Battle-lines drawn on Fund, Funding Arrangements for Loss, Damage

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New Delhi, 26th Sep (Radhika Chatterjee) – In the margins of the UN General Assembly  in New York, on Sept 22nd, a ‘Consultative Ministerial meeting on funding arrangements for responding to loss and damage’ was convened at the UN headquarters, by the UNFCCC’s COP 27 President H.E Sameh Shoukry, (who is also Minister of Foreign Affairs of Egypt) and H.E Dr Sultan Ahmed Al Jaber, the COP-28 President-designate (who is also the Minister of Industry and Advanced Technologies of the United Arab Emirates). The two Ministers Co-Chaired the consultations.

The outcome of the consultations saw clear and sharp divergences in positions between ministers or their representatives from developed and developing countries on critical issues relating to the Loss and Damage Fund (LDF) and funding arrangements, forewarning expected clashes and stark battle-lines that lie ahead at the fourth meeting of Transitional Committee (TC4) set up to deal with matters to be held next month, as well as at Dubai, when COP 28 takes place end of this year.

The key points of contention from the consultations included issues over the Fund’s governance structure, and whether the principle of common but differentiated responsibilities (CBDR), between developed and developing countries recognised under the Convention and the Paris Agreement should apply; who is eligible to get the funds from the LDF, and who should be contributors for the provision of financial resources to the Fund.

On the aspect of the governing structure for the Fund, developing countries expressed the need for establishing it as an operating entity of the financial mechanism of the Convention, so that principles of the Convention and the Paris Agreement (PA) could be ensured in the functioning of the LDF. They further insisted that the Fund should have an independent secretariat.

The developed countries, led by the United States of America (US) said they would like to see the Fund being established in the World Bank as a Financial Intermediary Fund (FIF). They also wanted the independent secretariat of the Fund to be established by the World Bank as in their opinion, it was best placed to set up such an institution at a fast pace.

Further, several developing countries highlighted the need for upholding the principles of the Convention and CBDR in the functioning of the LDF, while developed countries like the US explicitly said that CBDR and historical emissions could not be a part of the LDF.

On the matter of eligibility, speakers from developing countries insisted that all developing countries should be eligible to access support from the Fund, whilst those from developed countries asserted that eligibility should be limited to only those developing countries that are vulnerable to the adverse impacts of climate change, particularly the Small Island States (SIDs) and the Least Developed Countries (LDCs).

As to who will provide finance, developing countries made clear that developed countries which are most responsible for causing climate change should bear that burden, while speakers from the latter insisted that the Fund should draw contributors from a wide range of donors, including those developing countries that were “in a position to do so”.

Another point of disagreement was the extent to which public and private sector should be relied upon for financing the Fund. The developing countries asserted that it was public finance that had to be the primary source of resources for the Fund, while the developed countries felt that the public sector may be insufficient to meet the huge scale of needs, adding that the private sector and other innovative sources of finance that could play a bigger role in this regard.

Highlights of the Ministerial Consultations

In his opening statement, the COP 27 President, Sameh Shoukry expressed a clear need for establishing a dedicated fund for addressing loss and damage, adding that this Fund would deliver on key aspects like supporting resilience building and responding to slow onset events; providing direct support to governments and communities for sustaining their livelihoods; and support reconstruction and rehabilitation. Highlighting that existing policies are not fit for purpose, he cautioned that developing countries asking for support not face additional debt to reconstruct their lost development.

The COP28 President-designate, Dr. Sultan Ahmed Al Jaber identified three specific tasks ahead of COP 28, and asked everyone to build on the TC’s work to define robust funding mechanisms and arrangements. He laid emphasis on clearing political obstacles for allowing consensus to be built at COP28 and called on all contributing countries to deliver early pledges to the LDF, and to help inspire others to follow.

Sixty-seven speakers spoke at the consultations, including both governments and non-Party stakeholders who included members of civil society organisations and international organisations of the UN. Below are highlights of a selected few interventions.

Cuba, speaking for the Group of 77 (G-77) and China, said that “Loss and damage from the impact of climate change occurs in all regions and countries. However, this reality affects particularly harshly developing countries, which have contributed the least to the climate crisis and yet are the ones that suffer the most from its effects and have the fewest resources to confront them.” Citing the Independent High-Level Expert Group on Climate Finance, Cuba further shared that “estimates of future losses and damages could reach between $150 and $300 billion by 2030, figures that, although subject to change, are conservative.”

Cuba pointed out that “the existing climate finance architecture and the institutions that currently provide financing related to loss and damage are insufficient,” and advocated for “the establishment of an independent fund, conceived as an operating entity of the financial mechanism of the Convention and the PA, with its own institutional arrangements, and operating under the guidance and reporting to the COP and the meeting of the Parties to the PA (CMA), while being consistent with the provisions and principles of both instruments, including the differentiated responsibilities of the Parties.”

Laying the G-77 and China’s expectations about how the Fund should be, it said that “The Fund must have predictable, new, additional and adequate resources, provided on a grant basis, in order to avoid increasing the debt burden of developing countries. Financing should be based on needs, adapted to different national contexts and consistent with the national sustainable development priorities of developing countries.”

On the issue of additionality of the financial support provided, Cuba stated that it should be in addition to adaptation and mitigation finance. Regarding the question of eligibility for the Fund, Cuba said, “The Fund must operate without discrimination or conditionalities. All developing countries are particularly vulnerable to the adverse effects of climate change, so financial support for loss and damage must apply to all.”

Expressing the need for a fit for purpose Fund, Cuba mentioned that “The Fund should be prepared to adapt to the new realities of climate change… and will need to be open, flexible, responsive, innovative, and scale its financial resources over time.”

On the question of eligibility to the Fund, Pakistan stated that “All vulnerable developing countries, irrespective of their level of development and geographical grouping, must be eligible. No vulnerable developing country should be left behind,” expressing further that, “Any proposal to limit the eligibility of the Fund to any specific group or groups of developing countries would be patently counterproductive to the overall spirit, the purpose and the collective efforts behind establishing the fund. We would not be able to lend our support to any such select, divisive and exclusionary approach,” it said strongly.

Pakistan also added further that the Fund should be established as an operating entity of the financial mechanism of the UNFCCC and the PA, to ensure that eligibility criteria, programmes and policies of the LDF are aligned with these instruments. It also asserted that “the Fund should have a dedicated and independent Secretariat to ensure that the implementation of the Fund’s policies and delivery on guidance from COP and CMA are done in an impartial manner.”

It also insisted on financial resources as being “additional, adequate, non-debt producing, and grant-based public finance” while “innovative finance should complement, (and) not replace the public grant-based finance by developed countries.” Pakistan stated the need for the LDF to uphold the principles of UNFCCC and the PA, and that CBDR forms the central pillar of the financial architecture of climate finance.

Samoa, speaking on behalf the Alliance of Small Island States (AOSIS), said that on the question of eligibility and governance of the Fund, it acknowledged that all developing countries must be eligible, but at the same time, mentioned that the Fund should particularly address the constraints and the context of SIDs. It added that the Fund should be established as an operating entity of the financial mechanism of the Convention, with an independent and dedicated secretariat and that the LDF should reach capitalisation by March 2024.

Argentina, speaking on behalf of ABU (Argentina, Brazil and Uruguay) too said that a majority of the financing for the Fund should be provided by developed country Parties based on the principle of CBDR and historical emissions. Expressing the need for equity, Argentina also stated that there should be no discrimination between developing countries, and that all of them should be eligible for accessing support through the LDF.

Adding to Argentina’s statement, Brazil said that resources should be provided to the most vulnerable in developing countries, which is different from saying that support should be available to only ‘most vulnerable developing countries’.

Barbados, said that despite being a SID country, it would not want a Fund that did not provide support to developing countries like Pakistan. Senegal stated that those (countries) that had contributed the most to the problem of climate change should finance the Fund, including their private sector.

Highlighting the principles of Convention and PA, China said that the LDF should be guided by equity and CBDR. It further mentioned that developed country Parties should fulfil their funding obligations.

The US laid out its position clearly on four key points: what should be funded, eligibility, source, and governance structure of the fund, saying that in the beginning of the conversation on what the LDF should be addressing, it had identified slow onset events as a key priority gap that had to be addressed. After learning from the conversations held in TC meetings, it reiterated its’ proposal of three sub-funds which it had shared as a submission to the TC.

Regarding the issue of eligibility, the US said it was “critical to focus on developing countries that are particularly vulnerable to adverse effects of climate change.” For allocating resources, the US said that in Dubai, Parties could include in the governing instrument of the Fund  language that allows the board for developing a system of resource allocation based on vulnerability.

Speaking about the sources for the fund, the US made it very clear that it was important to design the Fund in a manner that it attracts a wide range of sources adding that there was no existing donor base for the LDF and that it was a new idea, which is separate from mitigation and adaptation.

Responding to statements made by other Party representatives about the need for upholding the CBDR principle, the US said, “We heard several parties mention CBDR – we are not sure what they mean in this context. If it means only developed countries will be invited to contribute, we definitely disagree with that notion. We need to invite a broad base of support to contribute to this Fund, including Parties in a position to do so.”

On the issue of governance of the Fund, the US said it needs to be housed in the World Bank as a Financial Intermediary Fund (FIF), for the sake of efficiency and effectiveness. “The Bank should establish an independent and dedicated secretariat (for the Fund). The Bank has the expertise, on ground presence in all regions, it has financial instruments and modalities to work with full range of partners, it has standards and safeguards to give the Fund the fastest and most effective running start”, stressed the US further.

Expressing solidarity with the need for establishing the LDF, the European Union (EU) said that only vulnerable developing countries should be eligible for drawing support from the Fund, and that the support provided should be combined with incentives for adaptation and resilience, including transformative recovery. On the aspect of donor base, the EU mentioned that all countries that are in a position to contribute to the Fund should do. Further, the private sector, and innovative sources of financing will have to be relied upon as the scale of funds required is huge.

Spain too highlighted that it is the particularly vulnerable countries who should be eligible for accessing the Fund, and that SIDs and LDCs should be supported by the LDF. It also expressed the need for using vulnerability indicators as criteria for allocating resources.  Spain also said that there was a need to draw on the widest possible sources of funding, including from those countries in a position to provide support, the private sector, philanthropies, and innovative sources of funding.

Germany stated that on the matter of eligibility, it was most vulnerable developing countries, SIDs and LDCs, who should receive support from the Fund. It further added that those countries that do not suffer under particular vulnerability, should not receive support from the Fund.

Reiterating the need for maintaining a wide contributor base to the LDF, the United Kingdom said that all countries who are capable of contributing should provide finance. It also called to move beyond “outdated categories” (in an apparent reference to differentiation between ‘developed’ and ‘developing’ countries).

The meeting was informed that the Co-Chairs of this ministerial consultation will prepare a summary of the discussions held during this session, and which is expected to inform the work of TC4, which is scheduled to be held in Aswan, Egypt from October 17th to 20th, 2023. – Third World Network