Loss and Damage Fund

The United Nation’s COP27 climate summit recently approved the creation of the “Loss and Damage” Fund to compensate economically vulnerable countries for the damages caused by climate-linked disasters.

What is “Loss and Damage Fund”?

  • The Loss and Damage Fund is a special fund established to provide compensation to vulnerable countries for the damages they suffered because of global warming. Its aim is to unlock a greater ambition to mitigate and adapt to climate change.
  • “Loss and Damage” is the term that is used to refer to the cost being incurred from climate-induced weather extremes or impacts like rising sea levels.
  • Till date, climate funding mostly focused on reducing carbon dioxide emissions and addressing global warming. A third of this funding supported communities to adapt to climate change consequences.
  • The “Loss and Damage” funding is different since it covers the cost of damages caused by climate crisis that the countries cannot escape from or adapt to.
  • However, there lacks consensus over what should constitute as “loss and damage” caused by climate change. It may include damaged infrastructure and property as well as harder-to-value natural ecosystems and cultural assets.
  • According to reports by 55 vulnerable countries, their combined climate-linked losses over the past 20 years is 525 billion USD or 20 per cent of their collective GDP. According to several studies, these losses are expected to reach 580 billion per annum by 2030.

What does the COP27 agreement say about “Loss and Damage” fund?

At the COP27, an agreement was signed to help developing countries that are “particularly vulnerable” to the effects of climate change. This ensured that the funding goes to the most pressing cases, while limiting the pool of potential recipients of the fund.

The agreement provides a roadmap for future decision-making. It proposes setting up a transition committee, which will determine who will manage the fund, whether contributions should be provided by larger developing countries and what the fair share of contributors will be. The committee will provide recommendations on these subjects at the COP28, which is set to be held in the United Arab Emirates in 2023.



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