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TWN Info Service on Climate Change
24 October 2023
Third World Network


Developed countries obstruct progress on Loss and Damage Fund outcome

24 Oct, Kathmandu (Prerna Bomzan): The UNFCCC’s Transitional Committee (TC) set up to operationalise new funding arrangements and the Fund to address loss and damage, failed to agree on an outcome, mainly due to the obstructive and rigid stance of developed countries, primarily over the location of the Fund, which they aggressively pushed to be hosted by the World Bank (WB).

In stark contrast, developing countries consistently rejected the push for the WB as the host of the Loss and Damage Fund (LDF) and demanded instead for a new stand-alone Fund, with an independent international legal personality, and an independent dedicated secretariat.

The fourth meeting of the TC, which was considered final in the series, opened on 17 Oct. in Aswan, Egypt, and was scheduled to close on 20 Oct. However, it creeped into the early hours of 21 Oct and eventually fell short of delivering the TC’s mandate to come up with recommendations for the operationalisation of the new Fund and funding arrangements for consideration and adoption at the UNFCCC’s COP28 and the 5th meeting of the Parties to the Paris Agreement (CMA5) to be held from 30 Nov to 12 Dec in Dubai, UAE.

Given absence of the desired outcome and amid grave disappointment shared by TC members resulting from the impasse, in a bid to save the process and to provide another opportunity to the TC to fulfill its mandate, the incoming COP28 Presidency offered to host an additional fifth meeting from 3-5 Nov in Abu Dhabi, which was agreed to by the TC as a way forward.

Further, upon request by the TC members to capture whatsoever progress made in Aswan especially in closed sessions of “small groups” which attempted to unlock divergences, Co-Chairs Richard Sherman (South Africa) and Outi Honkatukia (Finland) assured to incorporate the work achieved in their next Co-Chairs’ note in a manner to facilitate an outcome at the next meeting in Abu Dhabi.

Besides the deadlock over the location issue of the LDF and its secretariat, the other two top contentious issues that were discussed in “small groups” and closed to observers and not webcast until the final hours, were over the (i) sources of funding and financial inputs; and (ii) the system of allocation of resources. Both these issues featured among the host of 13 “outstanding” matters carried by the Co-Chairs’ scenario note produced in advance of the meeting.

The location of the Fund and its secretariat remained the crunch issue dominating the entire meeting until the final hours of the negotiations with no consensus in sight. (See further details below).

On the sources of funding and financial inputs, developed countries rejected the recognition of the foundational principle of common but differentiated responsibilities and respective capabilities (CBDR&RC) (between developed and developing countries) and thus, their lead role in providing finance to developing countries as part of their financial obligations under the UNFCCC and its Paris Agreement and as the primary source of funding. Developed countries pushed for the terms “countries in a position to do so” to contribute to the Fund. They also resisted the reference to at least USD100 billion per year by 2030 in terms of scale of resources needed that were proposed by developing countries, arguing that “scale” is beyond the mandate of the TC.

On the system of allocation of resources, the key issue of contention was the imposition of “sub-funds” and hence, the earmarking of resources by developed countries based on “vulnerability”. This clearly demonstrated a divisive approach of only “prioritising” the Small Island Developing States (SIDS) and the Least Developed Countries (LDCs) while also conflating the matter of allocation of resources with the issue of “eligibility” to the Fund’s resources. In contrast, the united position and understanding of developing countries was that “all developing countries are particularly vulnerable” to climate change impacts and hence, all are eligible for support from the Fund.

Developing countries rejected the developed countries’ proposal for an allocation system with criteria for prioritising vulnerabilities, and called for allocation based on programmatic and/or trigger-based support.

In their scenario note, the two Co-Chairs underlined the need for a “spirit of flexibility and compromise” but this remained elusive, given the stubborn resistance of developed countries to their position, despite pleas from developing countries.

A substantial part of the entire meeting was closed to observers, and comprised of small group discussions and consultations, with limited plenary settings.

On the first day on 17 Oct, the Co-Chairs calling for “potential flexibilities”, conducted a reading of their summary of core issues to be resolved, each of which had options, offering TC members to either agree to their proposals or amendments but with “no addition of text” as the mode of work.

The draft negotiating text as the Co-Chairs’ proposal was produced only on the concluding day of the meeting on 20 Oct which was critiqued by TC members given too limited time and space for actual negotiations to arrive at a consensus outcome.

Location of the Fund/Secretariat

Developing countries from the very outset since launch of the TC work have maintained their united demand for a stand-alone Fund with an independent international legal personality with legal capacity and an independent secretariat accountable to the Board of the Fund.

On the other hand, the United States (US), supported by other developed countries, has been the lead proponent of the Fund to be hosted by the WB as a Financial Intermediary Fund (FIF) whereby it could play many different roles as: trustee only; trustee and an implementing entity; trustee, host to secretariat and an implementing entity. Their proposal has been to invite the WB Board to establish the FIF with a dedicated, independent secretariat and for the WB to make related arrangements, with the argument that placing the Fund in an existing institution would be quicker and with governance related elements already in place.

Developing countries voiced their grave concerns over the proposal, given the history and performance of the WB against their interests and rejected this, especially when it came to a lack or absence of the legal personality for the LDF and its Board; independence of the LDF’s secretariat; the WB’s restrictions on direct access as well as access for non-members of the Bank; the WB’s policies and procedures taking supremacy over the Board of the LDF, for instance over eligibility and income criteria, among other things.

Despite a closed session with the WB during the meeting on 18 October, which was demanded by the developing country members for clarification and to allay their fears as well as gain assurance and safeguards in writing, sources told TWN that the session “was not up to the mark” to give them the needed confidence.

On 19 Oct. when the options put forth by the Co-Chairs signaled in the direction of the WB, Diann Black-Layne (Antigua and Barbuda)  speaking for the Alliance of Small Island Developing States (AOSIS) questioned and objected to the “process” and expressed that it felt like “We are creating a Fund not for loss and damage but to fit into the WB”; that “the WB is an option but we feel that its presented like the WB is the only option”, further pointing out that there is a “huge power difference here”. She called out strongly that “if the WB is an option that is non-negotiable then stop negotiating; let us stop pretending that we are negotiating”.

In response, Jean-Christophe Donnellier (France) disagreed, and referred to the submission of the European Union (EU), which he said had nothing in anyway related to the location of the LDF at the WB. He said however that he wants the Fund to kick start activities as soon as possible and the only way to see it done is to place the LDF in an existing institution and the “WB is the most appropriate at this stage”. Donnellier added that the Fund can be located in the WB with a “set of conditions” and the Board can decide to choose to transition to another institution or location.

Christina Chan (US) echoing the same and “disagreed” that the WB was a “fixed” option which but evolved over conversations from previous TC meetings, recognising the need for quickly disbursing funds and hence, it was better to house the Fund in an existing institution. She thus maintained that the option was not based on “predetermining” but on evolution and analysis of what was needed.

On the same day, in response to the pressure from developed countries on the WB option, the Group of 77 and China (G-77) Chair Ambassador Pedro Luis Pedroso Cuesta (Cuba) issued a press statement and said that “at this late hour, a small group of nations responsible for the most significant proportion of the stock of greenhouse gases have tried to bargain potential support for a Fund on one side with eligibility and administrative arrangements that would impede its ability to respond directly, for instance, the recent climate-related tragedies in Pakistan and Libya and an explicit withdrawal from their differentiated responsibilities and commitments under the COP and CMA”. He further said that “accepting this Faustian bargain now would break the COP when we need the greatest internationalism and solidarity to solve climate and other global challenges. With unanimity, developing countries, small and large, alongside others who care about a liveable planet, have rejected that bargain”. (See TWN Update for further details).

The next day on 20 October on the scheduled closing day, the Co-Chairs’ proposal saw what was viewed as a very imbalanced draft negotiating text, as lamented by developing countries that provided four options in relation to “matters related to the location of the Fund”: Option 1: The World Bank; Option 2: The World Bank with conditions; Option 3: New standalone institution; Option 4: Open process to select the Fund Host.

Sources revealed that during the developing country constituency meeting to work on the text after its release, two “package” options were also considered at the late hour for a possible way forward viz. Option 1: for the WB with conditions; and Option 2: for a stand-alone fund with conditions. Both options however could not lead to a consensus, said sources.

Sources of funding, financial inputs, scale

While developing countries in general were aligned in respecting the principles and obligations of the UNFCCC and the PA, where developed countries have to take the lead in the provision and mobilisation of finance, with voluntary contributions from other Parties and complementary inputs from all sources, developed countries focused their aim on proposing contributors to the LDF to be “Parties in a position to do so”.

Developing countries also highlighted the need for urgent and immediate new, additional, predictable, adequate, and significant financial resources and that the LDF should be able to operate at scale with at least USD100 billion a year by 2030. They said that this would have to be potentially scaled up since this amount is not meant as a ceiling but as a minimum commitment given that the LDF should be prepared for, to adapt to the increasing loss and damage needs of developing countries. Developed countries however do not want any text or reference a scale, arguing that is out of the TC’s mandate.

In the draft negotiating text of 20 Oct, under the section on ‘financial inputs’ paragraph 75(a) reads, “The Fund is able to receive contributions from, inter alia: Parties to the Convention and the Paris Agreement”. There is no differentiation between developed and developing countries.

Matheus Bastos (Brazil) speaking on behalf of the G-77 and China voiced that the current drafting of the text is “simply not acceptable” and that “it’s a matter of a principled position that we need to reflect the principles and provisions of the UNFCCC and its PA which clearly provides obligations from developed to developing countries including agreed full costs, so we do need language clearly stating that the developed countries are to provide finance to the Fund”, without which the Group was not in a position to support it.

Bastos was echoed by Albara Tawfiq (Saudi Arabia), Angela Rivera (Colombia), Sumaya Zakieldeen (Sudan), and Ali Waqas Malik (Pakistan). Tawfiq (Saudi Arabia) further requested the insertion of the text from the Green Climate Fund’s Governing Instrument which states, “The Fund may also receive financial inputs from a variety of other sources, public and private, including alternative sources” to prove that the Fund does not bar other sources from contributing.

Zakieldeen (Sudan) added that as the language currently stands it says “we are all going to pay for the loss and damage ourselves and therefore, its fundamental to see the principles of the UNFCCC and its PA”, while Ali (Pakistan) also lamented that “we are actually creating a Fund with an empty bank account with no obligations, a voluntary Fund regardless of whether developed or developing are contributing”.

Mohamed Nasr (Egypt), also representing the COP27 Presidency, in reference to  language in paragraph 76 which reads, “The Fund may have a periodic replenishment…”, commented that instead of “may”, the word should be “must”, indicating that the Fund “must” have a replenishment process, which was also supported by Rivera (Colombia).

Bastos (Brazil) for the G-77 and China also asked for the deletion of “voluntary carbon markets” in paragraph 75(g) under innovative sources as financial inputs. Paragraph 75 (g) reads, “innovative sources [such as the voluntary carbon market or international pricing mechanisms, that may be established or agreed]”. (The brackets denote not agreed or language to be resolved).

Chan (US) firmly stated that paragraph 78 was a non-starter and unacceptable, which reads as, “The Fund is based on cooperation and facilitation and does not involve liability or compensation”. She was backed by David Higgins (Australia) who said that it was beyond the bounds of any mandate and by Laurence Ahoussou (Canada) who reiterated that as the founding principle of the basis of work on loss and damage.

(In the decision adopted in Paris in 2015, in reference to Loss and Damage in Article 8, it was agreed that “Article 8 of the Agreement does not involve or provide a basis for any liability or compensation”).

At the closed break-out groups, TWN learnt that the sources for the Fund’s financial inputs remained a major area of disagreement and that developing country TC members wanted to delete references to voluntary carbon markets and pricing mechanisms arguing that these have not been effective in terms of either raising funds or providing environmental benefits. However, the US, Australia, and the EU counter argued to retain the references as a signal of encouragement for these activities to be undertaken.

Developing TC members also proposed more affirmative and stronger language that the Fund “will” be periodically replenished stressing the need for the Fund’s stability and certainty as well as to ensure a regular replenishment process, while developed countries preferred more flexible and less strict language to water down the Fund’s periodic replenishment.

Further TWN was informed that Saudi Arabia, Brazil, Sudan, and Bangladesh defended their stance to reflect developed countries’ obligations for the provision of finance to the LDF, including being open to the inclusion of language on other sources.

Developed country TC members as expected opposed and instead proposed that “The Fund may receive contributions from Parties interested/willing to do so”, asserting that they do not have any specific obligations under the UNFCCC or the PA to provide loss and damage financing nor that it is part of their climate finance obligations. They insisted that all Parties, regardless of their development status, could contribute voluntarily to the Fund and that treating all Parties equally reflected the current reality with differentiation no longer being appropriate. Australia even responded to Sudan that the latter could provide contributions if it was interested to do so.

Developing country TC members are said to have stressed that while they were open to contributing voluntarily, the obligation by developed countries for the mandatory provision of finance should be fulfilled as doing so was the only way the Fund would be assured of its scale. They concluded that the erosion of differentiation would in essence be renegotiating the fundamental basis of the Convention and the PA.

Given the diagrammatically opposing positions of developed and developing country members on the TC recommendations, the final meeting in early Nov. is expected to face more showdowns.

As one observer who attended the meeting noted, for developed countries, “it appears as if it is going their way or no way!” for the LDF to be a reality.

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