Benito Müller

These reflections are about the aviation and maritime levies referred to in the AU Position Narrative’s Call for Urgent Action (see below) as innovative sources of grant finance for the new Loss and Damage Fund established last year at COP 27 in Sharm el Sheikh. 

Global vs National Implementation. In the AU Position Narrative (PN), these levies are introduced as ‘global.’ However, it is our considered opinion that, while a desirable long-term goal, global (sectoral) levies are not a viable short-term option, particularly if they are meant to be used for addressing adverse climate impacts (in most vulnerable countries).

For one, the multilateral climate treaties (UNFCCC/Paris Agreement) do not have the mandate to take decisions that are binding on either the aviation or maritime sector, and even if they did, there is considerable opposition to the idea of global levies in general.

As to global levies agreed by the relevant multilateral sectoral treaty organisations (ICAO and IMO), it is in our opinion highly unlikely that any revenue of a climate related tax would be used to fund anything outside the relevant sector. Thus, even if the IMO were to adopt the much-discussed carbon levy on maritime shipping, it is much more likely that the revenue would be recycled to ‘greening’ the maritime sector and addressing adverse response measure impacts of the levy than adverse climate impacts in developing countries.

We have thus come to the conclusion, reflected in the Manifesto for International Climate Solidarity Levies (ICSLs, see below) that a national implementation of such levies is a much more viable way in which to kick start the generation of grant finance to address adverse climate impacts in developing countries.

International Climate Solidarity Levies. The proposed ICSLs are modelled after the tried and tested French Solidarity Levy for HIV/AIDS introduced in 2006. The defining features of such ICSLs, following that model, are that they:

• are easy to collect (like lump-sum charges on air tickets or maritime cargo containers);
• are collected ‘off budget’ in dedicated national funds; and
• contribute to the multilateral effort address the problem at hand, in this case addressing adverse climate impact in developing countries (through contributions to the relevant funds of the Paris Agreement, in particular the Adaptation Fund and the Loss and Damage Fund.

As such they adhere to the first three of the guiding principles of the PN: their application is purely voluntary and not restricted to any type of country, they are globally pooled (although one could envisage that some countries retain a share of the revenue for domestic action), and they are targeted at the greatest need. 

Way forward. President Ruto and President Macron, as proponents of ICSLs announce, if possible at the African Climate Summit, the launch of a Climate Solidarity Alliance of countries willing to adopt an ICSL, initially focussed on air-ticket levies.

THE AFRICA CLIMATE SUMMIT 

4^TH – 6^TH SEPTEMBER 2023, NAIROBI, KENYA. “Position Narrative: An African Vision for Green, Climate-Positive Economic Growth”

CALL FOR URGENT ACTION

5. Launch a new instrument for a just, inclusive and democratic institutional architecture. A second objective of multilateral collective action should be aimed at introducing new universal global instruments to mobilise the incremental $3.5 trillion annual investment that is needed to achieve the required emissions reduction by 2030 and 2050. It is our position that on this matter, priority must be accorded to instruments that make polluters pay, including a global aviation and maritime levy, global financial transaction tax and a global fossil fuel tax. 

These levies should be collected and the capital should be pooled with several principles in mind:

1. These financial burdens need to be applied globally, including to the Global South, not just to a handful of wealthy countries.
2. All of the funds raised go into a single, global pool (to avoid local optimisation). 
3. The funds need to be deployed on the basis of achieving the highest climate impact in the areas of greatest need, ensuring investment is happening to deliver both mitigation and adaptation outcomes. 
4. A portion of the funds should be deployed towards technological innovation and reducing the cost of new technologies, such that they can be deployed globally. 
5. Finally, we should create a global governance body – a Global Green Bank – that manages the collection and distribution of the funds based on the best available climate science, and is independent of national interests. Put differently, we cannot be hostage to our national interests in the deployment of these funds.

A Manifesto on an Innovative Funding Source for the new Loss and Damage Response Fund

 by Benito Müller (OCP), Saleemul Huq (ICCCAD), Robert Filipp (IFF)

Nearly 20 years ago, in October 2003, President Chirac appointed Jean-Pierre Landau, the French Inspector General of Finance, to chair a working group set up to “reflect upon the feasibility of new international financial contributions to reduce poverty, to promote development and to finance global public goods such as the environment, public health and rare resources”. The ensuing Landau Report on New International Financial Sources for Development considered, among others, environmental taxes and suggested in the short run to focus on sectors such as maritime and air transport.

On 1 July 2006, France began to collect a solidarity levy within its jurisdiction as a way to help finance the fight against HIV/AIDS, tuberculosis and malaria in severely affected countries. The levy is a surcharge of €1 on economy class flights within Europe, €4 on long-haul economy class, €10 on business class within Europe and €40 on long-haul business class.

The levy is collected by the Directorate General for Civil Aviation which transfers it not to the general budget, but to a dedicated ‘Solidarity Fund for Development’ managed by the French Development Agency earmarked for funding organisations working in global health such as UNITAID, a drug-purchasing organization created by Brazil, Chile, France, Norway and the United Kingdom and hosted by the World Health Organization. By 2012, the levy has been raising between €162 million and €175 million per year, totalling one billion euros since its creation. According to the French government, “no impact has been observed on French air traffic or on tourism following the establishment of the airline-ticket levy.”[1]

Following their successful implementation in France, the idea of International Climate Solidarity Levies was taken up as potential innovative climate change financing mechanism. In October 2006 the concept of an International Air Travel Adaptation Levy based on the French Solidarity Levy (FSL), was launched in a technical report by Benito Müller and Cameron Hepburn (University of Oxford).  A global mandatory application at the time was estimated to have a revenue potential of US$8-10 billion annually, which were meant to be contributed to the Kyoto Protocol Adaptation Fund to support concrete adaptation project in the most vulnerable countries. In 2008, the Least Developed Country Group submitted the idea as International Air Passenger Adaptation Levy to the UNFCCC AWC-LCA in Poznan.

In 2021, Saleemul Huq and Mizan Khan (ICCCAD) decided to look into re-launching the idea as an innovative source of funding for Loss and Damage inflicted by un-avoided climate change impacts. Following the establishment of a new Loss & Damage Response Fund at COP 27 in December 2022, they decided this should be the recipient of the re-launched levies and were joined by Benito Müller (OCP) and Robert Filipp (IFF) to develop and promote this idea.

As regards developing the idea, it was decided to follow the Landau Report in considering not only the aviation sector but also maritime transport. This would not only widen the resource base, but also enable those countries with an existing air ticket levy to participate in the ICSL scheme.

It was also decided that a single global levy, as submitted to the UNFCCC in 2008 would not work, not only because the UNFCCC, and for that matter the Paris Agreement does not have the mandate to take decisions that are binding on the airline sector, but also because global levies are deeply unpopular among most national treasuries. Instead, it was decided to fall back on the French UNITAID model and propose an Climate Solidarity Alliance of countries with an ICSL at the national level (hence “International Climate Solidarity Levies” and not “Levy“).

As to revenue potentials, air ticket levies adopted, say, across the EU, would have raised around €1 billion in 2019, while – following the proposal by the International Maritime Emission Reduction Scheme – a levy of €10 per maritime TEU (container) across the same jurisdictions would in 2021 have generated €924 million (according to OECD container transport data). 

Given the urgency to provide financial support to the poorest and most vulnerable countries to respond to loss and damage from climate change and given the current global economic and fiscal situation, it is difficult to see how the new Loss & Damage Response Fund could get adequately capitalized without diverting funds from other existing multilateral climate funds. This is why International Climate Solidarity Levies should be used as a proven way to mobilize new, additional and predictable innovative resources so as to avoid fund diversions from other climate funds. We call on governments to give International Climate Solidarity Levies for the Loss and Damage Response Fund due consideration.

20 April 2023, on behalf of the ICSL Consortium:

                  Saleemul Huq (ICCCAD), Robert Filipp (IFF), Benito Müller (OCP)

Contact: director@oxfordclimatepolicy.org

Download pdf-flyer here

Paris Postscript 1

Clea Caulcutt, Giorgio Leali and Paul de Villepin, Politico, 23 June 2023

“France already has in place two types of taxes that have been suggested: one on plane tickets, another on financial transactions,” [President Macron] said adding that he was going to “make others follow us and mobilize” around these issues.

During his closing remarks at the summit, Macron also said the OECD club would be an appropriate framework for negotiations, noting that countries had previously used the Paris-based Organisation for Economic Co-operation and Development as a vehicle to reach a deal on reforming global taxation for large multinationals.

“There has been a great deal of discussion on the idea of international taxation, over and above what countries and institutions are doing. Whether it’s on financial transactions, maritime transport or certain other models, it will only work if it’s truly international, and so it presupposes an agreement, as we’ve been able to do on international taxation,” he said during the closing ceremony of the summit.

[1] Leading Group 2012 , Information sheet on the airline-ticket levy, p.3.

Paris Postscript 2

At a seminar on Innovative Sources of Climate Finance held at SciencesPo in Paris on 26 September 2023, Prof. Müller proposed that in order to incentivise developing countries to participate in a Climate Solidarity Alliance (CAS) as a source for grant funding for the new Loss and Damage Fund (LADF), they could be paid-back a multiple of their LADF contribution by the CSA. More precisely he proposed the following differentiated limits on domestic use of ICSL revenue and LADF pay-backs:

Benito Müller^[1]Director ecbi, MD Oxford Climate Policy, University of Oxford, corresponding author: director@oxfordclimatepolicy.org

I. The Sharm el Sheikh Decision

On 20 November 2022, a Decision was taken at Sharm el Sheikh on “funding arrangements for responding to loss and damage associated with the adverse effects of climate change” which is widely regarded as historic^[2]“Cop27 agrees historic ‘loss and damage’ fund for climate impact in developing countries”; “Historic ‘loss and damage’ fund adopted at COP27 climate summit”; “Historic Deal Struck … Continue reading and as the principal outcome of the 2022 UN climate conference (COP 27/CMA4). In a nutshell, the Decision:

• acknowledges the “urgent and immediate need” for financial resources to assist particularly vulnerable developing countries “in responding to loss and damage associated with the adverse effects of climate change … in the context of ongoing and ex post (including rehabilitation, recovery and reconstruction) action”, and
• decides to establish:
  1. “new funding arrangements” for assisting particularly vulnerable developing countries in responding to loss and damage … and that these new arrangements complement and include sources, funds, processes and initiatives under and outside the Convention and the Paris Agreement”.
  2. a loss and damage response fund  “in the context of establishing the new funding arrangements”, and
  3. “a transitional committee on the operationalization of the new funding arrangements … to make recommendations … for consideration and adoption by [COP 28/CMA 5, December 2023] with a view to operationalizing the funding arrangements, including the [L&D Response Fund]”

II. The Need for Innovative Sources

It is welcome that the response actions that are meant to be supported by these L&D funding arrangements are indeed L&D response actions as characterized in our L&D Response Fund Elements Note (see Figure 1). Moreover, the GCF precedent (see Box) shows that it is possible to draft a Governing Instrument for a new multilateral fund within a year, but it also shows that this is just the beginning of making such a fund operational. If the GCF experience is anything to go by, then it would be 2027 when the new L&D Response Fund would take its first investment decision.

Moreover, as Adil Najan pointed out in his recent Conversation piece: “Real as the jubilation is for developing countries, it is also tempered. And rightly so. For developing countries, there is a real danger that this turns out to be another ‘placebo fund’, to use Oxford University researcher Benito Müller’s term – an agreed-to funding arrangement without any agreed-to funding commitments.”

The GCF has to date managed to attract $1.25bn per annum for each mitigation and adaptation ^[3]Over the past four-yearly replenishments, the GCF managed to secure on average $10bn and it would not be unreasonable to use this as a benchmark for the new L&D Response Fund. The question is whether this could be generated from traditional national budget sources without eating into the GCF contributions? I fear not, but fortunately, the Decision recognizes “the need for support from a wide variety of sources, including innovative sources”^[4]Para. 6.e The good news is (viz. Annex 1 below):

• there are a variety of innovative sources that could deliver (far beyond) the GCF-benchmarked contributions, and
• using them at scale would also obviate the toxic debate of which countries should contribute to the new L&D Response Fund!

III. The Need for Innovative Response Tools

The funding disbursement model for the new L&D Response Fund will have to differ drastically from the way in which is currently done in the multilateral climate funds which is to submit project proposals through an elaborate pipeline with an investment decision that can take many months, if not years.

James Cameron, in his recent Don’t set sights on a single massive global loss and damage fund: start small and start now, gives an illuminating account of some type of response tool: insurance! (see Annex 2 below). Clearly insurance schemes will have to be used as response tools under the new funding arrangements for L&D response, and equally clearly, they will have to be tailor-made to fit responding to adverse climate impacts, something that is not necessarily part of the skill-set of the TC members. These and other response tools will have to be tailored by relevant technical experts (possibly under the guidance of the TC).

IV. The Need for Urgent Action

The Decision is unequivocal about the “urgent and immediate need” to operationalize these new funding arrangements, and I concur with James Cameron that we should not waste time but “create a pilot project and start getting the money flowing to where it is needed [and at the same time] work on a longer-term loss and damage facility would carry on, with the intention of getting it up an running in the years after 2024, while still piloting innovative new sources of funding and loss and damage response tools.”

The ideas put forward in the above-mentioned Elements Note remain valid and should be proposed for adoption at COP 28 (December 2023) as part of the new funding arrangements, in particular to establish (for a period ending in 2026):

• a Technical Expert Pool for designing and piloting tailor-made L&D response tools, convened by the Transitional Committee and/or the Standing Committee on Finance, with the help of the Santiago Network; and
• a crowdsourcing platform — mirroring the donate button on the Adaptation Fund website ^[5]Arguably the quickest way to establish such a platform would be to request the Adaptation Fund to set up a stand-alone website (under the guidance of the TC) as part of their arrangements with the UN … Continue reading — to kick-start piloting innovative sources of L&D funding, for example a solidarity offset premium from the voluntary carbon market^[6]Speed is of the essence, in particular, if one wishes to attract contributions from the Voluntary Carbon Market. or voluntary windfall donations by fossil fuel companies,^[7]BBC News 12 March 2023 “Aramco: Saudi state-owned oil giant sees record profit of $161bn“ and receive funding for designing and piloting L&D response tools.

Annex 1. Innovative Funding Sources

The paper coining the phrase “placebo fund”, written in the run-up to the 2009 Copenhagen climate conference, was focussed on using earmarked shares of emission auction proceeds as innovative source of climate finance and related that: “In early October 2008, the Environment Committee (ENVICom) of the European Parliament put forward an amendment to the Commission ETS proposal, concerning the ‘earmarking article’ (Art. 10, §3). Whereas the original Commission language suggested at least 20% the revenues generated from the auctioning of allowances … should be used (i.e. earmarked) for climate change, the ENVICom amendment requires that the 100% of the revenue shall be used for climate change, with at least 50% for developing countries. This means, given the Commission estimates of auctioning revenue, that in 2020, €37 billion would be earmarked for developing countries.”[pp.5-6]

Moreover, a July 2009 Climate Dialogue article on the same theme pointed out that “There have been alternative ‘innovative financing’ proposals that would bypass national treasuries altogether. The Norwegian government has put forward the idea of retaining a number of emission permits at the international level in order to auction them internationally and to distribute the proceeds directly to developing countries. Another proposal by the Group of Least Developed Countries envisages a passenger levy for international air travel, again levied internationally and distributed to poorer countries. These two instruments could cover a significant proportion of the financial underpinning for developing countries in a new climate deal.”

The International Air Passenger Adaptation Levy (IAPAL), Submitted in December 2008 to the AWC-LCA at COP 14 in Poznan, would at the time have generated between  $8bn and $10bn annually, while a new innovative source, a 5% share of proceeds on the Voluntary Carbon Market, currently under consideration, is projected to generate $2.5bn annually by 2030.

Arguably the most direct innovative source would be a Share of Proceeds from the Voluntary Carbon Market (VCM) to the relevant entities of the financial mechanism of the Paris Agreement for supporting developing countries in adapting and/or responding to adverse climate impacts. For more on this idea (originally just for adaptation), see “Safeguarding Social Integrity in the Voluntary Carbon Market.”

Annex 2. Innovative Response Tools

“We then need to optimize the public funds available by leveraging philanthropic and private sector participation. A particularly promising group of partners is insurers, which not only oversee a large pool of investment capital, but also quantify for financial markets the size of the risk of climate loss in different regions.

We are already beginning to see examples of public, philanthropic and insurer partnerships to support climate adaptation in vulnerable communities and ecosystems. Founded in 2007, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) became the world’s first multi-country risk pool. Through contributions from numerous international governments alongside the World Bank – coupled with insurance and asset management partners – CCRIF has been able to provide low-cost insurance policies to member countries against various natural disasters. This ultimately provides financial liquidity in the face of catastrophic events while encouraging climate adaptation. In all, CCRIF has made approximately $244.8 million in pay-outs since its inception.

Another example is the insurance broker Howden, which launched seven projects for charities this year, with 15 more planned for next year. The projects demonstrate the potential for parametric insurance – when certain thresholds are reached, money is automatically released – to meet some of the cost of loss and damage, and to respond to the need for increased resilience in climate-vulnerable countries. One such project is the catastrophe bond Howden, through its foundation, and other insurance groups, have developed with the Danish Red Cross. When levels of volcanic ash and prevailing winds reach a pre-agreed level that indicates highly populated areas are at risk from a volcanic eruption, funds are immediately paid out to the Red Cross so they can get aid to where it is needed at once.”

John Kerry, Share of Proceeds for Adaptation, and Loss and Damage Response Fund

On 9 November, the day after the US mid-term elections, US Special Presidential Envoy for Climate John Kerry launched Energy Transition Accelerator (ETA), an initiative designed to support developing country efforts to from fossil to renewable energy, with the help of the private sector and the voluntary carbon market.

According to a 7 November Washington Post article on the initiative,“political paralysis and public pressure are pushing companies to step up with their own emission pledges — and money to help poorer countries bearing the brunt of climate change’s impacts”  and it was indeed extremely welcome to find that ETA includes of what has become known as a Share of Proceeds for Adaptation, as stated in the State Department Press Release:^[1]https://eg.usembassy.gov/u-s-government-and-foundations-announce-new-public-private-effort-to-unlock-finance-to-accelerate-the-energy-transition/

“To help strengthen climate adaption efforts in vulnerable countries, five percent of the value of all credits generated through the ETA will be dedicated to international support for adaptation and resilience.”

Given that the ETA will seek broad alignment with evolving best-practice standards, it would be quite awkward for the best-practice standards, such as the IC-VCM’s Core Carbon Principles, not to follow suit and include a SOPA (for more on this, see “SOPA added to the proposed IC-VCM Core Carbon Principles”.

It is also interesting that the hyperlink in the quote leads to a Post article (5 Nov) on Pakistan leading the drive to establish “a dedicated loss-and-damage fund”, as reflected in the OCP blog post of 4 November.

Malik Amin Aslam Khan, former Pakistan Minister for Climate Change, and Benito Müller^[1]This Opinion Piece also appeared on Climatesummit.org

The figures rarely capture the fatality or the enormity of the tragedy. In Pakistan over 1700 people have been killed, 33 million displaced,and miles of roads and thousands of hospitals damaged or destroyed. The costs are still being counted in a country which saw this year’s monster monsoon season unleash devastating floods that washed away a third of the country. 

Around 10 million children need immediate lifesaving assistance today according to UNICEF. Farmers say they cannot find dry land to farm. It could take six months for floodwaters to recede. The country faces a looming food crisis after 1.5 million hectares of crops were damaged. The estimated cost of the damage runs to over $30 billion.

In another climate strike  the estimated damages from Hurricane Ian are $41billion at best and $67billion at worst. The 150mph winds that made landfall in Florida and South Carolina this September make Hurricane Ian one of the top five worst storms in US history. 

Key West and Khyber Pakhtunkhwa or Sindh have little in common except vulnerability to climate change.  However. Whilst residents of both areas painfully suffer the impacts of climate and are forced to withstand  the damages at least the United States and other rich countries  possess the resources and capacity  to rebuild and rebound

Nature’s fury, triggered by climate change, is now striking with increasing frequency and is hitting particularly the world’s most vulnerable nations which also remain the most ill equipped to handle the consequences. Pakistan is among the top 10 most vulnerable countries on the Climate Risk Index even though  it contributes less than 1% to the global greenhouse gases. 

Many countries who are hardly contributors to climate change are being struck by the most extreme climate impacts, and they should not be left high and dry to  absorb  the price for the ensuing loss and damage. We urgently need a new multilateral pilot fund to respond to such climate induced  Loss and Damage. This fund should be focussed on recovery, reconstruction and rehabilitation after having suffered adverse climate impacts. 

These  rising climate impacts leave thousands of cities and towns facing staggering challenges to rebuild infrastructure and restore essential services. In Florida around 10,000 people remain internally displaced, in Pakistan this runs in the millions. Leaders must heed to their genuine demands and help these most vulnerable displaced people to relocate their lives with dignity and rebuild critical infrastructure in a climate compatible manner. 

COP27 offers yet another opportunity for leaders to fill the gap in existing funding arrangements that are no longer adequate to meet the requirements of the most vulnerable countries. Glasgow gave momentum to Loss and Damage, Sharm El Sheikh must mobilise solidarity in action and delivery. The credibility of the whole system hinges on this at the moment.

In his  remark made at COP26 last year President Biden  accepted that action and solidarity are  required saying “We have to stand together and hold each other accountable. The United States recognizes that we will meet our duty to support developing countries taking these actions because they’re going to need our help”. Actions now needs to follow.

The grave situation in Pakistan today is the harshest of wake up calls for the whole world . As heatwaves get more intense  and storms grow  stronger the US and the world rich  economies  must step up and help the poorest and most vulnerable in dealing with the loss and damage they are suffering right now from climate change.

I. The Past

a. Liability and Insurance

From the very beginning of Loss and Damage (L&D) deliberations in the multilateral climate change negotiations, there has been strong resistance by some Parties to face the issue of responding to L&D in financial terms, mainly for fear of demands for compensation, due to the anthropogenic nature of climate change: Climate change impacts are not acts of god, they are man-made, and as such imposed by people who consequently are responsible for them.

Thus in 2002, I argued^[1]B. Müller, Equity in Climate Change: The Great Divide, Oxford, OIES, 2002.  that an existing neglect of impact response in general, and impact relief in particular has to be redressed by creating “a Climate Impact Relief Fund – based on the tried and tested models of the OCHA Trust Fund for Disaster Relief and the Disaster Relief Emergency Fund of the International Federation of Red Cross/Red Crescent Societies – under the Framework Convention to cover the expenditures for international weather-related disaster relief and preparedness.”

In 2003 I followed up with a call for an “Adaptation and Impacts Protocol”,^[2]B. Müller, Drexhage, J., Grubb, M., Michaelowa, A., and Sharma, A. Framing Future Commitments: A Pilot Study on the Evolution of the UNFCCC Greenhouse Gas Mitigation Regime. Oxford OIES to provide not only binding commitments to sharing the burden of climate impacts, but also a statute of limitation for climate impact liability. He argued that it is not so much liability, but the spectre of unlimited liability which made L&D response a taboo to many Parties.

The same year saw the resurgence of interest in the idea of insurance as climate impact response measure leading to an interesting UNFCCC background paper^[3]UNFCCC Insurance-Related Actions and Risk Assessment in the Context of the UNFCCC Background paper for UNFCCC workshops – commissioned by the UNFCCC Secretariat May 2003  discussing, inter alia, the “role of insurance and collective loss approaches withing compensation and liability.” The concept  of ‘insurance’ was originally introduced into the negotiation of the Convention by AOSIS in 1991 as proposal to establish an International Insurance Pool (IIP).^[4]AOSIS. A/AC.237/WG.II/CRP.8. Submission by Vanuatu on behalf of AOSIS to the Intergovernmental Negotiating Committee for a Framework Convention on Climate Change Working Group II, at its 4th session, … Continue reading 

Art 2 of the submission identifies five main questions to be considered in the formulation of the proposed IIP, namely:

• Methods of funding an IIP;
• Classification of the types of loss to be covered by the IIP;
• Criteria for establishing entitlements to claim against the IIP;
• Methods of evaluating loss resulting from sea level rise;
• Limitations on the amount of compensation payable by the IIP.

Unfortunately, the IIP did not make it into the Convention, and ‘insurance’ only has a cameo appearance in Art. 4.8, but the five key points identified in Art. 2 of the original AOSIS proposal remain absolutely fundamental for any approach to respond to L&D financially.

b. The Warsaw International Mechanism (WIM)

At COP18 (2012) Parties decided they would at COP19 establish “institutional arrangements, such as an international mechanism, including functions and modalities, … as defined in paragraph 5 above, to address loss and damage associated with the impacts of climate change in developing countries that are particularly vulnerable to the adverse effects of climate change;”, with paragraph 5 referring to “enhancing action and support, including finance, technology and capacity- building, to address loss and damage …”[emphasis added]. It is also worth pointing out that the in the same decision Parties are noting “that a range of approaches, methods and tools is available …to respond to loss and damage”.^[5]Paras 2 and 9, Decision 3/CP.18 (emphasis added)

As tasked, COP19 did established the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (WIM)  “to address loss and damage …, including extreme events and slow onset events, …”^[6]Decision 2/CP.19, para 1.  However, its terms of reference are  all about enhancing understanding of risk management, collecting and sharing of relevant data and information, fostering dialogue, providing technical support, facilitating the mobilisation of expertise and enhancement of support to strengthen existing approaches and facilitate additional approaches to address loss and damage.^[7]Ibid. para 5.

In short, no finance to address, let alone respond to L&D.

c. From Paris to Glasgow: ‘avert, minimize and address’

The Paris Agreement

Art. 8 of the Paris Agreement is dedicated to the WIM. The preamble introduces what has since become an inseparable trinity when talking of L&D by referring to recognising the importance of “averting, minimizing and addressing loss and damage associated with the adverse effects of climate change”.^[8]Paris Agreement, Art. 8.1 (emphasis added). To the uninitiated reader this could appear to be simply an expression of the truism that emission mitigation and adaptation are key to reducing future adverse impacts, but what has happened is that references to ‘addressing’ loss and damage are now often regarded as illegitimate if not joined with ‘averting’ and ‘minimising’. This deflection from focussing on ‘addressing’ – let alone ‘responding’ – was complemented in the adoption Decision 1/CP.21 with the agreement that Art. 8 “does not involve or provide a basis for any liability or compensation.”

Given this, it is not surprising to find that the possible areas of cooperation and facilitation to enhance understanding, action and support referred to in Art. 8^[9] “(a) Early warning systems; (b) Emergency preparedness; (c) Slow onset events; (d) Events that may involve irreversible and permanent loss and damage; (e) Comprehensive risk assessment and … Continue reading] are – with the exception of risk insurance facilities, climate risk pooling and other insurance solutions – not (explicitly) about responding to L&D.

The Santiago Network

In 2019 in Madrid, the Parties reviewed the WIM and established “as part of the Warsaw International Mechanism, the Santiago network for averting, minimizing and addressing loss and damage …, to catalyse the technical assistance …”^[10]Decision 19/CMA.3, para 43.

And again, given the mandate of the WIM itself, it is not surprising that the functions of the Santiago Network adopted in Glasgow are all about ‘catalysing’ and ‘facilitating’, and that the closest to responding to L&D is in final function (as listed on the UNFCCC website): “Facilitating, through catalysing technical assistance, … access to action and support (finance, technology and capacity building) …, relevant to averting, minimising and addressing loss and damage …, including urgent and timely responses to the impacts of climate change;”

II. The Present

a. Glasgow

From a Glasgow Loss and Damage Facility to the Glasgow Dialogue

To the best of my knowledge, the CMA Glasgow Climate Pact is the first cover decision of a UN climate conference that includes a dedicated section (IV) on L&D. While most of the paragraphs of this section keep to the “averting, minimizing and addressing” mantra, there are two notable, and I take it deliberate exceptions:

• 64. Urges developed country Parties, the operating entities of the Financial Mechanism, United Nations entities and intergovernmental organizations and other bilateral and multilateral institutions, including non-governmental organizations and private sources, to provide enhanced and additional support for activities addressing loss and damage associated with the adverse effects of climate change;
• 71. Acknowledges the importance of coherent action to respond to the scale of needs caused by the adverse impacts of climate change;^[11]Decision 1/CMA.3, added emphasis.

This is in my opinion a welcome step in the right direction and and worth highlighting. The actual decision on L&D funding taken in that Section was, sadly, less impressive. As reported in the TWN Climate News Update No.17 (17 Nov. 2021), developing countries, at the outset of the Conference, tabled a draft decision recognizing “the need for a financing stream on loss and damage to ensure that developing country Parties are able to adequately address the significant impacts currently associated with slow onset events, non-economic losses, comprehensive risk management, displacement, and other loss and damage-related issues.”^[12]Emphasis added

On 11 November, after two days of inconclusive ministerial consultations developing countries textual proposals calling for the establishment of a “Glasgow Loss and Damage Facility under the Financial Mechanism …, and to provide new financial support under Article 9 of the PA, in addition to adaptation and mitigation finance, to developing countries to address loss and damage and requests the Subsidiary Bodies to jointly undertake work in 2022 with the aim of providing recommendations to COP27 on its operationalization.”

Failing to obtain consensus for such a Facilty, developing countries proposed instead “to launch a process to develop a facility, fund or other financial arrangements for providing financial support for loss and damage, through a subsidiary body, hereby established under the Convention, known as the Glasgow Ad-Hoc Working Group on Loss and Damage Finance.” This AWG was meant to commence work as a matter of urgency, and “produce a report with recommendations on the operationalization of a facility, fund or other financial arrangements, to be considered and adopted at COP27.” But even that did not succeed.

On 13 Nov, the final day of the Glasgow Climate Conference, Parties to the Paris Agreement decided merely to establish a “Glasgow Dialogue between Parties, relevant organizations and stakeholders to discuss the arrangements for the funding of activities to avert, minimize and address loss and damage associated with the adverse impacts of climate change, to take place in the first sessional period of each year of the Subsidiary Body for Implementation, concluding at its sixtieth session (June 2024)”^[13]CMA 2, Glasgow Climate Pact, para 72.

Scotland leads the way

The principal news that emerged from Glasgow on L&D funding was from the local host government. The First Minister of Scotland, Nicola Sturgeon, announced a trebling of the Scottish Climate Justice Fund to £36million, 2 million of which earmarked for L&D, stating that “every vulnerable or developing country I have spoken with has big ambitions for meeting the climate crisis but they do not have the funding for adaptation, for mitigation, or for tackling the loss and damage that is needed to deliver.”^[14]Scottish Government, Press Release, 11 November 2021.

b. Oxford: A Pilot Fund for Loss and Damage

On 7 September 2022, Michai Robertson, AOSIS lead finance negotiator, gave a presentation on Funding Arrangements for Addressing Loss and Damage to the Participants of the 2022 ecbi Oxford Seminar.^[15]For a full account of Robertson’s presentation and the ensuing discussion, see the Seminar Report. Michai “explained that, in 2022, the IPCC identified existing gaps in funding arrangements for L&D, which is not comprehensively addressed by current financial, governance, and institutional arrangements, particularly in vulnerable developing countries. […] He went on to underscore that given the limits to adaptation, funding for L&D must be comprehensively addressed and any arrangement must be fit for purpose and serve both the Convention and the Paris Agreement, which includes a recommendation to enhance support on a cooperative and facilitative basis to address L&D, as well address gaps regarding the ability of current operating entities to adequately fulfil this aspect of the Paris Agreement. […] He highlighted the need to understand four key elements: investment criteria, access, results management, and governance. Focusing on access, Robertson stressed understanding the way support must be received, as well as which entities are eligible to access such a fund such support, emphasizing grant-based support and commensurate urgency.”^[16]Ibid.

Following Michai’s presentation, I told the Participants that in their pre-meeting, the developing country Fellow had put forward the idea of a Pilot Fund for L&D as a potential ‘common comfort-zone landing ground’ for the ongoing L&D negotiation. For more on this idea, see my other blog post on this topic: “Elements of Pilot Loss and Damage Response Fund”.

d. New York

Two L&D related events in the course of the recent NYC Climate Week captured the attention of the press. 

“Denmark offers ‘loss and damage’ funding to poorer countries for climate breakdown”

On 20 September, the Danish Minister for Development Cooperation Flemming Møller Mortensen announced that his government has “agreed to increase support for climate-induced losses and damage. I saw firsthand in Bangladesh in the spring that the consequences of climate change need increased focus. It is grossly unfair that the world’s poorest should suffer most from the consequences of climate change to which they have contributed the least. With this new agreement, we are putting our money where our mouth is and working across civil society, authorities, the private sector and experts to solve one of the greatest challenges of our time.”

According to the Danish Press Release, the DKK 100m (EUR/USD 13m) funding is to include support for following activities:

• Support of DKK 32.5 million for the Ministry of Foreign Affairs’ strategic partnerships with civil society working with climate-induced losses and damage with a special focus on the Sahel region.
• Increased support to CISU by DKK 7.5 million The aim is to lift civil society actors in developing countries in their work to increase resilience to climate change.
• Support of DKK 35 million to insuResilience Global Partnership, which works to strengthen resilience in vulnerable countries through insurance schemes to cover risk, loss and damage in connection with climate-related disasters.
• A reserve of DKK 25 million will be set aside for strategic efforts within climate-generated losses and damage that can support the current climate negotiations leading up to and during COP27. The detailed activities will be fleshed out during autumn 2022.

“John Kerry Refuses to Feel ‘Guilty’ for Climate Change”

This was the heading of an article^[17]Kate Aronoff, “John Kerry Refuses to Feel ‘Guilty’ for Climate Change”, The New Republic, 22 September 2022. in The New Republic newspaper reporting about a New York Times event at which John Kerry “the U.S. climate envoy seemed to come unglued this week when Farhana Yamin, a veteran environmental lawyer and climate negotiator, asked him about funding for nations recovering from climate catastrophe.”

Kerry’s response was forthright and created quite some media waves: “In all honesty, the most important thing that we can do is mitigate enough that we prevent loss and damage. And the next most important thing we can do is help people adapt to the damage that’s already there. And […] you tell me the government in the world that has trillions of dollars, cause that’s what it costs. I’m not going to take a—feeling guilty. There’s plenty of time to be arguing, pointing fingers, doing whatever. But the money we need right now needs to go to adaptation. It needs to go to building resilience. It needs to go to the technology that’s gonna save the planet.”

III. The Future

In his Politico article “Denmark breaks ranks on paying for climate damage”, Karl Mathiesen, former editor-in-chief of Climate Home News, contends that “The rich country defense is beginning to fray as the impacts of climate change grow more stark” and he points out there is a growing realisation of this in the EU and the US.^[18]“The EU’s top climate envoy Frans Timmermans told Le Grand Continent journal last week that EU countries ‘must be prepared to spend a little more also on loss and damage caused by climate … Continue reading The World Resources Institute, in turn, lists “Create a financing mechanism for addressing loss and damage” as the first of its  6 Key Tasks at COP 27, ending “In some good news, building on commitments made by Scotland and Wallonia (Belgium) and a group of philanthropies during COP26, Denmark announced in September 2022 a pledge of 100 million Danish Krone (approximately $13 million) for loss and damage. The Climate Vulnerable Forum and the Vulnerable Twenty (V20) Group will also launch a crowd-sourcing loss and damage funding campaign in early October 2022. These are positive developments that underscore the need to elevate loss and damage at COP27.”

In the hope this will indeed happen, I have detailed my vision of what the idea mooted at the 2022 Oxford Seminar in a separate OCP post entitled “Elements of Pilot Loss and Damage Response Fund” which I hope will help to create  a characterisation that lies within the comfort zone required for finding a landing ground for these negotiations.

Benito Müller

Carbon markets, like all markets, have inherent reputational risks that are systemic and potentially jeopardise their very existence. The best known of these is lack or loss of ‘integrity’.  This risk is taken very seriously by carbon markets and governments favouring them. It is no coincidence that the governing body launched by Marc Carney’s Taskforce on Scaling Voluntary Carbon Markets at COP 26 was named the ‘Integrity Council for Voluntary Carbon Markets‘ (IC-VCM). Nor is it surprising that the Provisional Claims Code of Practice of the VCMI, i.e. the VCM-Integrity (!) initiative, is stressing that “only with integrity can [voluntary carbon] markets scale to mobilize the resources and emissions reductions necessary to support achievement of the Paris Agreement goals.” (for more on this VCMI code see below).

According to the dictionary, ‘integrity’ can refer to “the quality of being honest and having strong moral principles” or “the state of being whole and undivided”.  In the context of carbon markets, particularly those trading in carbon credits, the term is generally used with reference to ‘environmental integrity’, that is to say, the state of leaving the environment unimpaired: carbon markets should not lead to an infringement of environmental integrity or leave the environment worse off than it would have been without them.

The seriousness and systemic nature of the reputational risk from a threat to (environmental) integrity  is reflected not just by the choice of nomenclature for the two governing bodies, but also by the fact that both of them feel the need to mitigate that risk through general governance arrangements/principles. In other words, introducing a special type of ‘integrity credits’ (traded at a premium) is not regarded as sufficient to ward off this risk. The only way to do that is to make sure that all traded credits are of sufficient quality so as not to pose a risk to the (environmental) integrity of the market.

While all this is of crucial importance to the viability of carbon markets, environmental integrity is not the only existential risk they are facing. As anyone familiar with the California Cap and Trade Program knows, accusations of injustice to the poorest and most vulnerable can be very powerful and potentially threaten the very existence of a carbon market. In other words, carbon markets must not only maintain environmental integrity. They must also adhere to strong ethical principles, or (in the words of the Paris Agreement Art. 9) “reflect equity and the principle of common but differentiated responsibilities and respective capabilities” to promote ‘social integrity’.

As it happens, there is a keen awareness among many VCM stakeholders that ‘benefit sharing’ is important, and moreover, that the benefits should go beyond those derived from the sale of credits. Indeed, credits with sustainable development co-benefits to local host communities already sell at a premium. This is why some standard providers have started to offer special types of ‘credits with co-benefits’. 

The trouble is: the ‘social integrity’ risk is as systemic and potentially existential as the environmental one, and it can equally not be dealt with by introducing a special type of ‘(social) integrity credits’. All credits must be seen as maintaining the social integrity of market activities, which includes benefit sharing with all the most vulnerable communities (and not just the ones in host countries). In this context it also needs to be kept in mind that these communities are and will be disproportionately affected by adverse climate impacts largely caused by other, more affluent actors, including the VCM participants. Being left behind in the sharing of VCM benefits to help reduce these impacts will thus be seen as a grave injustice, with the inevitable reputational consequences for the VCM.

But how could that possibly be averted? One very simple way of addressing this without interfering with market choices on project types and host countries is with a share of proceeds to support adaptation in the poorest and most vulnerable countries. Such a share of proceeds would address the concern that no-one is unfairly left behind due to market host country  and project choices. An OCP/ecbi Discussion Note looks into some of the technical options on how this could be done. The only thing that needs to be stressed here is that it must be done as a matter of governance, applicable to all credit generating projects, if it is to safeguard the VCM from accusations of infringing social integrity.

The Provisional VCMI Claims Code of Practice

On 7 June, the VCMI published its Provisional Claims Code of Practice (PCCP) “for public consultation and corporate road testing.” While Section III (Purpose, Audience and Scope) of the PCCP starts by recalling that the “VCMI was established to help ensure that voluntary carbon markets make a significant, measurable, and positive contribution to achieving the Paris Agreement goals while also promoting inclusive, sustainable development“, it also clearly states that the primary purpose of the PCCP is to “provide clear guidance to companies […] on when they can credibly make voluntary use of carbon credits as part of their net zero commitments“

In short, the PCCP is primarily about ensuring the credibility of corporate (net-zero) mitigation claims, and not about promoting sustainable development. Having said that, the PCCP also states that all ‘VCMI claims’ require what is referred to as ‘high-quality credits’ defined (pp.30ff) the following 5 ‘basic criteria’: The must

1. be “associated with a recognized and credibly governed standard-setting body“;
2. have “high environmental quality“;
3. be “from activities that, where relevant, are compatible with human rights“;
4. be “from activities that, where relevant, promote equity, apply social safeguards, and demonstrate positive socio- economic impacts, such as [the SDGs]”; and
5. be “from activities that, where relevant, contribute to the protection and enhancement of environmental quality“.

It is curious that the last three activity related criteria are relativised (“where applicable”). For one, it would seem that compatibility with human rights should always be relevant. Indeed, I would argue, for reasons stated above, that this should also be the case for criterion #4. Accordingly, there should be an additional basic criterion, namely that to be of ‘high quality’:

• credits must be associated with a Share of Proceeds for Adaptation in line with Article 6.6 of the Paris Agreement.

Benito Müller with Saleemul Huq and Mizan Khan

Measures to respond to climate emergency as well as climate change impacts affect jobs and livelihoods. The issue referred to in this context as ‘just transition’ is the need to ensure that social injustices due to resulting job and livelihood losses are addressed, so that no-one thus affected is ‘left behind’. 

The Past: Just Transition and the Impacts of Mitigation Measures

As described in detail in the ecbi Pocket Guide to Response Measures, the first formal occurrence of the notion of ‘just transition’  was in the 2010 Cancun Agreements which, in their shared vision for long-term cooperative action, recognized that “addressing climate change requires a paradigm shift towards building a low-carbon society that … ensures continued high growth and sustainable development, …, while ensuring a just transition of the workforce that creates decent work and quality jobs”.

The second occurrence, is in the preamble of the section economic and social consequences of response measures which recognizes “the importance of avoiding or minimizing negative impacts of response measures on social and economic sectors, promoting a just transition of the workforce, the creation of decent work and quality jobs.

In short, in the multilateral climate regime, ‘just transition’ was from the outset associated with what became known as ‘impacts of response measures’ where ‘response measures’ were exclusively interpreted as mitigation measures, in particular measures that curtail the production of fossil fuels, resulting for example in the loss of coal mining jobs.

The Present: Just Transition for Bangladesh

As alluded to in the introductory paragraph, this focus on the just transition of the fossil fuel sector, and more generally the just transition under impacts of mitigation measures, does not do justice to those whose jobs and livelihoods are affected by climate change. For one, adaptation measures are also response measures, with potential adverse effects on jobs and livelihoods, as highlighted in a 2010 presentation by the International Trade Union Congress (ITUC):

“There is a general tendency to replace rice production by mango in semi-arid Bangladesh. While correct from an economic and agronomic standpoint, without planning and local consultation there is a risk of social unrest. Mango requires much less work than rice. That is bad news for the one third of households in the region
who depend on their work as daily labourers in agriculture.”

A recent ICCCAD policy brief on Just transition for Bangladesh by Mizan Khan, and Afsara Mirza also highlight that just transition concerns in Bangladesh “relate more to climate change impacts and their effect on the workers including women, children and the disabled persons.  Few million people, mostly poor, are displaced at least temporarily when a disaster happens. These people are sheltered in cyclone and flood protection centres and after the disaster is over, they usually go back to their dilapidated existence.  Sometimes, they get government assistance for rehabilitation, but it is very inadequate. Climatic stress causes rural-urban migration and exacerbates poverty. A part of these displaced people moves to slums of big cities in search of work, often crowding the already crowded slums. The living conditions deteriorate in their villages due to losses in service facilities of health, safety, education, and food security.”  

The Future: Response Measures and Loss & Damage

To accommodate these wider reaching just transition concerns, the multilateral climate change negotiations need to extend the just transition debate to include adaptation measures in its just transition considerations under impacts of response measures in fora such as the Forum on the Impact of the Implementations of Response Measures (established in §93 of the Cancun Agreements), or the  Katowice Committee of Experts on the Impacts of the Implementation of Response Measures, a.k.a. Katowice Committee on Impacts (KCI), established at COP24 in 2018.

As regards the housing the safeguarding of social workplace justice in the face of adverse impacts of climate change in the multilateral climate change negotiations, the most natural agenda item would seem to be Loss and Damage (L&D) as dealt with in bodies such as the Santiago Network on L&D. 

Without these social justice extensions there can at best be partial justice in the relevant transitions.

Benito Müller

Background: Mutually Assured Unhappiness

The Decision (1/CP.21) adopting the Paris Agreement (PA) specifies that the parties to the PA “shall set a new collective quantified goal from a floor of USD 100 billion per year, taking into account the needs and priorities of developing countries”[ § 53] before 2025.

In Glasgow, parties decided to “initiate the deliberations on setting a new collective quantified goal”[§ 1] that are to be concluded in 2024 [§ 22] and are to “include, inter alia, quantity, quality, scope and access features, as well as sources of funding, of the goal”[§ 16]

This wide range of topics reflects “the fact that there is no multilaterally agreed definition of climate finance”, as recognised in the COP 26 Decision on Matters relating to the SCF (para 6), and some would argue, the need for a definition which cropped up in many of the finance-related discussions in Glasgow (cf. ecbi COP 26 Key Outcomes). The Standing Committee on Finance (SCF) has for some time been deliberating this issue and has been requested by the COP “to continue its work on definitions of climate finance, … with a view to providing input for consideration by [COP 27] (November 2022)”[ibid. § 7]

It is not at all clear whether it will be possible to agree on a grand unified definition of ‘climate finance’. What is crystal clear is that adopting a collective quantified goal, in the absence of an agreement on what is to be counted as contributions, is nothing but a recipe for mutually assured unhappiness, because without such an agreement it is not be possible to objectively agree on whether the goal has been achieved or not.

What to do? Maybe focus on certain types of financial flows where there is agreement that they are climate finance, such as the flows through the Financial Mechanism (FM) of the UNFCCC/PA.  Of course, it would be too narrow to focus only on the FM. So, what else might be doable? In seeking an answer to this, it may be useful to look back on the genesis of the $100 billion figure.

Genesis of the $100 billion Goal

It is well known that US Secretary of State Hillary Clinton, on arrival at COP in Copenhagen (17 December 2009), announced that “the United States is prepared to work with other countries toward a goal of jointly mobilizing $100 billion a year by 2020 to address the climate change needs of developing countries. We expect this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.”[2009-2017.state.gov]

What is less well known is that the $100 billion goal was actually first mooted by UK Prime Minister Gordon Brown in his ‘Roadmap to Copenhagen‘ speech (London Zoo, 26 June 2009). While acknowledging the importance of the private sector and carbon markets, Brown emphasised that “public finance will also be needed. So I want to propose a new international partnership on public finance for climate change”[emphasis added]. This partnership was to be governed by four principles: Equity, Additionality, Shared governance, and Predictability. As such it was very progressive indeed – for a summary of these principles, see Müller (2018)^[1] – and it was a shame the partnership did not materialise.

The Way Forward: Collective Quantified Public-sector Goal on Adaptation Finance

Given this, and the (slightly oversimplified) headline description of it in the Guardian at the time (“Gordon Brown puts $100bn price tag on climate adaptation“) one way forward could be to introduce a focus on a supplementary collective quantified goal for public sector (grant) finance for adaptation (for the poorest/most vulnerable countries).

To arrive at a mutually agreeable definition for this sort of funding will not be easy either, but it is clearly less onerous than a general definition of climate finance, particularly if one were to use the methodologies of, say, the Adaptation Fund as benchmark (assuming not unreasonably there is agreement that the AF delivers adaptation finance).

Moreover, funding for adaptation, or rather the lack of it, remains a key issue in the multilateral climate change process, as witnessed in the Adaptation Finance section of the Glasgow Climate Pact (GCP) which in §§14-16:

^[1] Benito Müller (2018), The Past, Present and Future of the Collective Quantified Goal for Climate Finance: Paragraph 53 of Decision 1/CP.21, presentation given at the 2018 ecbi Fellows Colloquium.