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COP27: Should we really be celebrating the ‘loss and damage’ fund as a landmark achievement?

Pakistan was devastated by floods again this year. At one point, almost a third of the country was under water. Lives, homes, and livelihoods were destroyed on a massive scale, with the total economic loss estimated at a staggering $15.2 billion.

It was against this backdrop that Pakistan led the Group of 77 at the 2022 United Nations Climate Change Conference — COP27 — held in Sharm-el-Sheikh, Egypt, last month.

At an otherwise lacklustre and fruitless conference, the closing hours of COP27 saw the signing by nearly 200 nations of an agreement to create the ‘loss and damage’ fund. Its designated purpose is to help vulnerable countries adapt to and mitigate the effects of climate change.

In Pakistan, this is being hailed as a ‘landmark’ achievement. However, before claiming victory over climate reparations, it is important to gain some perspective.

A history of empty promises

The ‘loss and damage’ fund in its current form is only a fancy showpiece — shiny on the outside, but hollow on the inside.

The intention of the developed world was shaky from the very start when advocates of the loss and damage fund struggled to even get it on the agenda. While the agreement has been signed, no concrete decisions have been taken.

In fact, key issues — who will pay, who will benefit, and the amount of the fund — have been postponed for next year’s COP28 conference. In the meanwhile, a transitional committee is being set up to make these decisions, which is not scheduled to meet until March 2023.

The history of climate reparations from the developed world casts a long shadow over this year’s fund. At best, it should leave us sceptical about its material impact.

In 2009, a pledge by the Organisation for Economic Co-operation and Development (OECD) to raise $100b in climate finance annually never truly materialised. A small portion of funds raised actually reached the 48 poorest countries of the world.

After the ‘loss and damage’ fund was announced, the NGO, Global Witness, said that all other actions on climate action lack any ounce of credibility if the $100 billion is not delivered by next year. And it is right.

If wealthy countries fail to follow through on promises made in the past, such pledges will continue to remain only numbers on paper. The US also previously pledged $3b to the UN Green Climate Fund but delivered only a small portion of it. For this reason, jubilation over the ‘loss and damage’ fund must be contained until the agreement takes on a more tangible form.

So what’s landmark about it?

The announcement of the fund itself is not a cause for celebration. Such announcements, including the ones mentioned above, have been made many times in the past. The actual silver lining from this year’s fund that has gone unnoticed is that it is in the form of an agreement. This means that once the terms of the fund are settled, potential beneficiaries of the fund can hold contributors legally accountable to pay up.

Wealthy countries have shied away from signing agreements in the past. The Paris Climate Accords, the OECD pledge, or the Glasgow Pact did not create legally binding obligations on climate reparations. That is also why funds under the previous pledges never properly materialised.

Apart from the announcement of the fund, the COP27 conference was a disappointing event. The wealthy countries failed to make any progress on crucial steps required to limit global warming to 1.5 degrees above pre-industrial levels. Ani Dasgupta, president and CEO of the World Research Institute, said that while progress on loss and damage was encouraging, it was disappointing that the decision mostly “copy and pasted language” from last year’s COP26 conference in Glasgow about curbing emissions, rather than taking any significant new steps.

In fact, post-Covid recovery and energy shortages created due to the Russia-Ukraine War has meant that the developed world has moved backwards, instead of forwards in fulfilling its climate goals.

According to the Glasgow Pact, each country was required to send plans to the United Nations each year, outlining how they would honour their commitment to limit global warming to 1.5-degrees. Australia submitted plans that did nothing to limit their emissions. The US was unable to pass legislation to meet its 2030 goal of halving emissions below 2010 levels. Canada is unlikely to even send a plan this year. And with oil and gas prices rising, the European Union is trying to balance its climate goals with energy security.

The hypocrisy of it all

Lack of action on these fronts directly impacts countries like Pakistan that contribute very little to global greenhouse gas emissions but remain highly vulnerable to the effects of climate change.

Ironically, US climate envoy John Kerry said at the COP27 conference that the US will increase its contributions towards international climate finance, which would make it the single largest contributor of climate finance. This statement appeared hypocritical and self-aggrandising. Since the 1850s, the US has produced the most total carbon dioxide emissions in the world, more than twice as much as the second country on the list. It is also the largest oil and gas consumer, and the third largest coal consumer in the world. Climate reparations is a right that the US owes to climate vulnerable countries. It is not a gift, and it certainly must not be played up for soft politics.

The developed world needs to change its attitude, but so does the developing world. G77 countries, and Pakistan in particular, should have advocated for debt forgiveness. It is doubtful that debt forgiveness would have made it on the agenda, considering the ‘loss and damage’ fund barely made it. But to compel an action, collective pressure must be placed. Despite its shortcomings, we are where we are on climate reparations because of it.

Debt forgiveness makes humanitarian sense. The Universal Declaration of Human Rights, the founding declaration of principles for the international human rights framework, recognises the inherent dignity of all people on a foundation of freedom, justice, and peace in the world.

The pros of debt-forgiveness

Pakistan is facing a grave debt crisis currently, with a chance of default within the next year.

Its total outstanding debt is $130b, of which $23b has to be repaid within the next five years. Without money freed up from servicing external debt obligations, Pakistan will be unable to invest in social reforms. It will also undercut Pakistan’s ability to rehabilitate from this year’s floods and to create climate resilience for the future.

There is also a strong economic argument in favour of creditor countries willing to forgive sovereign debt. Debtor countries who no longer have to service debt, will use the added wealth towards increasing imports from creditor countries. Many domestic industries in debtor countries are reliant on such imports but are suffering due to import restrictions imposed to save precious foreign exchange reserves.

In creditor countries, increased exports to debtor countries will directly benefit workers, farmers, manufacturers, and local businesses. As a result, debt forgiveness will allow wealth to be transferred from savers to consumers in creditor countries, thereby incentivising economic growth through a consequential increase in demand and productive capacity. The Carnegie Endowment for International Peace calls it an “efficient fiscal boost”. The resultant loss to the respective treasuries of creditor countries will be made up by the payment of higher income and sales taxes, thus allowing wealth to trickle up instead of down.

It is a win-win situation for creditor and debtor countries alike. Furthermore, when the transitional committee meets next year in March, there will no doubt be disputes amongst contributors over the amount that they actually have to transfer into the fund. As a reparatory measure, debt forgiveness will not create such issues. Decisions will be taken by each country keeping in view their fiscal flexibility, and the amount of debt forgiven can be counted towards the respective country’s required contribution to the fund.

By creating the ‘loss and damage’ fund, wealthy countries have recognised their obligation towards vulnerable countries. But progress on climate reparations has been taking place at a snail’s pace.

Meanwhile, Pakistan continues to suffer. It is time to present radical options as viable solutions. Wealthy countries have a lot of catching up to do in contributing their fair share towards climate reparations.

Sources: 1,2,3,4,5,6

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