change were covered in the sessions on Wednesday, November 9 where the thematic topic of the day for COP27 was climate finance in the broadest sense. The costs for dealing with climate change largely fall into three broad categories: adaptation, mitigation, and loss and damage.

  • Adaptation – These are the costs associated with implementing the necessary changes to deal with the impacts of climate change. This includes things like strengthening infrastructure, adapting agriculture and industry, and other costs associated with building in a more climate resilient way.
  • Mitigation – These are the costs associated with implementing the necessary systems to reduce greenhouse gas emissions – things like switching power grids to more renewable sources of energy, helping businesses reduce emissions associated with their operations, helping households to become more energy efficient, and generally meeting national commitments to reductions in greenhouse gasses.
  • Loss and Damage – These are the costs of dealing with the impacts of climate change, whether “acute”, as in damages resulting from catastrophic storms or flooding events, or “chronic”, such as dealing with long term impacts to things like agriculture systems, chronic health conditions caused by climate change, or displacement of populations resulting from the loss of sustainable sources of water.

Loss and Damage Debate

What is loss and damage in the context of climate change? While there have always been issues and discussions on how to help poorer countries deal with all of the costs associated with climate change, the issue of loss and damage has long been the most contentious because of the issue of assumed liability. Wealthier countries have long feared the slippery slope of admitting responsibility for the damaging effects of climate change by explicitly paying for the damages associated with any given climate event, rather than – as has traditionally been done – by providing aid after the fact. Scientists can now use computer modeling to determine with a high degree of accuracy the degree to which any particular climate event has likely been caused by increased concentrations of greenhouse gas emissions in the atmosphere.  This makes it much easier to link the “cause” of increased GHG emissions by wealthier countries with the “effect” of a particular storm on a particular population. 

When the UNFCCC was first being drafted in the early 90s, a group of small island states pulled together and suggested the creation of an international insurance fund that would provide compensation for the damages associated with rising sea levels and increasingly ferocious storms. While the language ultimately was not included in the final text, the idea has persisted, and has been discussed with increasing urgency as the worlds’ most vulnerable places face what has become for many an existential threat.

While rich countries have long resisted calls to provide explicit support for damages caused by climate change, poorer countries have continued to press their case. Loss and damage was first recognised as a legitimate topic for discussion at COP19 in Warsaw, Poland in 2013.  Coming out of the Conference, The Warsaw International Mechanism was established to further study the loss and damage concept, but it resulted in nothing but further dialogue and analysis with no commitment of funds to help affected countries. Finally, under mounting pressure, at COP26 in Glasgow in 2021, Scotland became the first country to commit to providing funds to support loss and damage claims.

With this year’s COP taking place in Egypt, as the conference opened on Sunday, rich countries for the first time agreed to discuss funding arrangements for loss and damage as a specific agenda item at the COP proceedings. While this is a long way from agreeing the specific mechanisms of how a loss and damage fund might be managed, or agreeing specific funding targets for wealthier countries, having the topic formally on the agenda was seen as some level of progress.  

And momentum seems to be gathering for rich countries to commit money to support loss and damage claims. This week, the President of the EU Ursula von der Leyen endorsed the idea, which was followed by pledges of funding from Ireland, Denmark, Austria and Belgium. Still, this falls far short of the estimated $580 billion in annual damages that countries are expected to experience from climate change by 2030.

Meanwhile, the world’s second largest emitter of greenhouse gasses has yet to fulfill the pledges made by President Biden in 2021, when he promised to provide $11.4 billion in loss and damage funding per year by 2024. So far the US has only managed to provide just $1 billion per year toward that goal – and this in years when the US Congress was controlled by Democrats. And notably, the US was absent earlier in the week from discussions on establishing a loss and damage fund, and was not among the countries that made explicit pledges to support loss and damage claims going forward.

Meanwhile, anger among the world’s poorest countries continues to grow, and those most affected continue to pursue options for securing the funding to help address the growing toll caused by climate change. Pakistan, which currently chairs the influential coalition of the “G77 and China” – and which experienced catastrophic flooding this year that affected approximately 10% of the country and caused an estimated $30 billion in damages – has gotten behind a plan by the Alliance of Small Island States to create a dedicated loss and damage response fund.

As the threats and damages from climate change continue to wreak havoc on poorer countries, many of which are in Africa, the discussions around loss and damage will most certainly continue, and will likely become more contentious as the costs continue to mount. While COP27 has not offered anything close to a definitive answer, at least the parties are now discussing the implications, considering options, and are beginning to commit funds.

In our next posting, we will look at the challenges associated with adapting to the impacts of climate change, with a particular focus on agriculture. Let us know your thoughts on any of the topics we’ve discussed, or anything else that has taken place at COP27.

Brent Barnette is a Non-Executive Director with ETK. He helps lead our focus on issues relating to sustainability, ESG reporting in Africa, and climate change.

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