The world agreed on a climate reparations fund. Now comes the hard part

This story was originally published by Grinding and appears here as part of the Climatic desk collaboration.

After three decades of work, advocates for developing countries won a major victory at last year’s United Nations climate change conference in Dubai: world leaders unanimously agreed to create a climate reparations fund. As the planet warms, the poorest nations are bearing the brunt of drought, rising sea levels, hurricanes and a host of other climate impacts, even though these countries contributed the least to the global warming, compared to their peers from early industrialization. This is where the so-called loss and damage fund comes in, which is supposed to compensate them for the inevitable effects of climate change. So far, the international community has pledged more than $650 million to the company.

Now the tedious, unattractive (and often boring) work of creating the background is just beginning.

In late April, a 26-member board met for the first time to discuss the administrative and institutional policies needed to operationalize the fund and distribute money to developing countries in need. The board’s to-do list is long. It ranges from the procedural (selecting co-chairs and agreeing on a host country for the fund) to the more substantive: deciding which countries are eligible for funding, how to raise funds and replenish the fund, and whether or not the World Bank will participate. help manage the fund.

The board was supposed to hold its first meeting at the end of January, but a stalemate between rich countriesDiscussions, including by the United States and the European Union, over who to nominate to the board caused delays, pushing the meetings three months behind schedule. Much of this work must be completed in just over six months, before the next United Nations climate conference, known as COP29, in Baku, Azerbaijan.

“There is a very broad work plan for the year,” said Brandon Wu, director of policy and campaigns and head of international climate justice work at the nonprofit ActionAid USA. “They are still trying to hold three meetings before COP29 so they can stay on schedule.” Wu attended the board meeting as an observer.

The stakes are high. The roughly $650 million that has been pledged so far is a fraction of the estimated needs, which researchers have calculated to be as much as 580 billion dollars per year by 2030 – and it is generally considered that the initial money is enough only to establish the fund. As major contributors to the climate crisis, rich countries are expected to be the fund’s biggest donors. But before the fund can begin allocating money to the poorest and most needy nations, a series of decisions need to be made.

Key among them is whether the World Bank will act as a fiduciary and help manage the fund’s operations. Wealthy nations believe the bank, which houses several other environmental and climate funds, has the experience, reputation and management know-how to best manage a financial venture of this magnitude. But developing countries They initially opposed the ideaciting the failures of the bank’s previous programs and its role in worsening debt crises in poor countries.

In the end, developing countries reluctantly agreed to allow the World Bank to house the loss and damage fund on an interim basis. But that decision was subject to the bank meeting 11 conditions, including allowing recipients to directly access money from the fund rather than requiring the money to pass through an intermediary international institution, such as a United Nations agency or a multilateral development bank. The World Bank has until June to deliberate and report on whether or not it can meet those conditions.

A 26-member board is finally starting work on the new UN loss and damage fund. And the list of things to do is long. #ClimateChange #LossAndDamageFund

Initial discussions on those conditions have already run into problems, according to a report by E&E News. The board of directors of the loss and damage fund and the bank do not seem to agree on who should sign the financial agreements when the money is disbursed. The World Bank has a number of policies to ensure that the money it distributes is not misused and complies with various environmental and social safeguards. Given that the loss and damage fund is expected to give money to a variety of national and subnational groups as a result of the direct access condition, the bank will likely work with hundreds of entities. That increases the chances that a recipient will misuse the money or default on a loan, putting the bank in a bind. As a result, the bank wants the responsibility (and liability) to fall to the board of directors, while the board has argued that, as trustee, the bank should have final signing authority.

If a project that receives money from the fund is unable to return the money to the bank, the bank’s credit rating could be affected, which in turn could lead to a decrease in the bank’s borrowing power, said Michai Robertson, chief negotiator for the Alliance of Small Island States, a group representing 39 island nations. “They see this as a big set of problems,” he said. “If you have an entity from each developing country, there are 140 countries that can access the fund directly and not use intermediaries. “The bank sees this as a huge risk.”

If the bank ultimately reports that it cannot meet all 11 conditions, countries will go back to the drawing board to establish an independent fund. Those decisions will be made at COP29 in Azerbaijan.

Even if the impasse between the board and the bank is resolved, the board will still have many more thorny issues to resolve, including which countries will be eligible to receive money from the fund. In the agreement signed in Dubai last year, the countries agreed that the fund’s resources are intended for “developing countries that are particularly vulnerable to the adverse effects of climate change.” But the agreement did not define which countries qualify as “particularly vulnerable”. The phrase often refers to small island states and those classified as “least developed countries” in climate talks, but that leaves out countries like Pakistan, which faced catastrophic flooding in 2022, and others that are widely considered appropriate recipients of losses and damages. money.

Hanging over these discussions is also the question of how the fund will raise the trillions of dollars that will be needed in the coming years to address the losses and damages that countries will face due to climate change.

“There’s kind of an elephant in the room: When will the fund actually get significant amounts of money?” Wu said. If the fund receives too little money, the board will end up designing policies aimed at facilitating the transfer of millions of dollars, not the trillions needed, she said.

“The scope of the fund’s ambition is a big question,” he said.

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