Benito Müller^[1]Director ecbi, MD Oxford Climate Policy, University of Oxford, corresponding author: director@oxfordclimatepolicy.org with contributions^[2]The author takes full responsibility for the content of this post, contributors may not necessarily agree with all the points, but they agree that they are worth raising for discussion to help the … Continue reading by Diann Black-Layne,^[3]Climate Ambassador, Antigua and Barbuda, Kishan Kumarsingh,^[4]ecbi Chief Adviser, Trinidad & Tobago.

I. Introduction

The issue of responding to Loss & Damage has been raised in the multilateral climate negotiations as early as 1991 ^[5]Viz. the AOSIS International Insurance Pool. For an account of the L&D finance deliberations see my other Note on L&D finance, or the ecbi Pocket Guide on Loss and Damage under the UNFCCC.  This post expands on the discussions at the 2022 ecbi Oxford Seminar, following a presentation by Michai Robertson on “Funding Arrangements for Addressing Loss and Damage”^[6]For more on this see the 2022 Oxford Seminar Report. More precisely, my aim is to provide some food for thought regarding three key questions concerning the idea of a Pilot Loss and Damage Response Fund (‘Response Fund’) that came out of these discussions, namely:

• Why a new fund?
• How to set it up?
• What type of ‘response’ should the Response Fund be focussing on?
• How could the Response Fund be resourced?

II. A New Fund

a. Why?

There have been reservations with regard to setting up a new funding instrument under the Financial Mechanism because of a fear that it would contribute to the ‘fragmentation’ of the multilateral climate finance architecture. Clearly ‘fragmentation’, in the sense of duplicating existing institutions is not necessarily a good thing, but this does not mean that creating a new funding instrument necessarily implies fragmentation in that sense.

Take the genesis of the Adaptation Fund (AF). In 2001, at COP 7 in Marrakesh, Parties decided that “an adaptation fund shall be established to finance concrete adaptation projects and programmes in developing country Parties … to the Protocol [to] be financed from the share of proceeds on the clean development mechanism project activities and other sources of funding.”^[7]Decision 10/CP.7. Paras 1 and 2.

As this was a decision on “Funding under the Kyoto Protocol” the full operationalisation of the AF had to wait until the entry into force of the KP in 2005. In December 2007, the operationalisation of AF was completed at the third session of the KP governing body (CMP.3) in Bali, where it was decided that an ‘Adaptation Fund Board’ of the AF “shall be established [as a new operating entity] to supervise and manage the Adaptation Fund, under the authority and guidance” of the CMP as a new new operating entity”^[8]Decision 1/CMP.3 paras 3 and 4.

Four months earlier, Amb. Enele Sopoga, later Prime Minister of Tuvalu, gave a presentation at the 2007 ecbi Oxford Seminar on the governance of the AF, highlighting inter alia the view of the participating developing country delegates (the ‘ecbi Fellows’) that “the AF was sufficiently different from other funds operating under the UNFCCC to necessitate the creation of a different governance structure with a new and separate operating executive body”^[9]2007 ecbi Oxford Fellowship and Seminar. Indeed, Amb. Sopoaga collaborated with four other Fellows after the Oxford Seminar to produce an Opinion Piece which illustrates why there was seen to be the need to create  “a ‘stand-alone’ governance and management structure featuring a new tailor-made expert executive body and a decision-making format that ensures the authority of the COP/MOP.”

The main reason was that, as the intended recipient of the CDM share of proceeds, it was seen to be “unlike the other UN climate change funds [by not exclusively relying] on voluntary donations from industrialised countries.” Moreover, the Fellows envisaged other potential innovative funding sources for the AF.^[10]“Moreover, there are other avenues of innovative funding for the AF that could and should be pursued — not least if the expected gap in adaptation funding is to be filled. These include an … Continue reading  In other words, the AF was regarded as vehicle purpose-built to manage and develop innovative sources of funding. Or in the words of the authors: “This is why we are not convinced by the two main arguments put forward for operating the AF by the same entity as the other two UNFCCC funds — namely, that this would eliminate significant duplications in adaptation activities under the different funds, and prevent the unnecessary creation of a new body. We believe that the AF is in a league of its own, and that it is sufficiently different from the other funds to necessitate the creation of a ‘stand-alone’ governance structure with an entirely new operating body.”

Having said this, if memory serves, there was also a certain discontent that the existing operating entity of the UNFCCC Financial Mechanism, the Global Environment Facility (GEF), was not able to deal with adaptation, not least because it was designed “for the purpose of providing … funding … to achieve agreed global environmental benefits”^[11]Instrument for the Establishment of the Restructured Global Environment Facility, para 1. Emphasis added. in its focal areas, including climate change. Adaptation is generally seen to provide primarily local benefits to human beings, and as such does not fit easily under the GEF remit, and indeed, the the GEF website acknowledges that it has outsourced adaptation to the other two UNFCCC funds created in Marrakesh, i.e. the   Least Developed Countries Fund (LDCF) and the Special Climate Change Fund (SCCF).

It is also interesting in the current context to learn from the Preamble of the GEF Instrument that it was actually also “established in the [World Bank] as a pilot program in order to assist in the protection of the global environment…”

One additional distinct advantage of having a thematically focused multilateral fund, such as the AF, is that there can be no (multilateral) doubt whether contributions to such a fund are actually for the theme in question (i.e. for adaptation, in the case of the AF).  Establishing a multilateral fund with a thematic focus on L&D would have the same advantage, which potential L&D funders might very well appreciate!

Last but not least in this context it needs to be highlighted that creating such a relatively small pilot fund does not mean that the funding for the issue could not be scaled up at a later stage: after all the fact that there was the Adaptation Fund did not preclude the GCF from introducing an adaptation window!

b. How?

Having looked at, and I hope dealt with the objection that establishing a Response Fund would be tantamount to fragmentation in the sense of duplicating existing institutions, there is another objection that needs to be considered: that it would inevitably mean more bureaucracy, more new bodies such as a board or secretariat.

Yet this is not the case. In particular, there is no need to establish the proposed Response Fund as a new Operating Entity of the Financial Mechanism. After all, specialist funds have been established in the past and were assigned  to an operating entity for management purposes. For example, the GEF Council serves as the board of the LDCF and the SCCF.

There are currently two Operating Entities of the Financial Mechanism, namely the GEF and the Green Climate Fund (GCF).  However, personally I find it questionable whether they would be the optimal choice for managing such a purpose built pilot vehicle for reasons already mentioned above, in the case of the GEF, and because of a differences in size in the case of the GCF.^[12]Being a pilot, the volume of funding would be relatively modest, compared to the funding windows of the GCF.

By contrast, given the Adaptation Fund serves the PA, and is not only (relatively) small but also has considerable experience in pilot activities, I could see that it might be a good fit to manage the new Response Fund. Moreover, it has the added advantage that (unlike the GEF or the GCF) it has a tool to collect crowd funding though its ‘donate’ button. It should not be too difficult to amend MOU with the UN Foundation, which manages this tool for the AF, so that innovative crowd sourcing for L&D (see Section IV.b below) could start immediately, even before the Pilot Fund is fully operational.

Indeed, it stands to reason that this sort of ‘piggy-back’ operationalisation would be much quicker than one from scratch. In the case of the LDCF, established at COP 7 in November 2001^[13]Decision 7.CP.7. the “GEF released Operational Guidelines for Expedited Funding for the Preparation of National Adaptation Programs of Action by Least Developed Countries in April 2002, and GEF agencies were able to submit proposals on behalf of LDC Parties for the preparation of NAPAs.”^[14]UNFCCC, “LeastDeveloped countries under the UNFCCC. In other words, it was ready in less than six months.

c. LRI Advice on the operating entity for the Response Fund

Query

Are there any legal reasons why the Adaptation Fund Board could not serve as the Board of the Response Fund, in the same way in which the GEF Council also serves as the Council of the Least Developed Countries Fund and the Special Climate Change Fund (keeping in mind that the Response Fund would presumably be established under the PA, as the AF is now serving the PA)?

Response

We consider that it is legally possible for the AFB’s functions to be expanded through a decision of the CMA (which would be communicated through a decision of the CMP), so that the AFB supervises and manages the LADRF, or other pilot fund that is established under the Paris Agreement and that is subject to separate terms of reference (as well as the Adaptation Fund).

The legal basis for the ability to potentially confer additional powers on the AFB is that:

• the mandate for the Adaptation Fund is broad and covers a number of matters that could be viewed as overlapping with responding to loss and damage (e.g. planning and preparedness for disasters, rapid response to extreme weather events);
• Decision 1/CMP.3 gave the CMP the ability to assign further functions to the AFB, and by virtue of Decision 13/CMA.1 and Decision 1/CMP.14, the Adaptation Fund is accountable to the CMA with respect to all matters relating to the Paris Agreement; and
• assuming that the Response Fund or other pilot fund is established under the Paris Agreement, then the CMA may be able to assign the AFB functions in relation to the Response Fund or other pilot fund. This would likely be done through a decision of the CMA that is transmitted through a decision of the CMP (which has explicit ability to assign further functions to the AFB).

III. What “Response”?

a. The L&D Management Toolkit

The issue of how to respond to damage inflicted by some on others has occupied societies since time immemorial, and there have been a number of quite different approaches to deal with it. There is, for one, the taking of Revenge, as suggested in the Old Testimony maxim of ‘an eye for an eye’, but that has been discredited, not least because “it will make the whole world blind”^[15]Attributed to Mahatma Gandhi.

Another approach is Reparation (a.k.a. compensation), defined by the OED as “the action of making amends for a wrong one has done, by providing payment or other assistance to those who have been wronged.” It was a cornerstone of Roman law, as reflected in the Twelve Tablets which specified that “If a person breaks a bone of a freeman with hand or by club, he shall undergo a penalty of 300 asses; or of 150 asses, if of a slave.” However, given the history of the L&D deliberations in the multilateral climate change regime, it is unlikely that focusing on this approach would succeed in detoxifying these deliberations. Instead, what might be more successful is to look at the response approaches that have been identified in the context of disaster management.

The figure above depicts what could be called the ‘L&D Management Toolkit’ listing four more R’s,  based on the well-known Disaster Management Cycle: emergency Relief, Recovery, Reconstruction, and Rehabilitation. Two key points must be emphasized in this context: 

• First of all, as reflected by the colour scheme in Figure 1, there is a fundamental difference between L&D Response and L&D Reduction. The former deals with L&D that has been incurred through unavoided adverse climate impacts, the latter deals with managing L&D of impacts that have not happened yet. Mitigation and adaptation are part of the toolkit to reduce (‘minimise’, ‘avoid’) L&D from future impacts, but they cannot be used in responding to (‘addressing’) L&D that has already been incurred. This means, in particular, addressing L&D is not ‘delayed adaptation’, nor can mitigation and adaptation be used to defer action to address L&D. 
• Second, having recovery, reconstruction, and rehabilitation as Impact Response activities does not mean that impacts can generally be reversed. Once a species is extinct due to climate stress, it will remain extinct. Once a coastline is lost due to sea-level rise, it remains lost. These activities simply help affected people to deal with the L&D they incurred.

b. The Role of the Response Fund

How could the proposed Response Fund fit into this L&D Management Toolkit?

First of all, it is also clear to me now^[16]In 2002 I was arguing for the establishment of a Climate Impact Relief Fund (B. Müller, Equity in Climate Change: The Great Divide, Oxford, OIES, 2002. that it would not be sensible to establish a UNFCCC  L&D emergency relief regime in parallel to the existing humanitarian aid regime with the Office for the Coordination of Humanitarian Affairs (OCHA) as the key UN agency. Indeed, one way in which this could be avoided, as also reflected in Fig. 1, would be to focus the work of the Response Fund away from extreme (weather) events to impacts typically associated with slow-onset events and, possibly, non-economic impacts, on the impact side, and away from Relief to Recovery, Reconstruction, and Rehabilitation, in its original sense of ‘making fit for purpose again’^[17]From the Latin ‘habilitare’ based on the Latin adjective ‘habilis’, meaning ‘fit for purpose’ (Thanks to Dr John Penney, Wolfson College, Oxford), on the response side.

Moreover, it might be judicious to look at L&D Response through a ‘just transition’ lens, as reflected in a recent interview in a Trinidad and Tobago newspaper: “Kumarsingh further explained how coastal communities which rely on the natural amenities that they live in like those who catch and sell fish, crabs and conchs will be affected and how they fall under the protection of the just transition policy.”^[18]Ryan Bachoo, Where next for energy workers? Interview with Kishan Kumarsingh, Trinidad and Tobago Guardian, 2 October 2022. For more on this, see also: Müller, B., with S.Huq and M. Khan, ‘Just … Continue reading

Indeed, in his L&D presentation to the 2022 ecbi Oxford Seminar, Saleemul Huq gave an example of L&D from slow-onset event: the steady stream of farmers that are loosing their livelihood due to climate stress and end up migrating to to slums of big cities in search of work, citing it as a matter of ‘just transition’ that should be covered by L&D.^[19]For more on this, see Benito Müller with Saleemul Huq and Mizan Khan, “Just Transition: Response Measures and Loss & Damage!”, OCP blog, 21 April 2022. To be noted, in this context, is that unlike disaster relief, and transnational migration, this sort of ‘internal’ migration is (to my knowledge) not covered anywhere else in the UN, be it under the UNHCR or anywhere else. To be clear, internal migration due to climate stress does not only occur in the context of slow-onset events, as recently pointed out in an OpEd by Malik Amin Aslam Khan, former Pakistani Minister for Climate change: “A population of over 33 million is awash in suffering with over 1400 killed, most of them small children, and 10 million people forcibly displaced to become hapless climate refugees in their own homeland. As the static flood waters now threaten increased hunger, disease and poverty the inescapable damage assessments are already running into billions ($30 billion as per some estimates) for the rescue, repair and massive rehabilitation.”

According to a 19 October Climate Home article Michai “Robertson said the response fund wouldn’t replace humanitarian aid, but focus on the reconstruction phases that follow extreme weather events. Governments and communities would apply for budgetary support to rebuild their economies and critical infrastructure. This could include activities such as cleaning up ecosystems, rehabilitating cultural sites and restoring education and health services. Money could also go to communities threatened by slow-onset events such as sea level rise or desertification, for example to help them relocate with dignity.”

Finally, it would seem judicious to exclude Reparation from the remit of such a Response Fund (as reflected in Figure 1), for it to be in a mutual comfort zone. This is not to remove Reparation as a L&D Response activity, but simply to remove it from the scope of the proposed Response Fund, mirroring the removal of emergency Relief.

IV. Innovative Sources of L&D Funding

a. Top-Down Approaches

In a recent interview, Gaston Browne, Prime Minister of Antigua and Barbuda addressed the issue of L&D funding, expressing his belief in the need for more innovative sources:

  “There is no reason why companies in the fossil fuel energy business should be making windfall profits at this time without them being taxed and the proceeds utilized to fund the green energy obligations or to drive down the cost of renewables.

I am of the view that, at the individual level, if you charge people who travel an environmental levy of $1, it is not prohibitive, imagine how much money could be raised if each airline ticket is increased by a dollar – or each cruise ship passenger, each cargo ship, if every barrel of oil is charged – it is not inflationary, but it can be used to fund loss and damage.

On the loss and damage fund being proposed, there can also be creative ways to fund it – like I said, taxing at the individual level. We have to appreciate that, when we are in an airplane, we are polluting the air. It is not just organizational, but as individuals, we have to carry that burden too.”

As it happens, there have been a number of proposals for innovative multilateral financing sources along the lines suggested by Prime Minister Browne. For example, at COP12 in Nairobi (2006) Switzerland proposed a global carbon tax as an innovative ‘Global Solidarity’ instrument for adaptation financing.^[20]UVEK 2007: Global Solidarity in Financing Adaptation, A Swiss Proposal for a Funding Scheme, Paper for further Discussion, Federal Office for the Environment, Berne. 40 pp. I am grateful to Amb. … Continue reading

Moreover, the idea of an airline levy as suggested above has been studied in some detail and even proposed by the Least Developed Countries Group in December 2008 at COP 14 (Poznan) as International Adaptation Passenger Levy (IAPAL). The original study concluded that “a very modest average level of €5 per ticket [would] raise €10billion annually”^[21]Müller, B., and Hepburn, C., IATAL – an outline proposal for an International Air Adaptation Levy, Oxford, OIES, 2006. Unfortunately, IAPAL did not fly at Poznan, but the idea that we need innovative sources of funding for the multilateral climate funds of the Financial Mechanism did not disappear, far from it.^[22]For more see: Müller, B., The Paris Predictability Problem: What to do about climate finance for the 2020 climate agreement?, Oxford, ecbi/OCP, 2015.  Müller, B., ‘Whatever happened to the … Continue reading

In December 2008, at COP 24 in Katowize, the PCCB (Paris Committee on Capacity Building) and ecbi joined forces to organize a joint Seminar showcasing five ideas aimed at generating innovative additional contributions to the funds of the Financial Mechanism:

1. The International Air Passenger Adaptation Levy (IAPAL);
2. The Climate Damages Tax;
3. The International Maritime Fuel Carbon Tax;^[15]
4. The Western Climate Fund;
5. The Corporate Air Passenger Solidarity Programme (CAPS).

The first four were top-down concepts, involving government regulation. The last one, by contrast was a bottom up variant of the IAPAL scheme, involving voluntary contributions by travellers.^[23]For more details on these five examples, see: Müller, B., ‘Innovative Sources for Multilateral Climate Finance‘, Oxford Climate Policy, 2 January 2019

b. Bottom-Up Approaches

‘Bottom-up’ here means that contributions are not obligatory, but voluntary, as in the case of what has become known as ‘crowd funding’.

Crowd Funding

On 28 May 2013, Ambassador Diann Black-Layne (Antigua and Barbuda) presented an award-winning ecbi Report on “Crowdfunding for Climate Change: A new source of finance for climate action at the local level?” she co-authored at the first Forum of the UNFCCC Standing Committee on Finance.  The Report recommended that “the new Green Climate Fund (GCF) should consider creating a microfinance and crowdfunding window as part of its Private Sector Facility. Under this window, the GCF could support countries that create an enabling environment for ‘micro climate finance’, through accredited National Financial Entities or competent private or non-governmental entities in the country.”

Unfortunately, this recommendation was also not heeded, so that to this day, the Adaptation Fund remains the only operating entity of the Financial Mechanis with a donate button allowing it to crowd fund.

Air Passenger Crowd Funding

In 2016, an ecbi Policy Brief^[24]Müller, B., with A. Kornilova, R. Tewari, and C. Warnecke, Two Unconventional Options to Enhance Multilateral Climate Finance: Shares of Proceeds and Crowdfunding, Oxford ecbi 2016 introduced the concept of “Corporate Social Responsibility Air Travel Adaptation Crowdfunding” (CSR ATAC) promoting the idea of voluntary contributions by corporate travellers tothe Adaptation Fund. The Brief not only discussed why corporate air passengers, in particular, should support adaptation, but also estimated the potential revenue: “Assuming, conservatively, that only one in ten corporate air passengers who offset emissions switch to the proposed solidarity contribution, the scheme would raise over US$ 100 million annually at the suggested contribution of 1% of ticket cost”.

In February 2017, Oxford Climate Policy and the Environmental Change Institute of the University of Oxford published a brochure on the “Oxford Crowdfunding for Adaptation Initiative: Tapping into Socially Responsible Corporate Air Travel”, containing a one-page flyer on “Effective CSR for Corporate Air Travel” as well as a succinct market analysis of the target sector (Why focus on socially responsible corporate air travel? Market size and potential revenue) as well as the mechanics of the scheme. The brochure was complemented by the creation of a website for Corporate Air Passenger Solidarity (CAPS).

The concept of ‘solidarity’ evoked in this context is not necessarily tied to contributions to the Financial Mechanism for adaptation. It would equally well fit contributions to L&D. At the same time, CAPS is ready to be piloted and as such could be easily fitted with the envisaged Pilot Fund, if crowd funding were to be made one of sourcing modalities.

V. What now?

As indicated in my other post (“The time is ripe … for serious discussions on finance to address and indeed respond to L&D through a dedicated pilot fund”), the aim here was to put forward some elements on how an entity operating under the Financial Mechanism could be conceived so as to facilitate finding a mutual comfort-zone/landing-ground for the L&D finance negotiations. This is as much as I can do at this point. The next steps toward the proposed landing-ground will have to be taken by the Parties at the upcoming climate conference (COP27/CMA4) in Sharm el Sheik, Egypt.

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