The initial amounts involved are just one month’s worth of fossil fuel industry profits. But experts say the failure so far to deliver the promised funding has eroded international trust so much that it could undermine the entire UN process – the only global forum to combat global warming. The most pressing issue will be “loss and damage,” the new funding from rich, polluting countries needed to bail out and rebuild poorer communities after climate disasters they’ve barely caused. It’s been a taboo subject for decades, but with climate impacts rapidly worsening from Pakistan to Puerto Rico, countries representing the vast majority of the world’s population insist it must finally be addressed. There are many ideas for raising money, from taxing fossil fuel companies to the “nuclear option” of disaster-stricken countries to cancel their foreign debt. The push to reform multilateral development banks, including the World Bank, with or without its beleaguered boss David Malpas, who recently said he “doesn’t know” whether he accepts climate science, is also gaining momentum. The minimum Cop27 should offer, campaigners say, is a new funding facility into which cash can be put towards losses and damages. Climate finance has three purposes: reducing emissions, adapting to the climate crisis and paying for losses and damages. In 2015, rich countries pledged $100 billion annually by 2020 for the first two purposes. It has yet to deliver, a “disgraceful” failure, according to African countries, but may do so by 2023. The global economic depression is also casting a shadow over fund-raising efforts. However, to calculate $100 billion, that’s 37 days worth of average oil and gas sector earnings over the past 50 years. As of this year, it is about half of the revenue Russia has received from fossil fuel exports since it invaded Ukraine. “There is no question – the money is there. It is being used for the wrong things,” said Professor Saleemul Huq, a police veteran and director of the International Center for Climate Change and Development in Bangladesh. For loss and damage, funding offered to vulnerable countries was nil until very recently. But the barrier was broken by Nicola Sturgeon, Scotland’s first minister, at Cop26 in Glasgow in 2021, with £2m now pledged. Calls for loss and damage funding have been repeatedly rebuffed by the US and other major economies, which fear liability for trillions of dollars in climate damages. But the issue can no longer be avoided, according to UN Secretary-General Antonio Guterres. “This is a moral imperative that cannot be ignored and Cop27 must be the place of action for loss and damage,” he said in October. “This is the No. 1 litmus test for how seriously governments are taking the growing climate impact on the most vulnerable countries.” Madeleine Diouf Sarr, who will chair the least developed countries group at Cop27, said: “We can no longer afford to have a cop who is ‘all the talk’. The fundamental assumption of loss and damage funds is that rich polluting countries caused the climate crisis, but poorer, tiny-emitting, developing countries are suffering the most from the effects. “Loss and damage is the greatest injustice for our generation,” said young Rwandan activist Grace Ineza, co-founder of the International Youth Coalition on Loss and Damage. “Our generation did not cause climate change, but we will be left with its enormous impact.” Beyond the immediate benefits of funding, money is also the currency of trust, Huq said, which is why the missed $100 billion goal is so important. “It is simply a matter of credibility of developed countries to deliver what they say they will do and they have failed,” he said. “So why should developing countries bother talking to them anymore?” This loss of trust has serious real-world consequences, according to climate expert Kate Levick at thinktank E3G. The big greenhouse gas emitters of the future will come from major emerging economies such as India, Indonesia, Brazil and China unless they take bold action backed by their populations, he said. “To do that, they need to feel that they have the real support of the richer countries and that there will be funds to help them.” Finance is critical to Cop27 and almost all key issues, for Levick, are about finance. He believes that resolving them will be key to continuing the UN forum as a driver of climate action. Laurence Tubiana, a key architect of the groundbreaking 2015 Paris climate agreement, said that without some movement on loss and damage, “the legitimacy of [the UN process] will be challenged.” Sameh Shoukry, Egypt’s foreign minister and president of Cop27, acknowledged the risk of problems with finance: “Without adequate and fair funding to serve as a catalyst, we will all continue to struggle to achieve effective climate action.” At Cop26, a group of 130 countries, representing 85% of the world’s population, called for a damage and loss financing facility, but the US and EU blocked it. Ahead of Cop27, the US and EU were still rejecting the idea of damage and loss payments. John Kerry, the US special envoy for climate change, was asked about such funding in September. “You’re telling me the government in the world that has trillions of dollars, why does that cost,” he bluntly replied, adding that he wouldn’t “feel guilty” about it. Dominica after Hurricane Maria. Developing countries bear the brunt of the effects of the climate crisis. Photo: Michael Lees EU climate chief Frans Timmermans also recently questioned the strength of the moral argument for loss and damage: “Let’s be honest: many of our citizens in Europe won’t buy that argument today because their concerns are linked to their own existence in it. energy crisis, in this food crisis, in this inflation crisis.” As Cop27 approached, the US and EU softened their language, saying they would at least not block talks on loss and damage. Huq said: “I would recommend it [Kerry and Timmermans] talk to Nicola Sturgeon, who broke the taboo [on loss and damage funding]. Denmark has also broken ranks, the first national government.’ Denmark has pledged $13 million, with development minister Fleming Møller Mortensen saying in September: “We are putting action behind words.” The contributions of Scotland and Denmark are of great symbolic importance, but the sums required for loss and damage are enormous. Developing countries are on track to suffer $290-580 billion in damages and losses each year, according to a widely cited study, rising to more than $1 trillion by 2050. Add in the funding needed to transition into a low-carbon economy and pay for adaptation projects, and all assessments add up to a trillion dollar total. There are plenty of suggestions for finding such funds, beyond government grants. “The window is wide open right now in terms of ideas,” Levick said. “There hasn’t really been much thinking through the G7 and G20 forums, partly because of political constraints.” Huq added: “We should try them all. I say let a hundred flowers bloom.” Guterres told world leaders in September: “Polluters must pay. I call on all developed economies to tax fossil fuel companies’ windfalls.” Youth activist Ineza argued this: “The first channel will make polluters pay, because polluters are the main levers [the climate crisis].” The world’s most vulnerable countries are preparing to back calls for a continued tax on fossil fuel extraction or global taxes on carbon emissions, air travel, shipping fuel or financial transactions. A combination of these could raise $200 billion a year, according to experts, although Levick warned: “International agreements on tax regimes are always very difficult. That said, there are many countries that are moving forward [fossil fuel] unexpected taxes”. The biggest momentum swings behind the dramatic reform of international financial institutions and multilateral development banks such as the World Bank and International Monetary Fund, which collectively hold $1.5 trillion in assets. This is supported by Guterres, new UN climate chief Simon Stiell, Cop26 chair Alok Sharma and, notably, IMF chief Kristalina Georgieva, who said: “If we do not change our trajectory [to higher investment in climate action] this decade, we’re cooked.” Critics say the institutions, created after the second world war, were appropriate for the 20th century but not for the climate and other cross-border crises of the 21st century. Reforms could include cheaper loans for green projects and allow institutions to de-risk clean energy projects for the private sector through co-investments. However, the flagship institution, the World Bank, is seen as an ulcer. “We haven’t had the leadership expected of the World Bank,” Levick said. Malpas, the bank’s boss, was appointed by then-US President Donald Trump in 2019. In September, Malpas was asked whether he accepts the scientific consensus that burning fossil fuels is causing dangerous climate change. “I don’t even know, I’m not a scientist and that’s not the point,” he replied. Former US Vice President Al Gore previously said it was “ridiculous to have a climate denier as head of the World Bank”. Malpas later said he was not a naysayer, but activists are calling for his replacement. Following the row, 10 major economies, including the US, UK and Germany, submitted a joint proposal for “fundamental reform” to the World Bank, expecting a response by the end of 2022.
