COP27 and 'loss and damage'

COP27 and climate finance. COP27 continues this week as 196 countries and the EU gather to the UN Framework Convention on Climate Change. A key issue at this year’s negotiations is ‘climate finance’ - money provided in different forms from advanced economies to countries in the global South.

Negotiations at COP26. Developed countries pledged in Copenhagen in 2009 and again in the Paris Agreement that they would mobilise public and private funding of $100bn a year by 2020. They failed to hit this target (providing $80bn in 2019) but said they expect to hit it in 2023. (Oxfam calculate the “true value” of climate finance provided to developing countries to be much lower than reported, once “dishonest and misleading accounting” is taken into account.) At COP26 last year, developed countries resisted the demand that they make up the shortfall since 2020 by providing more in 2024 and 2025. The level remains at $100bn a year, and a process is currently under way to define a New Collective Quantified Goal for how much they should pay after 2025.

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Finance for adaptation. Achim Steiner, the UN’s Global development chief, warned that more than 54 poor countries are in danger of bankruptcy and suggested that many were at risk of giving up on the climate talks if developed countries fail to provide the pledged climate finance required to implement their mitigation and adaptation goals.

Ensuring finance goes where it is needed. For many years poorer countries have expressed anger that around 75% of climate finance has gone to mitigation efforts, such as renewable energy, rather than on adaptation to help them cope with the climate change they are already experiencing. Last year’s UN Environment Programme report on financing for adaptation estimates that the costs for vulnerable countries to adapt to global warming are up to ten times higher than available funding. Last year’s Glasgow Climate Pact (see our analysis) saw the vulnerable countries achieve their demand that developed countries should “at least double” funds for adaptation. The Stockholm Environment Institute outline 6 principles to underpin climate finance so that it meets the needs and priorities of vulnerable communities

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Loss and damage. A key issue at COP27 has been the issue of ‘loss and damage.’ In UN climate negotiations 'loss and damage' is the term used to describe the principle that rich countries should compensate poor ones for the climate costs their historical emissions have caused. For many countries in the global South this is central to climate justice.

The Pakistan Megafloods. Devastation wreaked by the recent ‘megafloods’ in Pakistan increased the salience of loss and damage at COP27 this year as they highlighted mounting fiscal and climate challenges that vulnerable nations continue to face. Official reports estimate 33 million people have been affected by floods in Pakistan this year - significantly more than the 2010 ‘megafloods’. For context, one third of the country was underwater - an area equivalent to the size of the UK - with economic damages exceeding $30bn. Climate resilience experts Dr Amiera Sawas and Sobia Kapadia argue that “This is a clear cut example of loss and damage that can be used to amplify the calls of the most vulnerable states for a financial mechanism to support countries experiencing such devastation despite being low emitters.”

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Who is responsible for climate change? Developed countries have always resisted recognising the concept of loss and damage; they fear it is the slippery slope to being held liable in international courts for trillions of dollars in damages although developing countries agree any mechanism would not legally establish liability. The largest 20 economies in the world (the G20) are responsible for 80% of greenhouse gas emissions, whilst the whole of Africa is responsible for 4%, but suffers disproportionate impacts. (See Carbon Brief’s video showing which countries are responsible for cumulative emissions.) A new study published by Christian Aid warns that, under current climate policies, African countries will lose 20% of their average expected GDP by 2050, and 64% by 2100.

“Polluters must pay”. Research by Global Justice Now (GJN) found the ‘Big 5’ oil companies (including BP and Shell) are responsible for four times more carbon emissions than the 150 lowest-emitting countries, and have reported $170bn in profits this year - more than the annual amount being called for to compensate the global south for loss and damage. Campaigners have suggested extending the windfall tax on oil and gas companies into a ‘climate damages tax’ to raise-revenue for loss and damage payments. (25% more fossil fuel lobbyists registered to attend COP27 this year.)
“Drowning not only in flood but in debt”. Debt Justice has highlighted that over 70% of climate finance has been in the form of loans, not grants, which add to the debt burdens of lower income countries. Bilawal Bhutto Zardari, Pakistan’s foreign minister said that this historic flooding means they “end up not only drowning in the floodwater, we also end up drowning in the debt as a result of having to rebuild" Pressure is building to reform international finance institutions to allow ‘debt-for climate swaps’, where creditors cancel some debt from a poorer country in exchange for a commitment to an equivalent or lesser amount of climate adaptation or mitigation investment. Debt Justice has previously explained why debt-for-climate swaps are “not a silver bullet”, particularly since new conditionalities must not be imposed on poor countries for a crisis they did not create.

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Progress so far. Egypt pushed ‘loss and damage’ to the top of the agenda at COP27, but the EU and US have “coordinated a gentle but firm pushback” against the idea of the creation of a dedicated fund for ‘loss and damage’ compensation so far, opting instead for a “mosaic of solutions”.

The “mosaic of solutions”. The Loss and Damage Collaboration explains that this term originated in a speech by Mia Amor Mottley, the President of Barbados, but has since been adopted by developed countries to focus on solutions outside the remit of the UN, such as Germany’s Global Shield Against Climate Risk. Her original vision included a dedicated loss and damage fund, reforming the IMF and World Bank to provide debt relief and mobilise finance through Special Drawing Rights, and taxing fossil fuel companies and other big emitters. Carbon Brief is tracking the ongoing negotiations and finds that only 10% funding pledges made from rich nations at the time of writing is for on the ground projects relating to loss and damage.
The way forward. E3G argues that an ambitious outcome at COP27 would require parties to agree to the establishment of a loss and damage facility with “accessible, transparent and additional” funding, and more. The negotiations aim to be concluded later this week. Formation of a loss and damage fund at COP27 has become the clear litmus test for developing countries' trust in the UNFCCC process and the willingness of rich countries to step up and meet their responsibilities, thirty years since first signing the climate convention at the UN’s 1992 Rio Earth Summit.

Weekly Updates

Public services and work

Lack of investment in healthcare is harming the economy. Andy Haldane, Chief executive of the RSA and former governor of the Bank of England, has said that “more than a century of progress on health and wellbeing was going into reverse, with a direct impact on the economy and the cost of living emergency.” He said that the UK “sits towards the bottom of the pack” in the G7 on spending on healthcare, which is holding back the economy as the workforce has been shrinking since the pandemic.

UK workforce has shrunk since the pandemic. The newly established Commission on the Future of Employment Support’s first report found that the “UK is one of only five countries in the industrialised world with a weaker labour market than before the Covid-19 pandemic and is on course to have the worst record by next year.” (You can read the Commission's call for evidence and more info here.)
Public services need more, not less. Analysis from NEF and the TUC has found that public services need £43bn more in investment to ‘stand still’ and avoid a collapse in quality. They argue that proposals for more spending cuts are ‘unconscionable’ and that the opposite is required after a decade of austerity.
Nurses vote to strike. The Royal College of Nursing has voted to go on strike for the first time in its 100+ year history. Nurses are campaigning for a pay rise of 5% above RPI inflation following NHS pay announcements which left nurses 20% worse off in real terms compared to a decade ago.

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Care investment is green investment. The Women’s Budget Group has published a feminist vision for tackling the climate crisis and transforming the economy. The report calls for investment in care as “the average job in health and care produces 26 times less greenhouse gas than a manufacturing job”, sets out four structural changes needed to transform the economy and outlines proposals for change in 6 policy areas (Watch their video explainer here.)

‍Childcare costs are soaring. The Child Poverty Action Group’s annual report on child poverty calls for investment in social security to reverse the long-term damage to living standards. They highlighted that “persistent rises in childcare costs over the last decade” mean that childcare now costs 60% of the total cost of raising a child for a couple working full-time.

Energy

CCC urges public investment in energy efficiency. Lord Deben has written to the Chancellor on behalf of the Climate Change Committee (CCC) to advocate stronger action from the government on energy efficiency. Their analysis presents a cost-benefit assessment of various efficiency measures for reducing energy demand in buildings, and argues that high energy prices make many of these measures even better value for money. Their letter highlights that ten years ago 2.3m energy efficiency measures were installed each year through Government-backed schemes, which dropped by 96% (100k per year) in 2021.

“Exit strategy” from Energy Price Guarantee. The CCC argue that increasing public investment in energy efficiency is an “exit strategy” from “expensive energy bill subsidies”: “Government can lead by example by investing in the energy efficiency of the public estate, demonstrating national and local government efforts to reduce energy demand. A combination of public funding and Government action is required to facilitate access to and reduce the cost of capital. Our updated analysis suggests that over 60% of households can achieve levels of energy efficiency that are compatible with Net Zero for less than £1,100.”
Social housing first? CLES proposes that social housing providers could lead efforts to decarbonise buildings and can be used to tackle the cost of living crisis at the same time. CLES’s Antonia Jennings provided a summary of the Gross Value Added and effects on job creation by developing the retrofit supply chain in the South of Scotland.
Preventing the next energy crisis is politically popular. Public First’s new report, Low Cost, High Security Energy, uses polling from Red and Blue Wall voters to reframe renewables, energy efficiency as a politically popular solution to prevent the next energy crisis. Daisy Powell-Chandler states that they “built a model of the UK's energy system and discovered that there is a realistic opportunity we could be a net exporter of electricity by 2030”. PM Rishi Sunak has just hired one of the reports co-authors, Nick Park, as his energy adviser.

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NAO investigates energy supplier takeover. Octopus has taken over Bulb, the collapsed energy supplier which was bailed out by the government in a move costing the taxpayer billions. The NAO is investigating, however the government is refusing to share any terms of the takeover, including what costs may be incurred by households, claiming it violates commercial sensitivity. Citizens Advices’s chief executive, Dame Clare Moriarty said: “We need urgent confirmation that the deal won’t, in any circumstances, add to customers’ already sky-high bills.” (Read Citizens Advice’s latest data dashboard on the cost of living.)

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Buybacks, dividends and windfall taxes. Centrica, Britain’s biggest household energy supplier, has resumed dividend payments this year and launched a £250mn share buyback (the first since 2014) as profits exceeded expectations following high wholesale gas and energy prices. The FT’s Nathalie Thomas reports that “Chancellor Jeremy Hunt is expected to announce an increase in the UK’s windfall tax on oil and gas producers when he delivers his Autumn Statement on November 17.”

Industrial strategy

British Business calls for investment in infrastructure. The British Chambers of Commerce (BCC) published a business manifesto containing various proposals for delivering growth: invest in HS2, green and digital infrastructure, speed up regional devolution deals and provide certainty on how the energy support package will work from April so that businesses can plan for the future. Infrastructure investment ranked first on a survey asking what would influence firms to make more investment decisions.

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UK EV’s: a “Slow motion car crash.” The government rejected a request for £30mn in funding to prevent Britishvolt, a planned £3.8bn gigafactory in Blyth, going into administration earlier this month. Commenting on the struggles of the electric vehicle (EV) industry a Guardian editorial claims that a lack of funding support and sufficient incentives for companies to invest means the UK is uncompetitive in the global EV production market: “the biggest battery companies need to see a coherent industrial strategy in place – one in which the state has skin in the game and offers serious incentives to invest.“

Local economies

The Preston Model ten years on. Matthew Brown, Leader of Preston City Council, has written an article for Democracy Collaborative explaining the history of the ‘Preston Model’ of community wealth building and the contents of the wide ranging policy package for progressive municipalities 10 years after its original inception.

Climate change

Global plan for decarbonising food. The UN’s Food and Agriculture Organisation has announced a plan to align the global food system with a 1.5C warming trajectory, it hopes to mirror the annual reports by the International Energy Agency which increase investment to companies, projects and technologies aligned with the plan.

The cost of living and climate crisis are linked. Food and agriculture is responsible for around a third of global greenhouse gas emissions, and new attention has been drawn to it at COP27 after the Russian invasion of Ukraine caused global food prices to surge. The CCC calculate that 20% of UK trade is at acute risk from climate impacts. They warn that the UK's poorest will be hit hardest by rising food costs.

Fiscal policy

New EU fiscal rules and green mandates for the ECB? The EU Commission has published its proposal for a reformed European fiscal framework. It includes a focus on medium-term debt sustainability, giving more time to achieve falling debt/GDP ratios, increased flexibility for green investments and more national ownership. The European Central Bank has also “firmly placed climate change within the central bank’s primary mandate of maintaining price stability”.

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IFS calls out wealth inequality. IFS’s Deaton Review of Inequalities has argued that “wealth is the growing economic divide in the UK today”, as rising asset prices alongside a long-term stagnation in earnings has increased inequality. They argue that recent falls in social mobility may accelerate as inherited wealth becomes an increasingly important part of lifetime resources.

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Autumn Statement. New Economy Brief will cover the Chancellor's Autumn Statement in next week's Digest.