A European proposal to untie the four operatonal knots of the loss and damage.

 (Draft proposal, December 2023) ^₁

Sultan Al Jaber, the controversial president of the 28th Conference of Parties (COP28) just gathered in Dubai to assess progress on climate change, kicked off the annual UN climate summit with an early success². The first days of the two-week pow-wow saw the adoption of a proposal entitled “Operationalisation of the new funding arrangements for responding to loss and damage”. This fulfils a pledge made a year ago at the COP in the Egyptian resort of Sharm El-Sheikh, where rich countries, chiefly responsible for historic carbon emissions, agreed to compensate mostly poor countries that did little to cause global warming but are the most threatened by its consequences.
A closer look to the text, does, hint that it may also be a lost opportunity.

THE PROBLEM SETTING: THE MOUNTAINS AND THE MICE OF COPS

One danger, as always with the COP process, is that mountains of negotiations will give birth to a mouse. Already the loss-and-damage proposal’s 18 pages look distinctly murine. The nuts-and-bolts title notwithstanding, you will have trouble finding in them anything particularly practical. Four big operational questions about the fund remain unanswered. Who is going to pay for it and how much? Who will be the beneficiaries? Which losses due to what kinds of event are going to be covered? Who is going to manage the whole thing?

The preamble of the draft agreement invites unspecified “developed” countries to volunteer donations; it does not say if China, the world’s second-biggest economy and today’s biggest emitter, qualifies. Eligible countries are “developing countries that are particularly vulnerable”, which may hint to the exclusion of some poor countries that are not directly exposed. It is still to be determined whether the fund would finance only the building of a barrier to protect against an imminent flood or whether it would also pay for economic damage caused by such a flood. And it is far from clear how the World Bank, which has been invited to run the facility for the next four years, can do so while guaranteeing the fund’s independence.

Mr Al Jaber may object that this is nit-picking. He could argue that he got the best possible deal from inconclusive negotiations; that COPs cannot produce much more than such half-agreements; and that the UAE set a good example by donating $100mn to the fund, which may have helped prompt four of the G7 club of big Western economies to stump up, too.

That is laudable, but not good enough. This year is shaping up to be the hottest on record. The area covered by Antarctic Sea ice has shrunk by 15% in 12 months. Worse, 2023 will see humankind put more planet-warming carbon dioxide into the atmosphere than any previous year. All this calls for faster action. And that may require a novel, less ideological approach to climate governance.

The “loss and damage” debate is a case in point. It is hamstrung by the division of the world into the “bad” (countries that grew rich by generating the damage) and the “good” (developing ones suffering the losses). An alternative, sketched out by the Dolomite Conference on climate change, a global gathering of students, companies, media and policymakers, would be to ditch this Manichean approach in favour of a mechanism that is more functional and, importantly, conveys the message that we are all in the same, sinking boat.

 
THE PROBLEM SOLVING: THE IDEA OF A GLOBAL FACILITY FOR THE NEXT GENERATION

The idea would be to replicate some of the features of “Next Generation EU” (NGEU), which the European Union launched to tackle to the “loss and damage” produced by another recent disaster, the covid-19 pandemic. All 27 EU member states were asked to chip in to the €750 billion fund in line with their share of the bloc’s GDP; each would receive support in line with the damage done to it by the pandemic³.

A similar climate loss-and-damage fund, call it “Next Generation Planet” (NGP), could be financed by all the parties to the COP according to their financial capacity, possibly weighted by their historic and current emissions (this would probably mean that the whole of Africa would pay less than one medium size EU country). A predetermined overall endowment should be fixed based on a scientific assessment of the amount of potential “loss” to cover (100 billion USD per year appears to be a rather optimistic assessment) and simple, understandable formula⁴ should be used to calculate the share of the burden for each party of COP.

The resulting money may be allocated to places that appear to be uninsurable against climate-related disaster in such a way that the NGP a) covers a share of the potential damage that is just big enough to attract private investors willing to underwrite the remaining risk and/ or b) invest just enough money into adaptation (dams, barriers, ..) so that the “place” becomes insurable. It is obvious that there will still be a difference between Florida (whose risks have been heavily altered by climate change) and Lagos, Nigeria, where the problem may more be on the mere capability to pay premiums. Therefore the facility should be equipped by the strong secretariat that the COP28 proposal envisages, and whose first task should be about to assess climate related risks by country (or region within larger countries).

Insurance companies may bring to the table extra money and, more important, much needed skills. This would make the NGP a globally managed insurance pool. Something that may not even need a bank because we are talking about risk management and not loans. Banks will certainly have a role in financing adaptation and yet the core managerial challenge will about a skill that is not within the core of the World Bank (or other similar institutions).

Somebody may counter that such a scheme would be a departure not only from COP but also from what has become the norm in multilateralism. That someone may be right. For if an even deeper climate crisis is to be averted, the world desperately needs a departure from the norm.

It is true that it is multilateralism per se to have become obsolete as for all the institutions that were conceived to govern a much more stable century: we even need to think to scheme like the NGP to be joined by a subset of the 198 parties; a coalition of the willing that decide to share a world that climate change is putting together with the violence experimented by many in different part of the planet.

At the time of an unprecedented crisis, the European Union took an unprecedented decision to issue common debt. With luck, COP28 could be the place where the world experiments with truly global governance of its most truly global problem. The EU can bring to the table its experience as a mediator amongst different cultures. An unideological loss-and-damage fund could be the start.

1 The Vision team for this paper is Pietro Franceschini, Margherita Curti, Clara Donati and Francesco Grillo.

2 This early success was almost immediately compensated by AL Jaber’s famous comment on “no science being out there that says that the phase-out of fossil is what’s going to achieve 1.5C”. These words were meant to expose the conflict of interests between Al Jaber being both the President of COP and CEO of one of largest energy company, ADNOC.

3 The bulk of Next Generation EU was the “Recovery Resilience Facility”. Its total endowment of 672.5 billion was indeed about 360 billion euros in loans and 312.5 billion euros in grants. The loans are raised collectively by the European Union and lent to member states that will reimburse the sums; the grants come from the European Commission budget that is raised from member states in proportion to their GDP.

4 For the argument’s sake we are envisaging such a formula to calculate the contribution of each country. Percentage of the fund to be covered by XYZ country = 0,5 * share of XYZ’S GDP on world GDP + 0,25 * share of XYZ’S current emission on world current emission + 0,25 * share of XYZ’S cumulative emission on world cumulative emission. This would lead to have the 54 African countries to contribute to less than medium size State like Netherlands.