Seismic changes underway to find financing for loss and damage

Avinash Persaud is Special Advisor to the President of the Inter-American Development Bank on Climate Change. Previously, he was a member of the negotiating committee to establish the Loss and Damage Fund and an architect of the original Bridgetown Initiative on reforming the international financial structure.

After 30 years of negotiations to establish the Climate Loss and Damage Fund, its first board meeting recently concluded in Abu Dhabi. The establishment of this fund is a monumental milestone. While that is still a long way off, an equally historic shift is occurring in the way we raise money.

The first meeting met with some success. The 14 members drawn from constituencies in developing countries and 12 members from developed countries demonstrated unity of purpose. Two impressive and dedicated co-chairs were elected: Jean-Christophe Donellier from France and Richard Sherman from South Africa. The new Executive Board agreed on the process for selecting the Secretary-General and the host country.

Mistrust between some members of the board and the World Bank, which negotiators had conditionally selected to be the fund’s secretariat, has eased. This unity and dedication is a source of hope for the foundation’s future.

Lost/Damaged Board Accelerate work to give countries direct access to finance

Growing these seeds requires money. The only long-term solution to the escalating climate crisis is to accelerate the energy transition away from fossil fuels. However, due to the lack of progress, we now face losses and damages that will require financing of more than $150 billion annually, according to the COP26 and 27 IHLEG reports.

These losses disproportionately impact the most vulnerable and exacerbate poverty and inequality. Adding injustice to the bleak picture is that the wealthiest countries are the most responsible for accumulating the greenhouse gases that cause global warming.

Although the OECD estimates total development aid at $200 billion a year, half of what was promised 50 years ago, politics at the time meant that aid funds were redirected to domestic purposes rather than being significantly increased. This suggests that it is likely. So where will over $100 billion come from?

Some developed countries initially promoted the idea of ​​paying premiums to a small number of small countries. It seems natural to combine disaster insurance. This is especially true if you want to minimize the use of taxpayers’ money. But as insurers pull out of California, Louisiana, and Florida due to climate risks, people living in other climate-sensitive countries (40% of the world’s population) are finding that this is, at best, scalable. At worst, I felt that it was dishonest.

Weather, like chronic illness, is no longer covered by insurance. Today, the diversification and pooling nature of insurance no longer works because the risk of large losses is increasing, and that risk is becoming more certain, more frequent, and more correlated. Given that the known annual climate change losses are $150 billion and rising, no direct or cross subsidies, which no one is budgeting for, would lower annual premiums any further. I can not do it. It’s not magic, it’s insurance.

It’s time to try new taxes

For today’s climate-vulnerable populations, the only real insurance against future loss and damage is to invest heavily in resilience, which can yield savings many times over in future costs. Masu.

One idea proposed by the Inter-American Development Bank is for multilateral banks to lend to climate resilience projects in countries vulnerable to climate change at slightly above the bank’s preferential borrowing rates, with donors then individually offering significant This will help lower interest rates. An independent evaluation demonstrated that the investment achieved its intended resilience.

Countries can borrow for resilience, but not for current losses and damages, if the repayment period is long enough to recover savings. Without subsidies to fund it, vulnerable countries will be drowning in debt long before sea levels rise.

The global financial crisis and coronavirus have shown the potential of long-ignored ideas. In the past 24 months, 140 countries have agreed to an international minimum corporate tax and the EU has introduced an extraterritorial carbon border adjustment tax. The International Maritime Organization is discussing an international tax to fund the decarbonization of the shipping industry.

Drought in southern Africa Flagging the Loss and Damage Fund Dilemma

The fund’s board wants to hear proposals from a new task force set up by Barbados, France and Kenya to consider international taxes paid on global public goods.

They will also be interested in proposals that have just been published. climate damage tax Affect the production of fossil fuels by an amount related to the damage they cause. $1 for every barrel of oil produced and its equivalent in coal and gas, an amount easily lost in monthly price fluctuations, provides both a loss and damage fund and rebates to the poorest consumers. I’ll probably be able to cover it. There is an enforcement mechanism. Oil producers could be required to prove they have paid the tax before shipping insurance becomes legally enforceable.

The knowledge that scalable solutions exist is critical. Because some people take advantage of the absence of solutions to slow down progress. However, what we do is not how we do it, but how important it is to us. G7 central bankers have bought $24 trillion in government bonds to avert a recession caused by the coronavirus and the global financial crisis. It was unprecedented and heroic.

In hindsight, if we had bought bonds to finance climate change mitigation, the recovery would have been stronger and faster, and inflation, driven largely by fossil fuels, would have been weaker. They would be halfway towards saving the economy, ending climate change, and limiting loss and damage. Viable funding solutions exist. We have to decide whether to use them or not.