Developing countries and the U.S. at odds over climate change compensation

By the midpoint of the two-week marathon of negotiations at the United Nations Climate Change Conference in Sharm el-Sheikh, Egypt, it has become clear that the most difficult tension to resolve is between developed nations — most of all the United States — and their poorer counterparts over compensation for the effects of climate change.

Developing countries disproportionately suffer the worst climate-change-related natural disasters, in part due to geographic location and vulnerable infrastructure. These countries have for years been calling for compensation for the effects of climate change, known as “loss and damage,” in climate diplomacy speak. As the impact of climate change becomes more severe, those demands have intensified.

After a year of dramatic disasters linked to climate change, such as record-setting heat waves, droughts and tropical hurricanes, representatives of developing nations — including Egyptian Foreign Minister Sameh Shoukry, who is serving as president of this year’s conference, COP27 — have said a successful outcome this time will have to include a loss-and-damage fund. In fact, small island nations have threatened to walk out on the conference if the text of an agreement does not include a fund for loss and damage.

Egyptian Foreign Minister Sameh Shoukry is serving as the president of this year’s COP27 conference in Sharm el-Sheikh, Egypt.
Egyptian Foreign Minister Sameh Shoukry is serving as the president of this year’s COP27 conference in Sharm el-Sheikh, Egypt. (Sean Gallup/Getty Images)

Until this year, rich countries — fearful that accepting responsibility for climate-change-related disasters could make them liable for damages in developing countries that, according to Reuters, could reach $400 billion per year by the end of this decade — refused to provide compensation for loss and damage.

But a handful of European countries have recently opened their wallets just a crack. Denmark offered $13 million for loss-and-damage compensation in September. Last week in Sharm el-Sheikh, Austria offered $50 million and Belgium committed about $2.6 million to help Mozambique recover from the devastation of three cyclones that hit it earlier this year. Scotland, which had previously pledged over $2 million, added roughly $6 million to that. And Ireland said last week that $10 million of the $225 million it has already committed to climate finance will now go to paying for loss and damage.

On Monday, the G7 — a coalition of the richest countries — launched a new insurance program, called Global Shield, to provide aid after climate-related disasters in developing nations, including Bangladesh, Costa Rica, Fiji, Ghana, Pakistan, the Philippines and Senegal. The fund will start with $200 million, most of which comes from a $170 million pledge from Germany.

“What is happening here in Sharm el-Sheikh is a recognition that we are experiencing climate devastation that is uncontrollable,” Eddy Pérez, international climate diplomacy director at the Climate Action Network Canada, told Yahoo News. “There was a wake-up call, and pressure is coming from everywhere for this process to deliver. It’s the litmus test for a successful COP this year.”

A sign is illuminated in the plenary hall at the  COP27 climate conference in Sharm el-Sheikh, Egypt.
A sign in the plenary hall at the COP27 climate conference. (Sean Gallup/Getty Images)

The pressure is not only coming from activists outside the meeting halls. In the wake of this year’s massive flooding in Pakistan, which left one-third of the country submerged and was caused in part by climate change, U.N. Secretary-General António Guterres has insistently called for climate compensation.

“The deadly impacts of climate change are here and now,” Guterres said in his opening address to the conference. “Loss and damage can no longer be swept under the rug. It is a moral imperative. It is a fundamental question of international solidarity — and climate justice. Those who contributed least to the climate crisis are reaping the whirlwind sown by others.”

Until recently, John Kerry, the U.S. special envoy for climate change, appeared likely to continue the U.S. refusal to consider paying for loss and damage. “In all honesty, the most important thing that we can do is stop, mitigate enough that we prevent loss and damage,” Kerry said at a New York Times event in September. “The next most important thing we can do is help people adapt to the damage that’s already there. And we have a limited, you know, we’re not — you tell me the government in the world that has trillions of dollars, ’cause that’s what it costs.”

Developing nations responded with increased pressure. In October, the V20, a group of 58 lower-income countries that are especially vulnerable to climate change, threatened to stop paying off their debts to lending institutions like the International Monetary Fund, offering instead to use their money to deal with climate change.

People wade past stranded trucks on a flooded street in Sunamganj, Bangladesh, in June.
People wade past stranded trucks on a flooded street in Sunamganj, Bangladesh, in June. (Mamun Hossain/AFP via Getty Images)

The U.S. subsequently softened its opposition to addressing loss and damage, agreeing — in a first-ever concession — to include discussion of the subject on the official schedule.

A draft text of the potential agreement, released Monday evening, offered two options: a plan to create a loss-and-damage fund by late 2024, or two years of study as to how the issue should be addressed. The United States is opposed to the former, but was open to the latter, according to observers who have attended the negotiating sessions.

“The U.S. has said, ‘We want a mandate for two years, where we’re assessing the current financial landscape in loss and damage and identifying the gaps, what’s not being supported, and then identifying the priorities that need to be addressed,’” Brandon Wu, director of policy and campaigns at ActionAid USA, an international social justice advocacy group, told Yahoo News. “Essentially, what they’re saying is, 'We need to do a bunch of studies.' Developing countries are saying, ‘We’ve done enough studies, we’ve had years of studies, and what we need now is a fund.’”

A spokesperson for the U.S. State Department would not comment directly on whether the United States will support the immediate creation of a loss-and-damage fund.

“We are pleased that the Parties were able to agree on an agenda item related to loss and damage,” said the spokesperson, Chadwick Houghton, in an email to Yahoo News. “This will ensure that there will be an outcome to the discussions, and we look forward to working towards that outcome.”

President Biden attends a working session on food and energy security during the G20 summit in Indonesia.
Biden at a working session on food and energy security during the G20 summit in Indonesia. (Leon Neal/Getty Images)

Even though Germany is providing most of the funds for Global Shield, President Biden’s only mention of loss and damage in his speech to COP27 last week was a sentence touting the program, which he said the U.S. is “supporting.”

To date, the majority of finance for dealing with climate change from developed countries has been for developing countries to reduce their own emissions, which is called mitigation, with money for adapting to climate change to prevent loss and damage as the second-most-subsidized purpose. Developed countries had pledged to mobilize $100 billion per year by 2020 for climate finance, with half for mitigation and half for adaptation. That promise has not been completely fulfilled. In 2020, $83 billion went to developing countries, of which only $29 billion was for adaptation.

What developing countries want is a new fund — sometimes called a “facility” in U.N. jargon — dedicated to recovering from the losses and damage that they suffer.

“We're not talking about typical climate finance, which typically takes a lot of time to access,” Pérez said. “We're talking here about immediate relief. We need an architecture to coordinate funding and distribute as quickly as possible. Developing states are just asking for the architecture, we don't need to start funding projects right away.”

In Sharm el-Sheikh on Sunday, Kerry said the U.S. is “totally supportive” of addressing loss and damage and “100% ready” to participate in those negotiations. But the fear of admitting liability remains a sticking point.

U.S. climate envoy John Kerry delivers a speech during a discussion about oceans and water at the COP27 climate conference.
U.S. climate envoy John Kerry speaks at COP27. (Joseph Eid/AFP via Getty Images)

“We will not support any facility that has an inbuilt legal structure on liability,” Kerry said. “But we are ready to deal with the issue of loss and damage and are discussing alternative financing options for such a facility.” Instead of saying the U.S. and its peers are on the hook for damages, Kerry is offering ideas like funding loss-and-damage payments through selling carbon credits to companies seeking to offset their climate pollution.

Other leaders at COP27 have floated similar ideas. In their speeches to the conference last week, Guterres and Gaston Browne, the prime minister of Antigua and Barbuda, who is also chair of the Alliance of Small Island States (AOSIS), suggested funding climate change compensation with a windfall profit tax on fossil fuel companies. But Browne said that setting up a loss-and-damage fund of some kind is a “critical success factor” for the conference.

Some activists blame the United States and a few of its allies in particular for the possibility that a loss-and-damage fund may not be included in the conference’s concluding document. “The EU appears to be starting to listen to some of the demands from developing countries, while the U.S., New Zealand, Norway and … Australia, among others, are the most visible blockers,” Greenpeace asserted in a statement last Saturday.

In a Sunday interview with the Sydney Morning Herald, Australian Climate Change and Energy Minister Chris Bowen denied Greenpeace’s accusation but wouldn’t commit to creating a loss-and-damage fund. “Let’s just see how the internal discussions go,” Bowen said. “But I mean, I doubt very much it’ll be a full agreement on that at this COP.”

“Countries like Australia and New Zealand are being a little more careful” than the United States, Wu said. “They’re not saying outright, ‘We’re not going to agree to this.’ They're saying, ‘We recognize the need, but it’s not our preference to have a setup like this and for it to happen so quickly.'”

Climate change protesters carry placards at a march in Melbourne, Australia.
Climate change protesters in Melbourne, Australia, in November 2021. (Asanka Ratnayake/Getty Images)

Since all decisions made at a U.N. climate change conference — also known as a “conference of parties,” or COP — must be unanimous, Shoukry is trying to find a compromise that will work for everyone.

“There is a vast global community within the parties that places great importance on loss and damage,” he told Bloomberg News.

Different parties want different things, however. Some small island states, including Antigua and Mauritius, are arguing that China and India — because they are top greenhouse gas emitters — should contribute to loss-and-damage funds even though they are not developed countries.

“We all know that the People’s Republic of China, India — they are major polluters, and the polluter must pay,” Browne, the Antiguan prime minister, said last Tuesday. “I don’t think there is any free pass for any country.”

Due to its population of 1.4 billion, India is the third-largest carbon emitter after China and the United States. But with a gross domestic product of only $2,277 per person per year, according to the World Bank, India has far lower emissions per capita than rich countries in North America and Europe. Thus, India rejects the notion that it should have to pay for damage it is also suffering. “It has to be realized that India itself is a victim of emissions of developed countries and we are paying for our adaptation and loss and damage,” an Indian government source told the Independent last Thursday.

China, which is considerably wealthier than India, has staked out a middle ground: its climate envoy, Xie Zhenhua, said that only developed countries should be obligated to pay into an official fund for loss and damage, but that China will voluntarily contribute directly to affected countries.

China's special climate envoy Xie Zhenhua delivers a speech at the COP27 climate conference.
China's special climate envoy, Xie Zhenhua, speaks at COP27. (Ahmad Gharabli/AFP via Getty Images)

Even the developed countries that have agreed to contribute money for climate change compensation are offering only token amounts in comparison to the scale of destruction. The floods in Pakistan caused more than $10 billion in damage and will result in an estimated $30 billion in lost economic activity. In June, the V20 issued a report estimating that its members have lost roughly $525 billion because of climate change. This includes not only extreme weather events but also more gradual problems such as declining crop yields due to changing rain patterns.

Even if the United States agreed to the creation of a loss-and-damage fund, that doesn’t mean Congress, which is likely to see Republicans take control of the House of Representatives, would appropriate any funding for it.

Developing nations, however, make the case that climate change compensation is not just a moral obligation, but is in the interest of richer countries who don’t want to face a wave of climate refugees in the years ahead.

As Conrod Hunte, deputy chair of AOSIS, the small island nation group, put it in a speech in Sharm el-Sheikh last week, "We are here so that we can go back to our own homes and not become climate-displaced people in yours.”