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GD3 set the stage; COP29 will test the ability to act

Brooke Moore

Date: 14/06/2024

Last week, the Bonn Climate Change Conference hosted the third and final Glasgow Dialogue (GD3) aimed at advancing the Loss and Damage Fund (LDF) to provide climate-vulnerable nations with much-needed support. Despite the EU’s recent elections casting uncertainty on its international climate role, the EU must leverage its influential position on the LDF Board to prioritise the needs of beneficiary countries. By bolstering international climate finance, particularly for loss and damage, the EU can support those in need, progress global climate efforts, and maintain its international clout.

Glasgow Dialogue in the context of climate disaster

Since COP28, GD3 marked an important step in transitioning from concept to implementation. In particular, the GD3 laid down the groundwork for tackling essential logistical questions ahead of COP29, by which time final decisions on loss and damage funding are expected to be made. The specific issues remaining to be resolved boil down into:   how the LDF will function, how to ensure sufficient funding (and from whom), and a timeline for full operationalisation. Given post-GD3,  accepting its position as interim host  and its ambitious projection for the fund to be fully operational within months, resolving these questions has become even more pressing.

Underscoring the urgency of a functional LDF, GD3 unfolded against a backdrop of climate disasters in May. These include a devastating landslide in Papua New Guinea that claimed an estimated 2,000 lives, scorching temperatures of 52 degrees Celsius in Pakistan, and torrential rains and flooding in Eastern Africa, displacing over 410,000 people. These events highlight the urgent need for an operational fund to begin addressing the impacts of climate change.

Structure and accessibility of the LDF

At GD3, discussions revolved around the structure and accessibility of the fund. Stakeholders, from the Alliance of Small Island States (AOSIS) and the Least Developed Countries (LDC) Group, emphasised that the LDF must be grant-based with simplified and flexible procedures to ensure accessibility and timely disbursement that reflects the urgency of climate action. Other topics of concern included the need for coordination between global, national, and local levels, as well as among international organisations, ensuring the participation of local communities, capacity-building, and technical assistance.

Specifically , the push for a grant-based LDF stood as a paramount priority for beneficiary countries, with the issue of debt shedding light on why. A UNDP report revealed that 28 out of the 54 developing economies in severe debt are additionally ranked among the world's top 50 most climate-vulnerable nations. Climate-vulnerable nations often receive loans from historically responsible countries including market and conditional loans. This practice perpetuates a debt cycle, diverting funds from essential services to debt relief, while sometimes even profiting the lenders. In fact, external debt payments for the 50 most vulnerable countries are projected to average 15.5% of government revenue in 2024—four times higher than in 2010. Notably, the top three climate finance contributors, France, Japan, and Germany, were found to favour loans over grants, with loans constituting 90%, 79%, and 52% of their contributions, respectively. Thus, the theme at GD3 was ensuring that the LDF overcomes the pitfalls of debt cycling, learning from past mistakes to foster sustainable development without exacerbating financial burdens.

New Collective Quantified Goal

The New Collective Quantified Goal (NCQG) was also a focal point of debate. The NCQG is an international climate finance goal that, per the Paris Agreement, must be set by 2025 from a base of $100 billion annually. The NCQG is a broader finance goal broken into sub-goals for areas like adaptation and mitigation. Currently, loss and damage is not included. However, various stakeholders advocated for its inclusion as a sub-goal, particularly the LDC Group and AOSIS in a joint statement on the NCQG. The aim is to ensure developed nations are held accountable for consistent funds towards loss and damage.

Alongside the NCQG's role in ensuring sufficient financing for loss and damage, the discussion tackled the question of quality, debating what types of financing should count towards the NCQG. Many argued against continuing the historical inclusion of conditional loans and grants under the $100 billion target. For the LDF, this is significant. If included as a sub-goal under the NCQG, it would help realise the aim of favouring grants over loans, thereby addressing the issue of debt cycling and establishing a fairer fund.

Funding sources

The discussions at GD3 addressed the question of who should be financially contributing to the LDF and the NCQG. Many felt that developed nations used the dialogue to deflect responsibility by emphasising the need for non-sovereign sources, while limiting those who can access such funds. In response, others pointed to the obligation of developed nations to provide climate financing as laid out in the Paris Agreement. There was also a call for increased funds towards loss and damage, as pledges for the LDF from COP28 are merely startup funds that will not reach those who need it.


Tying up loose ends

Despite clear priorities presented at GD3, there are details to iron out before the fund can be considered up and running. Firstly, determining the criteria for accessing and disbursing funds to avoid issues like first-come, first-serve remains crucial. Ensuring transparency, accountability, and stakeholder input in decision-making processes is also essential. Moreover, there is the question of whether the World Bank can guarantee direct access by eliminating intermediaries that extend the supply chain and dilute the funds intended for communities in need. Perhaps the most divisive question remains is how to guarantee that these funds are both sufficient and consistently available.

A path towards operationalisation

With the EU represented in 7 out of 12 Board seats designated for developed nations, it is in a powerful position. However, the recent EU elections reveal a shift to the right, particularly in France and Germany—two major sources of climate financing. This is likely to result in the deprioritisation of sustainability and climate action. Despite this, the EU can still ensure that the priorities of beneficiaries are reflected in the fund. For example, the EU should push to ensure by the closing of COP29 the establishment of clear methodology for the LDF decision-making process with milestones that include regular reporting, consultations, audits, and open sessions.

Another focal area will be increasing funding, which is likely to be an even more difficult pill to swallow post-elections. The reality, however, is that international climate finance, including for loss and damage, plays a crucial role in maintaining the EU's competitiveness and clout. As emerging economies gain market influence, the EU will need to forge stronger ties with them, especially if Trump wins in 2024. Climate change is a pivotal issue for many emerging economies, with MIT Technology Review Insight data underscoring their push on green transition efforts. In a related vein, the 2024 G20 Brazil Presidency, under the theme "Building a Just World and a Sustainable Planet," has prioritised tackling climate change alongside reforming the global financial system. Consequently, hindering action could undermine the EU's influence and jeopardise crucial relationships.

Consequentially, the EU should advocate for a firm execution plan to ensure sufficient funding, including incorporating loss and damage as a sub-goal under the NCQG. The EU must also urge its member states to favour grants over loans, while working to develop debt management solutions crafted in partnership with indebted nations. Furthermore, the EU and its member states should explore innovative ways to augment their contribution to the fund, such as generating new revenue by closing tax loopholes for the uber-wealthy, without sidestepping their responsibility to provide public aid.

While GD3 set the stage, the real test will be at COP29, where the global community must turn discussions into tangible actions. The EU must use this influence to ensure the priorities highlighted at GD3 are reflected in the LDF and help expedite its rollout rather than contributing to further delays.

Brooke Moore is a Policy Analyst in the Sustainable Prosperity for Europe Programme at the European Policy Centre.

The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.

Photo credits:
Ina Fassbender./AFP

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