November 27, 2022

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What is Loss and Damage Compensation and Who Should Pay? From Reuters

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©Reuters. FILE PHOTO: A flood victim pushes his donkey cart on a flooded highway, after rain and flooding during the monsoon season in Sehwan, Pakistan September 16, 2022. REUTERS/Akhtar Soomro/File Photo

By Kate Abnett

(Reuters) – Nearly 200 countries gathering for the UN climate conference in Egypt are expected to discuss whether wealthy nations should pay compensation to vulnerable states hit by climate-related disasters.

The COP27 summit follows a year of such disasters, from floods that killed more than 1,700 people in Pakistan to droughts that withered crops in China, Africa and the western US. This has fueled calls from developing countries for a special “loss and damage” fund. But with rich countries resisting such calls, the issue has stalled for years.

Here are things ahead of COP27.


In the UN climate talks, the term “loss and damage” refers to costs already incurred from climate-related weather extremes or impacts such as sea level rise.

So far, climate finance has focused on reducing carbon emissions to mitigate climate change, while about a third of that has gone to projects designed to help communities adapt to future impacts.

Funding for loss and damage would be different as it compensates for costs that countries cannot avoid or “adapt” to.

But there is still no agreement on what should be considered “loss and damage” in climate-related disasters – which can include damaged infrastructure and property, as well as more difficult-to-assess natural ecosystems or cultural assets such as burial sites.

A June report of 55 vulnerable countries estimated their combined climate-related losses over the past two decades totaled about $525 billion, or about 20% of their collective GDP. Some research suggests such losses could reach $580 billion a year by 2030.


These questions are extremely controversial.

Vulnerable countries and activists have argued that rich countries, whose historical emissions have caused most of climate change, should pay now. The United States and the European Union have resisted the argument, fearing a debt spiral.

If countries agree to set up a fund, they would need to set out details, e.g. B. where the money should come from, how much wealthy countries should pay and which countries or disasters are entitled to compensation.

The EU and the United States blocked a proposal to set up a fund at last year’s UN climate talks, instead agreeing to a “dialogue” without a clear end goal. Last month they signaled more openness to discussing compensation at COP27 but remain cautious about setting up a fund.

Only a few governments have made small, token pledges of funding for losses and damages: Denmark and Scotland, and the Belgian region of Wallonia.

Some existing UN and development bank funds help states facing loss and damage, although they are not officially earmarked for that purpose.


Developing countries have proposed putting casualties and damage on the summit’s agenda, which must be approved unanimously before talks begin.

Frustrated by the difficulties and delays in securing climate finance, developing and emerging countries are now jointly calling for the establishment of a loss and damage fund at COP27.

These include island nations like the Maldives and Jamaica and China, itself the world’s biggest emitter of carbon, which has angered some European officials who say China should provide climate finance rather than demand it.

The countries have made different suggestions as to what the fund should look like. Even if COP27 does produce a deal to set up a fund, it could still be a few years before it’s ready to distribute money.

Some diplomats have suggested organizing a “mosaic” of funding sources instead of a central fund.

Another proposal from the Alliance of Small Island States suggests that COP27 agree to form a UN-hosted “response fund” to raise money from various sources for countries hit by disasters.

The EU has proposed using existing international funds to deal with loss and damage rather than creating a new one, but some experts say problems such as long delays make these funds inadequate to deal with loss and damage.


Already wary after wealthy nations failed to provide $100 billion annually in climate finance by 2020, some countries are exploring other avenues.

The “V20” group of 58 vulnerable countries and the group of seven rich nations plan to launch an initiative called “Global Shield” at COP27, which aims to strengthen financing for insurance and disaster preparedness.

Meanwhile, climate-vulnerable countries are scrambling to bid for a pilot facility to fund losses and damages. Other ideas include UN Secretary-General Antonio Guterres’ call for a windfall profits tax on fossil fuel-sourcing companies to raise finance.

The Pacific island nation of Vanuatu, meanwhile, has asked the world’s highest court – the International Court of Justice – for an opinion on the right to protection from negative climate impacts. An ICJ opinion could have moral authority and legal weight, reinforcing claims for compensation from poor nations.

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