Climate-caused ‘loss and damage’: securing compensation

It may be wiser for poorer countries of the global south to push for securing more immediate and targeted commitments

Pakistan was rightly elated at the last global climate summit in Egypt when it led the G77 plus China grouping to compel rich countries to pay poorer countries for climate-induced disasters. Ironically, poorer countries are bearing the brunt of climate changes they historically done little to cause. While China and India are amongst the leading global emitters in the world at present, historically, it is the rich and industrialised world which has been pumping carbon into the atmosphere since the 1750s, which has cumulatively caused global warming.

While the moral arguments for ‘loss and damages’ remain evident, this does not mean that the billions of dollars of damages being caused within the global south on a recurrent basis will be paid by rich and powerful countries. Rich countries of the world may have felt cornered into agreeing to create a loss and damage fund, but no firm commitments have been made yet about who should pay how much to this fund. Also, which countries should be compensated, and how much they should receive could also cause significant contention, especially if this compensation fund only manages to muster meager contributions.

While the issue of funding ‘loss and damage’ will probably come up again in the UAE, during the next climate summit (COP28) scheduled for next month, poorer countries should not hold their breath to be helped via such a fund. Many other past pledges to help poorer countries leapfrog environmentally damaging technologies, or to put in place needed mitigation and resilience measures, have not been given anywhere near the amount of funds needed to make a meaningful difference.

Even if rich countries do agree to allocate some money to the loss and damage fund, their allocation may be little more than a creative accounting exercise. It is quite possible that mainstream development funding for a host of other goals, ranging from health and education to water and sanitation, may be repackaged as climate financing.

It may thus be wiser for poorer countries of the global south to push for securing more immediate and targeted commitments such as debt forgiveness instead of expecting an inflow of funds via loss and damage financing.

There are dozens of poor countries, including Pakistan, which are now facing severe fiscal stress due to unsustainable debt pressures that need to be paid back despite the damage being incurred due to climate threats. According to IMF data, 34 of the 59 so-called ‘developing countries’ most vulnerable to climate change are also facing high risks of financial crises. Such countries, which already lack the means to look after even the basic needs of their citizenry, should band together to pressure major multilateral and bilateral donors to acknowledge the need for debt-for-climate swaps, which cannot be used to reduce already meager donor aid commitments for development.

There is a possibility that debt relief may enable leaders of poor countries to divert the additional money made available within the state coffers on wasteful schemes, or to boost military expenditures. However, there are workarounds to prevent such problems. For instance, debt waivers could come in the form of debt-for-adaptation swaps, whereby indebted countries are able to get debts written off only if the money meant to be spent on repaying loans is demonstrably diverted to finance adaptation and climate resilience efforts. Such a debt-for-adaptation swap would simultaneously help address debt distress and increase funding to put in place much needed adaptation and mitigation efforts.

A collective demand from the global south to get their debts written off, especially in the aftermath of climate-induced disasters, would be more difficult for large donors to wriggle out of than it is to gradually back down from pledges to provide new aid.

Published in The Express Tribune, October 20^th, 2023.

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