I realized after I hit send yesterday, I didn’t include the list of climate books I’ve been reading. So, instead I’m going to share it with you Thursday, with a brief review of each one. Today, I’m providing a dive into the Loss and Damages fund, which is shaping up to be the definitive issue of COP28.
And a reminder: I’ll be heading out to Dubai for COP28 on November 28. Starting on the 30th, I’ll provide daily reports.
Overviews of leading COP28 issues
- The four major issues shaping up COP28, plus one more
- Why we’re talking about abatement instead of fossil fuel phase out
- Developing country finances are now a top climate negotiating point
- How Global Stocktake results and carbon capture will play into negotiations
- Green energy financing, where will it come from?
- Concerns surrounding the COP28 president
Last weekend negotiators from 24 countries came to what is being called an agreement on the creation of a Loss and Damages fund, which is supposed to be financed with $100 billion a year by developed countries for the remediation of climate-fueled damage from natural disasters in developing countries.
As I discussed before, creation of the Loss and Damages fund, which was agreed to – in concept – at the last minute at last year’s COP27, has become the pivotal issue for COP28, since it will be the first actual international financing mechanism created by the climate negotiations process.
The staff level negotiations have been fraught, as a meeting in Aswan, Egypt ended two weeks ago with no settled agreement. So, last weekend’s meeting in Abu Dhabi, UAE was set up as a last ditch effort to produce an agreement before national ministers and leaders meet in Dubai. Developing countries have made it clear that if there was no agreement before COP28 began, they would be uncooperative on any other issue. The creation of a Loss and Damages fund has become the alpha and omega for any future climate agreements.
However, the circumstances of last weekend’s agreement are somewhat conditional. On the second day of the meeting, the opposing sides apparently squabbled endlessly, and the co-chairs proposed a “take it or leave it” text. Just as the groups voted to approve the text and the meeting was gaveled closed, the U.S. representative left the room. Later, after the meeting had adjourned, the U.S. submitted objections to how the fund would be financed, which the co-chairs appended as “notes” to the agreement.
The result is a bit of a diplomatic two-step: The U.S., who is likely to be one of the major financiers of the fund, can tell U.S. Senators that it didn’t approve the agreement and registered objections, while no official objection was made before the gavel, so the text of the agreement is able to move forward for approval by the 198 members of the Conference of the Parties (COP28) later this month.
What are the Issues?
The fund is supposed to be financed with $100 billion each year by the 39 developed countries, as established in the original 1992 climate agreement. Although previous climate treaties have encouraged financing negotiated between one country and another, this would be the first financing vehicle with a specific amount delineated, paid by specific countries, for a broad set of projects. And because the agreement involves real money, there’s an argument is about who gets it, and when. Specifically:
Where would the fund be hosted – The developed countries pushed for the World Bank, because it’s capable of hosting large funds and disbursing them without corruption. Developing countries have long standing acrimony with the bank, and charge that it is suited to making loans not grants, which much of the fund is supposed to be. The final agreement set the Bank as an interim host for four years, with some other location to determined later.
Who funds it – The U.S. opposed any stated obligations, although the final language does not include specific requirements and allows private organizations to contribute, one the main U.S. requirements and a concept developing countries found objectionable. The U.S. also tried to get wealthy petrostates like Saudi Arabia included as funders, but that demand was rejected.
Who governs it – The final agreement includes 26 members, 12 from developed countries, and 14 from developing countries of various geographies. The decision making is meant to be by consensus, and failing that, decisions require a four-fifths vote.
Who gets funding – This decision was punted to the newly created fund board to decide, but all funding will go to developing countries, and consensus seems to be that the 46 “Least Developed Countries” should be the primary beneficiaries.
What’s the politics?
Any agreement approved at COP28 for a Loss and Damages fund would have to be signed and ratified by each country. This is a tall order for the U.S. Senate, which has not ratified the Kyoto Accords or the Paris Agreement. So far, the U.S. government’s participation in the Paris Agreement has been set “as Administration policy” by the Obama and Biden Administrations, and specifically not policy by the Trump Administration. Obama and Biden have been able to do so because the Paris Agreement does not have any financial or legal obligations, merely promises. If the Loss and Damages fund were to include a legal or financial obligation, there is no way the U.S. could participate, especially since there’s no way the U.S. Senate would muster 60 votes for ratification.
Developing countries view the Loss and Damages fund as a make or break issue. Already, there is supposed to be a $100 billion fund created for developing country climate mitigation, but that fund has never topped $29 billion, and most of it has come in the form of loan guarantees, not actual funding. In addition, many developing country leaders are still smarting from a sense of abandonment during COVID, where rich countries shut their doors and gave their citizens first priority for vaccines once they were developed. Without approval for Loss and Damages, many developing countries say they will never be able to trust the rich world on major global agreements.
Now that discussion is coming down to financing, the talk is getting real. Sunday, The Guardian reported a remarkable, direct quote from an unnamed U.S. State Department official.
“No single government, or subset of governments, has enough resources to meet the funding needs of particularly vulnerable nations at the scale that is required. That’s why we made clear throughout these negotiations how crucial it is for this fund to be able to receive financial input from the widest range of sources, including innovative ones like carbon markets, international pricing mechanisms, and others that can serve to complement grants and concessional loans from public and private sources.”
The official is probably right, although developing countries look at the U.S. government’s $6.3 trillion 2022 budget and likely wonder why the U.S. is crying poor so much.
What’s the likely outcome?
The existing language seems about what the U.S. is already looking for, although it seems the U.S. will probably want some sort of guidance for the fund’s board requiring that no specific amounts will be levied from specific countries. If that happens, the fund could be approved by COP28 and the U.S. could seek some number of private foundations and domestic billionaires to contribute to the fund, along with some amount of American loan guarantees, which cost the federal budget nothing and can be handed out by presidents like candy.
Other Things Happened
- China’s Belt and Road Initiative has lended out $1.3 trillion so far, but many of the backed projects are failing to draw enough revenue to pay the interest. So now 58% of BRI lending is going to “rescue loans”.
- The U.S. and U.K. have more overseas bases than anyone else, and a new study suggests their militaries are among the biggest climate polluters in the world.
- A previous attempt, from COP26, at getting developed countries to finance green energy in developing countries, called Just Energy Transition Partnerships, is stumbling. Grist has a good overview why.
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