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COP27’s Breakthrough ‘Loss and Damage’ Fund Will Take Time to Set Up

Days after the COP27 Climate Change Summit ended with an agreement to establish a “loss and damage” fund to compensate developing countries suffering from climate change, concerned parties started raising questions about which countries would finance the fund and which countries would benefit from it.

An official at Egypt’s Ministry of Foreign Affairs said that Egypt’s COP27 presidential team would continue the procedures for setting up the fund. Negotiators are under pressure to come up with a plan in the coming months and to submit recommendations to the 2023 U.N. Climate Change Conference, COP28, which is scheduled to be hosted by the United Arab Emirates.

The agreement to set up a fund dedicated to covering the cost of loss and damage that vulnerable countries are suffering from climate change came after years of debate. Previous climate finance agreements have addressed mitigation and adaptation activities, which focus on slowing the pace of global warming by cutting greenhouse gas emissions and on making communities more resilient to the dangers ahead.

Setting up criteria for the fund will be a difficult task, says Sayed Sabry, a climate-change and development consultant. Countries that want to benefit will “need to prove they are very poor, and in dire need of compensation for loss resulting from climate change resulting from carbon emissions from the major industrialised countries.”

The Egyptian ministerial official, who asked to remain anonymous, told Al-Fanar Media that it would be wrong to imagine that the new fund could be activated the day after its establishment. There will be meetings, the formation of committees, and other negotiations to iron out the mechanisms of how the fund will work, which countries will finance it, and which countries will be eligible to receive funds from it.

“The activation of the fund and the identification of financing mechanisms might take a year,” the official said. 

Tough Negotiations

Other experts agreed that difficult negotiations lay ahead to reach an agreement over which major industrialised countries would be obliged to pay the required funds.

الطريق إلى COP28.. هل ينجز العالم تفعيل صندوق تعويض الخسائر والأضرار في سنة واحدة؟
Sayed Sabry, a climate-change and development consultant (Photo: Al-Ahram).

Sayed Sabry, a climate-change and development consultant, observed: “There are objections from countries such as China and India, which claim they are developing countries even though they are among the world’s major economies.”

China, now the world’s second largest economy and largest emitter of greenhouse gases, was considered a developing country in 1992, when the United Nations Framework Convention on Climate Change (UNFCCC) was set up.

Sabry explained that the countries that are parties to the UNFCCC are divided into three categories with different levels of responsibility.

The first category,  the “Annex I Parties,” includes the major industrialised countries that were members of the Organisation for Economic Co-operation and Development (OECD) in 1992, plus several countries with economies in transition (the EIT Parties). Annex I countries have specific obligations to address climate change by cutting their greenhouse gas emissions.

The Annex II Parties consist of the Annex I countries that were members of the OECD in 1992, but not the EIT Parties. This is the group of major industrialised countries that are obliged to provide climate finance to help developing countries undertake adaptation and mitigation efforts.

The third category, the “Non-Annex I Parties,” are mostly developing countries.

Samir Tantawi, a senior climate-change consultant who has worked with the United Nations Development Programme and the Egyptian Environmental Affairs Agency, expects that negotiations over allocating responsibility for the needed funding will encounter reservations from some major industrialised countries about counting China as a developing country that can request to benefit from the fund.

Sabry thinks that setting up the financing mechanisms for the new “loss and damage” fund will be difficult, since specific conditions and criteria must be put in place for countries to obtain money from the fund.

“They have to prove their vulnerability to climate change and their being developing countries,” he said. “They need to prove they are very poor, and in dire need of compensation for loss resulting from climate change resulting from carbon emissions from the major industrialised countries.”

Sabry also thinks that the developed countries, such as the United States, the European Union, Canada and Australia, will be the most prominent financiers of the fund. He expects that the negotiators will demand that China and India also contribute to financing the fund.

Priority in benefiting from the fund will go to developing and extremely poor island countries, Sabry said, then other developing countries such as Pakistan and Bangladesh. This will be followed by developing countries in the Horn of Africa, Central Africa, and North Africa, such as Egypt, Algeria, Libya and others.

Who Will Benefit from the Fund?

Samir Tantawi, a senior climate-change consultant who has worked with the United Nations Development Programme and the Egyptian Environmental Affairs Agency, expects that negotiations over allocating responsibility for the needed funding will encounter reservations from some major industrialised countries about counting China as a developing country that can request to benefit from the fund.

الطريق إلى COP28.. هل ينجز العالم تفعيل صندوق تعويض الخسائر والأضرار في سنة واحدة؟
Samir Tantawi, a senior climate-change consultant who has worked with the United Nations Development Programme and the Egyptian Environmental Affairs Agency (Photo: Al-Dustour).

Tantawi noted that COP27, under Egypt’s presidency, had managed to approve the establishment of this fund only after long discussions and negotiations, but without reaching an agreement on mechanisms for compensating countries affected by climate change.

Alaa Al-Nahri, Egypt’s representative on the board of the United Nations Regional Center for Space Science and Technology Education for Western Asia, said the agreement to establish the “loss and damage” fund was a historic achievement for Egypt’s leadership of COP27. He expects that the work of the fund will be activated after the COP28 summit next year in Dubai.

بعد مؤتمر المناخ COP27.. من يمول ومن يستفيد من صندوق تعويض الخسائر والأضرار؟
Alaa Al-Nahri, Egypt’s representative on the board of the United Nations Regional Center for Space Science and Technology Education for Western Asia (Photo: Arabia).

The establishment of the fund is “the first step in climate action” Al-Nahri said, noting that the agreement came as “an unprecedented achievement” after years of debate.

However, Al-Nahri fears the potential impact of the current global economic crisis, exacerbated by the Russian invasion of Ukraine, on the fund’s current work negotiations. This had already sparked disagreements over approving the fund’s establishment, he said, “but Egypt, in cooperation with the concerned countries, could eventually reach an agreement to approve establishing the fund.”

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