Can we make the Loss and Damage fund work?

In the United Nations Framework Convention on Climate Change (UNFCCC), loss and damage has emerged as a third key pillar of climate policy, together with mitigation and adaptation, to address increasing climate change impacts in developing countries that are particularly vulnerable to the adverse effects of climate change. 

While there is no commonly agreed definition, 'loss and damage' is most commonly understood as the adverse effects of climate change that are not or cannot be avoided by mitigation and adaptation efforts. 

This definition implies that there are two types of loss and damage: those that exceed adaptation limits and those that can be minimised by taking adaptation efforts and finance. The limits to adaptation are the points at which adaptation fails to avert intolerable climate impacts.

Opportunities for averting, minimising and addressing loss and damage can be found across a spectrum ranging from reducing GHG emissions to disaster risk management, climate change adaptation, and addressing residual loss and damage. 

Reducing global warming can help to avert losses and damages while disaster risk management and climate change adaptation actions can help minimise them. 

Adaptation limits and loss and damage 

Loss and damage from climate change arises when efforts to avert or minimise climate impacts through mitigation and adaptation fail. The points at which adaptation fails to avert climate impacts are called the 'limits' to adaptation. 

Research on adaptation limits commonly refers to hard and soft limits. 

Hard limits are those that arise in physical systems, and which cannot be averted through adaptation action but rather only through mitigation of GHGs. 

Soft limits are those that can be avoided or minimised through more concerted adaptation efforts. Thus, the more the adaptation gap is reduced, the fewer soft limits will be crossed and the less loss and damage there will be.

Hard limits to adaptation 

Even if the temperature goal of the Paris Agreement is achieved, there will still be between 1.5°C and 2°C of warming above pre-industrial levels. At 1.5°C of warming, widespread changes in highly climate-sensitive ecosystems such as coral reefs and tropical glaciers are likely. 

It is in natural systems such as these where limits to adaptation seem hard in the sense that there are few options available to humans to avoid the points at which they are fundamentally damaged and some or all their unique and valued characteristics are lost, according to the Intergovernmental Panel on Climate Change [IPCC] 2022.

Many studies indicate the risks of changes in ecosystems resulting from climate change. For example, the coral reefs of the Indian Ocean are threatened with collapse due to marine heating (Obura et a. 2022); beaches and wetlands in California may be lost due to rising sea levels (Barnard et al 2021); the West Antarctic ice sheet may progressively melt due to warming (Pattyn and Morlighem 2020); many mountain glaciers may tip into irreversible melting beyond 2°C of warming (Hock et al 2019); parts of the Amazon rainforest are at risk of turning into savannahs because of drying, heat and fire; and changes in the West African monsoon may lead to shifts in vegetation cover in the Sahel (McKay et al 2022).

Climate-sensitive ecosystems facing hard limits have both intrinsic and extrinsic value to people. Extrinsic (or instrumental) values are those that arise from the goods and services provided by ecosystems to peoples whose livelihoods depend on them. 

The loss of the goods and services provided by ecosystems that exceed their limits to adaptation often flows on to loss and damage in social systems. For example, migration and mobility in response to water insecurity can enhance conflict and disrupt the cohesion of families and communities; the loss of reefs undermines the livelihoods of fishers, human health, and in extreme cases the sovereignty of whole countries; and changes in vegetation cover can increase hunger and malnutrition.

Soft limits to adaptation 

In some cases, loss and damage to climate-sensitive ecosystems can be avoided or at least greatly delayed through reductions in non-climate stressors. 

For example, human diversions of water are often a larger driver of change in wetlands than climate; poorly sited and designed structures can have a bigger impact on coastal erosion than sea level rise; and logging and habitat fragmentation can have a bigger impact on biodiversity losses in forests than climate drivers. 

In these cases, there are actions that humans can take to avert and minimise loss and damage, and so the limits to adaptation may be called soft in the sense that known practices and technologies can be effective, even if they are not immediately available and their application seems unlikely. 

The risk that adaptation fails increases with GHG emissions. The more warming there is, the less time there will be for adaptation to take effect. Slowing the rate of warming allows more time for soft limits to adaptation to be overcome. 

Given enough time, adaptation action may indeed overcome some soft adaptation limits in ways that avoid and minimise some loss and damage. Nevertheless, climate extremes are already causing significant loss and damage, and this trend will continue despite even the most effective adaptation and well before anticipated limits to adaptation have been reached.

Finance to address loss and damage 

The decision to establish a dedicated fund to assist developing countries in responding to loss and damage associated with climate change was a historic move agreed at COP 27 in 2022. In COP 28 at Dubai, the host and the modalities of its governance were finalised. 

So far, around $792 million has been pledged by some countries for this proposed loss and damage fund. For the first four years, the World Bank will be the interim host for this fund and it will be governed by a board of 24 members both from developed and developing countries.

As we know, overall climate finance is very limited compared to the needs. Financial need per year is $215 billion to $387 billion only for adaptation and currently we are getting around $20 billion. More than 50% of that funding are loans. 

There is no universally accepted definition of climate finance and accounting of climate finance is not transparent. According to a report by Oxfam, financing for adaptation is 7.92% and access to adaptation finance is very slow and complicated compared to mitigation financing. 

In most cases, adaptation (also applicable for loss and damage financing) financing does not generate any revenue and grant is the suitable option (if not the only option) for adaptation financing. 

Furthermore, only 1-2% money flows through the UNFCCC channel and that is the most suitable for the vulnerable countries as all the groups have the representation on governance of the channel. 

Maximum money flows through bilateral channels and there are big questions on the quality of that bilateral climate financing. The Oxfam study observed that vulnerable countries, particularly African countries, might fall in a new debt trap due to loan-based adaptation financing. 

Considering the previous experience on adaptation financing, we may not be very optimistic on the quantity and quality of loss and damage financing. 

However, vulnerable developing countries should work together with the common goal to get commitment from the developed countries to ensure adequate, predictable, new and additional loss and damage financing and that funding should be easily and quickly accessible.

Dr Fazle Rabbi Sadeque Ahmed. Sketch: TBS

The author is Deputy Managing Director (Environment and Climate Change) at PKSF and was a member of the official delegation of Bangladesh for COP 28.