Call it a sign of the times: negotiations around the creation of a new Loss and Damage Fund for climate are breaking down, with developing nations and advanced economies at a familiar impasse. The Loss and Damage Fund—a fund meant to compensate vulnerable countries for climate impacts—is supposed to be a key deliverable for the upcoming COP summit hosted by the UAE starting at the end of next month. Instead, it might not happen at all. The major source of disagreement is reportedly around where to house it. The Biden administration and other advanced economies want the fund to reside at the World Bank. Developing countries want it housed at the United Nations.
What’s the controversy really about?
This is essentially an issue of control: the World Bank voting structure is based on shareholding—and the richest countries have the most shares. In contrast, the United Nations is one-country, one-vote so all countries have equal representation.
But in the grand scheme of things, where the Loss and Damage Fund is housed is a sideshow. The debate obfuscates the billion-dollar question of who will pay for the fund. The United States is unlikely to come forward with a pledge (and even if it did, getting it through Congress would be a Sisyphean task) and others countries been relatively muted about their intentions.
Is the fund the most effective way to help vulnerable countries?
Full disclosure—I don’t think a Loss and Damage Fund is a good idea. The world is awash in small and—too often—ineffectual climate finance funds. The result is a loose-knit constellation of financing entities that operate as less than the sum of its parts. If I had a magic policy wand, a major deliverable for the upcoming COP summit would be to consolidate these small funds into a bigger institution with real financial firepower. Or put some really big money into the World Bank’s International Development Association—the largest source of climate finance for the world’s poorest countries. But not the creation of yet another entity.
New bespoke institutions make for splashy political announcements, but they can also be costly distractions. They can take years to establish with complex and often fraught negotiations around governance, voting rights, and their policy architecture. Not to mention choosing leadership, hiring staff, designing and implementing projects, and then repeatedly having to go back to donors for more funding. Take the Green Climate Fund (GCF) which was founded to great fanfare over a decade ago but took years to get off the ground. Beset by governance challenges the GCF barely provides $3 billion a year in financing—a drop in the bucket compared to what is needed—and is struggling to secure fresh funding from donors. The organization could be poised for a reset with a promising new leader at the helm. But instead, the international community seems to be moving on to a shiny new Loss and Damage Fund which, if established, risks being beset by many of the challenges that plagued the GCF.
These rinse-wash-repeat cycles—big announcement, lackadaisical delivery—erode the credibility of the international system. The hypocrisy is particularly stark in climate discussions where the poorest are paying a cruel price for a climate crisis that the wealthy wrought. This renders discussions around loss and damage fraught with symbolism. So even though the technocratic case for its creation isn’t convincing (at least to me), for many the political case is powerful.
So what’s next?
The world doesn’t need the United States to establish a Loss and Damage Fund—especially given that the US is highly unlikely to contribute. This creates an opportunity for a new coalition of big emitters like China, the United Arab Emirates, Saudi Arabia, and others to throw in some big new cash. It would demonstrate that collective action and global solidarity is possible without the United States. And most important, it would be good for the planet.
Of course, the odds of that outcome are slim to none. Yes, the United States is often missing in action, lacking in global generosity, and neutralized by dysfunctional internal politics. But here’s an equally bleak reality: the rest of the world isn’t organizing itself around a viable alternative. And this too is a big part of the problem. There’s plenty of blame to go around.
Shiny new objects are a poor substitute for effective action. It’s a way of scoring easy points in the short-term but sows seeds of distrust when results don’t follow. Ultimately, I’m afraid that is exactly what the Loss and Damage Fund is setting out to do, with or without the United States.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
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