World

How payouts for climate damage fit into COP27’s trillion-dollar fight

Money talk at COP27 points to a clearer framework for the different roles money plays in addressing the climate crisis

“SHOW me the money” might seem like a crass way of summarising COP27 climate negotiations. Yet it gets to the heart of what the world must do to tackle climate change and the reason why the United Nations (UN) organises these annual climate conferences. Bringing together every country on the planet is in no small part a method of pressuring the wealthiest attendees to pay up.

The money question gets complicated quickly, and because this is the UN it also becomes defined by jargon. Spending on “ mitigation and adaptation” is supposed to come from a US$100 billion pot of climate finance contributions from industrialised nations, agreed to more than a decade ago. Trading in carbon offsets under Article 6 is meant to enable wealth transfers from developed countries to developing countries. “Loss and damage” is next frontier of compensation for disasters such as Pakistan’s floods.

  • Avert: If you pay to reduce emissions and reduce global warming, it averts the damage that would have been caused by unchecked climate change. This often takes the form of expenditures on renewable energy or other investments in decarbonising technologies.
  • Minimise: If you pay to adapt to a warmer planet, making infrastructure more resilient to a volatile world, it minimizes the amount of losses and damages caused by climate change. Think of constructing defenses against rising sea levels, preparing for heat waves by increasing the use of cooling, or designing buffers of open green space to absorb heavy rainfall.
  • Address: If you fail to avert or minimise, then those most responsible — rich countries with high historic emissions — should address those losses that result by compensating poor nations.

Those steps get progressively more expensive. The cheapest is to reduce emissions, followed by adaptation to warming conditions. By far the most expensive by far will be compensating the loss of lives and biodiversity.

Each step also presents a progressively more complicated accounting problem. There are clear projections of investment required for the global energy system’s green transition — as much as US$114.4 trillion by 2050, according to BloombergNEF. It’s harder to know how much adaptation will cost, and disputes over how to account for compensation have only just begun.

“There is no moral responsibility taken by the rich countries at all,” says Huq. “That’s the first step. Money comes a long way after that.”

This summit started with small-island states winning, for the first time, inclusion of loss and damage on the formal agenda. But that’s only the start of two weeks of tough negotiations meant to win an agreement to set up a dedicated funding facility, something opposed by the US and EU. For Michai Robertson, a lead negotiator for the Alliance of Small Island States, the price tag on addressing loss and damage should be roughly equal to estimates of averting and minimising the costs of climate change. That means trillions of dollars.

“You can’t create a fund in seven days, obviously that’s not the case,” Robertson said in an interview, citing 2024 as a target date, but first there needs to an agreement on creating a new fund.

Barbados Prime Minister Mia Mottley, speaking from the podium on Monday, proposed specific ways to increase funding across the range of averting, minimising and addressing. One example: Changing quotas at the International Monetary Fund could unlock around US$500 billion of so-called special drawing rights that, in turn, might unlock US$5 trillion of private-sector capital. She also suggested a levy on fossil fuel company profits with proceeds going straight into loss and damage funding.

“We need to look at ways to expand the lending that is available from billions to trillions,” Mottley said. “My friends, the time is running out on us.” – BLOOMBERG

Dayang Norazhar

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