Looking Back at Cop 28: The Implications of The Climate Loss and Damage Fund on Africa
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Looking Back at Cop 28: The Implications of The Climate Loss and Damage Fund on Africa
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By Martin Nkonge
February, 2024
As the dust settles after the long anticipated COP 28 held in the UAE late last year, there is a growing sense of optimism among developing nations, with African countries in particular looking forward to the implementation of the Climate Loss and Damage Fund (LDF). Initialized at COP 27, the LDF was officially endorsed and operationalized at COP 28 with the aim to support nations that contribute minimally to greenhouse gas emissions, yet bear the brunt of climate change effects.
Despite its potential, there are concerns regarding LDF’s effectiveness, especially in terms of its distribution mechanisms for the most climate-vulnerable countries. The financial model of the fund, which includes concessional lending, has also come under scrutiny, given the debt-heavy status of several African countries combined with the fact that it will be hosted by the World Bank in the interim. As the implementation of the LDF begins, African nations should be on the forefront of advocating for more diverse funding options that do not exacerbate the continent's existing debt challenges, while also streamlining the fund’s administration through equitable governance systems.
The Case for a Neutral Host
One of the controversial recommendations by the 24-member Transitional Committee (TC) tasked with developing recommendations for the LDF’s implementation was the fund’s hosting entity, the World Bank. The committee suggested that the World Bank should serve as an interim host for the Fund for a period of four years, after which the arrangement would be subject to review and potential relocation. However, developing countries have voiced concerns that the World Bank does not operate under the United Nations Framework Convention on Climate Change (UNFCCC) principles, which prioritize equitable climate action, and thus may not align with the specific needs and interests of those most affected by climate change. Further, the close association between the World Bank and Western governments, notably the United States, which appoints the Bank's President, casts doubt on the autonomy of the LDF.
Moving forward, African countries have a duty to advocate for the governance of the LDF within an impartial governing body that ensures fair representation and decision-making. If the World Bank were to host the LDF, it would be subject to the institution's stringent policies, which may inadvertently prioritize the interests of wealthier nations, potentially sidelining the needs of African countries. Additionally, the financial overheads of such an arrangement are considerable; the World Bank's hosting fees and the expenses for maintaining the secretariat could divert substantial funds away from the very nations in need of support for climate-related damages.
A possible alternative would be to host the fund within the framework of the UNFCCC, which could offer a more balanced and inclusive approach to the fund’s administration. This would not only align with the principles of the Paris Agreement, which requires climate funding to exist under the Convention or a climate-related entity, but also provide a more transparent platform for all nations to have an equal say in the management of the LDF. Moreover, it would ensure that the fund's resources are directly channeled towards mitigation and adaptation efforts in the most affected regions, rather than being eroded by administrative costs.
Alternative Financing Mechanisms
The other caveat with the fund is its use of concessional lending. Concessional lending refers to loans offered on terms significantly more generous than market loans, typically with lower interest rates and longer repayment periods. In the context of the LDF, while such lending aims to provide affordable financing to those affected by climate change, it risks burdening already vulnerable populations with additional debt. In 2022, the ratio of public debt to GDP in sub-Saharan Africa climbed to an average of 56%, marking the highest point since the early 2000s. Given the current African debt crisis, the sustainability of a fund reliant on concessional loans is questionable.
It is for this reason that alternative financing mechanisms are worth considering. Viable options include, but are not limited to, debt relief initiatives, and international tax and transfer mechanisms. African countries should pivot towards advocating for debt relief initiatives since they provide immediate fiscal space, allowing nations to invest in climate resilience without increasing their debt burden. While the debt relief mechanism presents complexities, such as achieving consensus on the distribution of financial responsibilities among both public and private creditors, it is a viable option for generating direct financial support for the most vulnerable African nations.
International taxation on activities like container shipping, financial transactions, airline travel, and transfer mechanisms like carbon taxation offer additional avenues for raising substantial funds for climate finance. These funds could directly support climate-related costs bypassing intermediary lending processes and ensuring full benefits to the affected countries. However, it is crucial to design these levies strategically to avoid inadvertently harming the very countries they aim to help, such as by reducing their tourism income.
There is no denying that the activation of the Climate Loss and Damage Fund at COP 28 represents a pivotal advancement for climate-vulnerable African nations. However, the proposed interim management by the World Bank and the fund's dependence on concessional loans necessitate careful (re)consideration to safeguard its governance from potential biases and to prevent exacerbating Africa's debt situation. As the fund enters a new phase this year, it is crucial for African nations to advocate for a governance model that ensures equitable representation and to pursue alternative, non-debt-inducing financing strategies to effectively address the challenges posed by climate change.