Is the Global North conspiring to shape the L&D fund as inoperable?
The L&D Fund is in jeopardy due to disagreements between developed and developing countries. While the latter demand immediate and need-based access to financial support, the former are pushing for the World Bank to govern the fund
At the end of COP27, an agreement was reached on the institutionalisation of a Loss and Damage (L&D) Fund. Five meetings were held to decide the structure, contributors and recipients of the fund before COP28. However, the fourth meeting between the developed and developing bloc proved to be a 'make or break' situation and led to a deadlock.
Negotiations among countries will be more difficult in Abu Dhabi, as the question remains: will the L&D Fund be yet another climate injustice towards low-income, but climate-vulnerable countries?
Developed countries have been pushing for the World Bank to be the governing body of the L&D Fund while developing countries initially rejected the proposal. Developing countries have been deeply frustrated with the World Bank's climate finance support from the beginning of the climate negotiations.
The World Bank's financial policies support investment as a loan rather than a grant. According to a recent Oxfam report, in 2019-20, only one-quarter of the climate finance to the public sector were grants. Moreover, most of the funding was delivered as loans, and developing countries have repeatedly grappled with 'debt traps'.
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The lack of a definition of climate finance and adaptation in the UNFCCC process has been the cause of struggle for developing countries in the case of 'funding delivery.' The multiplicity of delivery mechanisms and sources has devalued the needs and demands of poor countries.
Repackaging the Official Development Assistance (ODA) as climate finance and consequently destabilising the domestic climate-development nexus of developing countries is a substantial case of climate injustice. The vulnerable countries' demand for 'new and additional funding' has rarely actualised under the finance trusteeship of the World Bank.
More significantly, developing countries demand an L&D Fund to have 'immediate access' to financial support in the case of emergencies. They further mandated need-based access of the countries to the fund, while demanding either another or a new international body to administer the fund.
The World Bank's complex and lengthy process prioritises policies towards Small Island Countries and Least Developed Countries and thus restricts timely and need-based finance delivery.
On the other hand, the United States and the European Union have pushed developing countries to the brink of a collapse regarding the L&D Fund. The US has remained bold in its historical position that the United Nations Framework Convention on Climate Change (UNFCCC) never recognised that developed countries should be the primary contributors to the L&D Fund.
The US and other rich countries further pressured to establish the World Bank as the only administrator for the fund.
The EU's proposal added more complexities to the bargaining when it called for only an insurance-based financial mechanism to address losses and damages under the Global Shield Initiative.
It further imposed conditions on the recipients: which groups of states should be supported? The EU also underscores that only the Paris Agreement should lead the fund, excluding the UNFCCC.
Nonetheless, the last two conditions by the EU countries are related to the most crucial bargaining points since the first Transitional Committee meeting - who is liable to pay for the losses and damages in the climate-vulnerable countries?
The US stresses that within the developed and developing countries distinction by the UNFCCC in 1992, emerging economies like China, India, South Korea, Brazil and others have already topped the emitting countries' list.
Thus codifying the 'developed countries' as the primary contributors of the fund when they are not bound to pay was a 'redline' point of bargaining. This line of debate has undoubtedly impacted the hard-earned common position among the G77 and China.
In a critical situation that offers a 'do or die' condition for the instrumentalisation of the L&D Fund, developing states agreed to accept the World Bank as an 'interim agency' to govern the fund.
Its termination can eventually establish a new international legal body. The proposal was presented to the developed country parties at the fifth Transitional Committee meeting. The meeting was organised by the COP28 authority to facilitate a consensus on the operationalisation of the L&D Fund.
The L&D Fund is in jeopardy due to disagreements between developed and developing countries. While developing countries demand immediate and need-based access to financial support, developed countries are pushing for the World Bank to govern the fund. The upcoming negotiations in Abu Dhabi will decide the future of the L&D Fund.
Umme Sayeda is the founder and Executive Director of Ecological Policy Nexus.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
