Loss and Damage Fund - more loss than win? And how to do it better

At first sight, like many of you, I was very excited that the UN Climate Conference in Egypt decided to set up a new fund for Loss and Damage. What is more important for climate action than to recognise that our carbon emissions create damage, and that we have to pay for that damage? What is more urgent  than to compensate the most vulnerable people for the climate-related losses they experience?

However, after some reflection and chats with people closely involved, I am now fairly sure that the new Loss and Damage Fund - at this point of time - may create more damage than it mitigates.  There are at least three reasons for this.

1. Greenwashing: Above all, the new Loss & Damage Fund helps to portray COP27 as a success, while it was actually a clear failure: no phase-out of fossil fuels or major carbon cutting measures were decided upon. Normally, multinational companies are accused of greenwashing but this may be a clear case of government-led greenwashing.

2. Unfulfilled expectations: Long-term success in climate negotiations ultimately depends on trust between countries. Unfortunately, with the new Loss & Damage Fund it is already clear that this trust will continue to dwindle. Poor nations now expect major contributions to the fund  - as they did to the Green Climate Fund - but given the current economic situation, it is unlikely that the EU and the US will contribute much. Money is fungible and it is much more likely that already existing adaptation programs and funds will simply be re-labelled as “loss and damage”. Poor nations will criticise this, rightly so, and disappointment will ensue.

3. Efficiency: The fund further contributes to the existing proliferation of public climate funds with the administration and bureaucracy that that entails. Every new fund is attractive for political marketing, a chance for politicians to shine on the big stage, but in the end - assuming that the climate finance pot of money stays the same - the efficiency of deploying such funds will go down.

I cannot just criticise without suggesting remedies. Here is what we could do to save the Loss & Damage Fund:

1. Raise funding for the Loss & Damage Fund through a global carbon levy: This is aligned with the “polluters-pays principle”.  It avoids greenwashing as everyone is motivated to reduce emissions, fundraising expectations can be defined, and it is efficient: if just a $0.01 levy is applied per tonne of emission from burning fossil fuels, we would currently raise $375m per year for loss and damage (based on the $37.5 billion tCO2 currently emitted every year), and the levy should obviously be higher!
2. Integrate in existing structures. Rather than creating a new institution and administration, the Loss & Damage Fund could be simply integrated as a new window in an existing structure like the LDC Fund or the Green Climate Fund, with existing procedures to deploy climate funding. If it is created as a new institution, it would need to massively differ from GCF, e.g. through rapid deployment in case of climate-related disasters.

Helping the most vulnerable is key and polluters should pay - but let us get it right!

Happy to hear your viewpoint.