One of the biggest successes from COP27 was the loss and damage fund that was established for the nations that are most vulnerable to climate change. The EU supported this fund under the requirements that nations classified as developing countries but are big emitters should be potential donors to this fund rather than recipients.
Nonetheless, this fund would be a slow-moving process that would take at least a year to finalise the details of and quite a low sum has been contributed to the fund at the moment.
There are different ways however to seek the funding needed for this project. For example, earlier this year the G7 leaders took a pledge to raise $600 billion in private and public funds over the period of five years to provide capital for needed infrastructure in developing countries, with the goal of helping tackle climate change. As journalists put it, a more sustainable alternative to China’s multi trillion-dollar Belt and Road project established in 2013.
Apart from this, another strategy of funding could be from taxation of the richer portions of the global population. The statistics of a report published by Oxfam that analysed the emission linked to the investment activity of around 125 of the world’s richest people support this strategy. The findings were that a billionaire’s average annual emission was around 1 million times higher than the annual emissions of a person outside of the richest 10% of the global population. This wealth tax could be the key to helping the loss and damage fund become as impactful and workable as envisioned and anticipated.
Aside from the plans to capitalise the loss and damage fund, another key topic that would be of general interest is transitioning the developing countries. The G7 pledge for instance was meant to be more than just helping fund the damages for climate damage but also an investment in global health and digital infrastructure of low and middle-income countries.
It is also worth noting that Indonesia has recently become a key target in the sustainability movement as they have been offered the sum of $10 billion to quit coal right before COP27. Jakarta however demanded more capital to accelerate the retirement of coal plants and cited the donor’s proposed timeline (aim for 2030 peak in power sector emissions before moving towards net zero by 2050-55) was unrealistic as Indonesia relies heavily on coal-fired power generation and currently it is unclear what other sources of energy would be able to replace it without major ESG repercussions.
The prospective donations towards South East Asia to become less coal-reliant is not just from the generosity of the Western nations but to do with the abundant natural resources such as rare earth metals which is crucial in the construction of EVs with the current technological advances. This is the start of relationship building efforts in order for a potential lucrative trade relationship to build EVs.
From the perspective of our team, we agree with the UNFCCC that financial support for developing countries’ efforts to address the unavoidable effects of climate change is a necessary step forward. However, with the current global socio-economic environment, it's likely that the funding would not have enough foundation or initial support from the potential nations/investors.
As we discussed, the worsening macroeconomics in developed nations (e.g. UK GDP expected to fall by 1.3% in 2023 leading to recession) would have the potential to adversely affect the fundings.
Furthermore, there is no clear structure following the distribution mechanisms nor the quality of the finance granted from these funds. From previous case studies such as the County Climate Change Funds in Kenya and the Climate Bridge Fund in Bangladesh, it was noted that grants were simple and effective ways to approach funding from the bottom up. This direct funding at community level is possible in certain smaller and to provide quick and adaptable solutions to smaller scale changes.
On the other hand, the co-variate climate related disasters to large populations, e.g. the recent flooding across the different states of Malaysia; a more large-scale mobilisation is necessary to provide substantial aid. These efforts alongside the coordination of national level agencies with the aid of international technical support would provide the best overall use for the funds.
Therefore, it is not just the worsening macroeconomics that would prove the loss and damage funds’ greatest and only obstacles but the overall most efficient use of said funds. With it’s unsteady and uncertain future, we can only continue to monitor the continued developments of what would hopefully be a success in relieving much of the social strain of climate damage.
Key sources:
https://www.energyvoice.com/renewables-energy-transition/456064/g7-offers-vietnam-and-indonesia-15bn-to-quit-coal-ahead-of-cop27/
https://www.weforum.org/agenda/2022/06/g7-pledges-invest-600-billion-infrastructure-developing-countries/
https://www.businessgreen.com/news/4059613/oxfam-tax-super-rich-raise-funds-climate-vulnerable-nations