Uncertainties about climate compensation fund trigger skepticism

A newly agreed “loss and damage” fund in which developed countries would pay for climate damages suffered by vulnerable developing counterparts lacks both details and actual funding, raising question about whether it’s merely a symbolic breakthrough.

Developing nations responsible for the smallest amounts of climate pollution for years have called for such a fund, which has been resisted by the United States and other wealthy countries.

That changed over the weekend when nearly 200 countries agreed to launch a new fund at the United Nations climate change conference (COP27) in Sharm el-Sheikh, Egypt.  

The agreement states that the fund will help developing countries respond to “economic and non-economic loss and damage associated with the adverse effects of climate change, including extreme weather events.” 

The deal provides no money, and no organizational structure, saying such details will be worked out in the coming months. It creates a “transitional committee” made up of representatives from 24 countries who will be tasked with finding funding sources and setting up the fund’s structure and governance.  

“A loss and damage fund has been established and that’s important on its own, but it’s an empty vessel,” Morgan Bazilian, a public policy professor at the Colorado School of Mines, told The Hill.  

Despite such skepticism, some advocates voiced optimism, arguing that getting to this point represents major progress after years of stalemate.  

“There was just a tremendous breakthrough this time of getting the United States and other traditional blockers to stop blocking,” said Jean Su, the energy justice program director at the Center for Biological Diversity.  

She acknowledged that there are still “big questions,” including “whether finance will actually get delivered,” but said that ultimately it gave “vulnerable communities around the world a glimmer of real hope.” 

Bazilian said it was good that COP27 provided a forum for civil activists to have their voices heard, saying they led to the fund’s establishment.  

But he expressed skepticism that the U.N. Framework Convention on Climate Change (UNFCCC) — the body responsible for the COP summits — would be able to fill what is at the moment an “empty vessel.”  

“The UNFCCC has not shown itself to be terribly effective, building up and implementing those kinds of buckets,” said Bazilian, who previously served as an energy specialist at the World Bank. 

Wealthy countries failed to live up to a $100 billion promise made in 2009 at another UNFCCC summit. That pledge involved providing that sum annually to less wealthy nations by 2020. 

In the past, several European countries have said they’d be willing to contribute to loss and damage more broadly. China has also indicated some willingness to contribute.   

“We need to ensure that the countries and corporations most responsible for the climate crisis make the biggest contribution,” Yeb Saño, executive director of Greenpeace Southeast Asia, said in a statement.  

Saño said funding is needed not only for loss and damage, but for adaptation and mitigation efforts. He also urged wealthy countries to “make good on the existing $100 billion per year pledge.” 

U.S. money for the fund seems doubtful given the divided government delivered by the midterms. A House now controlled by the GOP would need to appropriate money for the fund along with a Senate that Democrats just narrowly control.  

“Insanity. This wasn’t even on my list of the top 1 million things the United States should do with money we don’t have,” Sen. Kevin Cramer (R-N.D.) said in a written statement that his office shared with The Hill when asked for his thoughts on the deal.

“Congress did not give any authority nor appropriations for this global climate reparations fund,” he added. “The facts are America is a leader in reducing global greenhouse gas emissions. Why are we apologizing for our excellence when we can be exporting our technology and making a tangible difference?”  

Su, from the Center for Biological Diversity, said that since the U.S. is historically responsible for more emissions than any other country, it’s important for the nation to contribute.  

“Given where Congress is right now … we’re probably not in the best spot … for the next year, but that doesn’t mean that afterwards we don’t have more hope towards greater funding for this,” she added.  

The fund will face other challenges if money materializes, including how to agree on which countries should receive funds and how to distribute money.  

The agreement is ambiguous, saying that it would seek to help countries that are “particularly vulnerable to the adverse effects of climate change” without offering a definition. 

Brandon Wu, director of policy and campaigns at antipoverty organization ActionAid USA, said such “flexibility” may be a good thing, since “there are vulnerable people everywhere” in developing nations.  

The loss and damage fund diverges from other U.N.-sponsored initiatives in that it will seek money from “a wide variety of sources,” including development banks.  

“That opens the door to a number of things,” said Wu, who mentioned fees for international aviation and shipping or a potential windfall tax on fossil fuels. Traditional donor governments, such as the European Union and the U.S., insisted on including this measure, according to Reuters.  

The agreement also specifically contains a provision to “invite” global financial institutions to consider contributing to such funding arrangements. That provision specifically mentions both the World Bank Group and the International Monetary Fund as potential contributors.  

In response to the invitation, a World Bank spokesperson said that “there was a broad recognition of the need to increase financing for global public goods, especially climate action,” at the group’s recent October meetings but did not directly address the loss and damage fund.  

Just last week, the World Bank Group announced a “Global Shield Financing Facility” to help developing countries access more financing for recovery from climate-related disasters.  

The International Monetary Fund did not respond to a request for comment.

Bazilian, of the Colorado School of Mines, stressed that the bank has a “hundreds-of-pages-long climate change strategy” in its lending protocols. 

“They always participate and they are making those investments, just not at the levels an outsider who sees one graph thinks they should,” Bazilian told The Hill.