From UPSC perspective, the following things are important :
Prelims level : Loss and Damage Fund
Mains level : Climate finance
- Climate change causes costly damage, including from climate-related natural disasters, such as tropical cyclones, and more gradual changes, such as desertification and rising sea levels.
- Currently, because climate change is caused by greenhouse gases already in the atmosphere, rich industrialised countries are responsible for most of the emissions causing these phenomena.
‘Loss and Damages’ Fund: Inception of the idea
- The idea of a “loss and damage” fund (LDF) was first floated in 1991.
- Vanuatu, a low-lying island nation in the Pacific, suggested the creation of an insurance scheme, under the auspices of the UN, to help pay for the consequences of rising sea levels.
- For thirty years such demands were left ignored at the UN.
- But twelve months ago in Scotland, that country’s first minister promised £2m ($2.4m) to the cause.
Why need LDF?
- Poor countries often feel the effects first being the most vulnerable and incapable of self-mitigation.
- They also include not only economic damage to property but also loss of livelihoods, and the destruction of biodiversity and sites that have cultural importance.
- This broadens the scope for affected nations to claim compensation.
- Hence loss and damage is sometimes called the “third pillar” of climate politicking, after mitigation (tackling the root cause of the problem by reducing emissions) and adaptation (preparing for current and future impacts).
Immediate triggers for such action
Ans. Pakistan Floods
- Unusually heavy monsoon rains caused more than $30bn of damage and financial losses in Pakistan, equivalent to nearly 9% of the country’s GDP.
- Natural climatic variations, notably an ocean-cooling phenomenon known as “La Niña,” were partly responsible.
- But the rains were also made heavier by the effects of greenhouse gases.
When will LDF be operational?
- Further decisions have been left to a “transitional committee” that will make recommendations to enable the actual adoption of the fund at the next year COP to be held in UAE.
Realistic picture of LDF
- Some critical questions remain unaddressed –
- Who will manage this fund?
- Whether contributions are expected from large developing countries?
- What the fair share of contributors will be?
Status of global consensus over LDF
- During COP27, financial pledges for LDF came from multiple countries, including Austria, Belgium, Canada, France, Germany, and New Zealand, joining Denmark and Scotland, which had made pledges previously.
How much fund is necessary?
- The expected monetary compensation from the L&D fund is estimated to be nearly $500 billion and rising by $200 billion annually.
- A global transformation to a low-carbon economy is expected to require investments of at least $4-6 trillion a year.
- The global stocktake refers to a five-year appraisal by countries of the impact of their actions to curb climate change.
How realistic is the establishment of LDF?
- To some extent, all this is immaterial.
- Few believe that an UN-sponsored “loss and damage” fund will ever transfer the hundreds of billions that would be needed to offset the damage done by climate change.
- COP27 itself dropped several hints that money for loss and damage could be found in what is called a “mosaic” of sources in existing global, regional and national financial institutions.
- Mitigation, adaptation and loss and damage are inextricably linked.
- Faster, more ambitious decarbonization will reduce the bill for adaptation.
- Better mitigation and adaptation will mean that less money has to be spent rebuilding after disasters.
- LDF is largely a first concrete step towards the institutionalization of climate finance.
- Delivering such funding will require a swift and comprehensive transformation of the financial system.