Climate negotiators have agreed to establish a fund to compensate developing and climate-vulnerable countries hit hardest by worsening weather extremes. But what does that mean exactly?
The UN climate talks, known as COP27 ended at the weekend with what Sameh Shoukry, COP27 President and Egypt's Foreign Minister described as a "historic outcome" that would benefit the most vulnerable all around the world.
In a video statement UN chief Antonio Guterres welcomed the decision to establish a loss and damage fund and to "operationalize it in the coming period."
"Clearly this will not be enough, but it is a much-needed political signal to rebuild broken trust," he added.
Big polluters had previously resisted a specific loss and damage fund for fear of being held liable for all climate-related extreme weather events. But the EU softened its stance towards the end of the two-week summit paving the way for the deal.
Sven Harmeling, global policy lead on climate change and resilience at NGO CARE International, described it as a new era after a long period of frustration and resistance.
"For more than 10 years, the most vulnerable nations have been demanding a new financial mechanism to address loss and damages. And for many years, this debate was resisted by developed countries," he said.
Pakistan's climate minister, Sherry Rehman, whose country experienced devastating and deadly floods this year, said the fund was not "optimal," but it addressed developing nations' "basic demand" that major historical polluters such as the United States and the European Union help vulnerable countries pay for the damage caused by climate change.
Who is the "Loss and Damage" fund for?
The full details of how the fund will work still need to be hashed out.
"That's the sticky point," Harmeling said. "The only decision we have is basically that there will be a fund but it’s not clear yet how this fund will operate, who will receive how much money and who will pay how much."
After some back and forth on which nations would be eligible to draw from the pot, the final deal says it would assist "developing countries that are particularly vulnerable to the adverse effects of climate change."
55 of the 58 nations included in the Vulnerable 20, a group of developing nations, which includes Kenya, the Philippines and Colombia, suffered climate-related economic losses of over half a trillion dollars in the first two decades of this century, according to a report put together by the Loss and Damage Collaboration, a global group of researchers, activists, lawyers and decision makers.
While Harmeling agrees that priority should be given to the most vulnerable countries, he says there is a need for a "differentiated system of eligibility."
"If we exclude half of the developing countries just because maybe they're a bit too rich or they are not falling under this category, this won’t fly politically," he said.
Who's going to pay?
There was also debate towards the end of the summit over which countries would be expected to finance the fund. German Development Minister Svenja Schulze was among those calling on China, the world's biggest polluter, to pay.
"China has 28% of the greenhouse gas emissions at the moment, so they must also contribute to dealing with the damage," Schulze told reporters last week, adding that it is de facto "no longer a developing country."
Historically, developed countries bear the most responsibility for emissions leading to global temperature rise — between 1751 and 2017, the United States, the EU and the UK accounted for 47% of cumulative carbon dioxide emissions compared to just 6% from in the entire African and South American continents.
The countries that have contributed most to climate change have been slow to make financial contributions to ease the impact on the most affected nations.
In 2010, Global North states already agreed to pledge $100 billion (€101 billion) annually by 2020 to help developing countries adapt to the impacts of climate change. But in 2020 wealthy nations had pledged just over $83 billion.
This money will still have to be paid. The new loss and damage fund is an additional pledge.
Harmeling says innovative funding sources, such as taxes and levies on international aviation or on the fossil fuel industry could become one source of income used to pay for loss and damages.
When will the fund start operating?
The final deal calls for workshops to be held in 2023 on how exactly the fund will function. Harmeling expects the first results, which will include details on who should benefit from the fund, who gets priority and potential sources of money, by the end of next year.
He believes that from 2025 onwards, the fund may be able to release the first payments and will then gradually be built up so that by the end of the decade, billions of dollars are available.
"It's not about industrialized countries saving the whole planet. We are beyond that state. But I think it's an element of fairness that we finally pay loss and damages to those many, many people who suffer in their daily lives out of a crisis which they have hardly contributed to," Harmeling said.
Edited by: Tamsin Walker
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