The Interplay Between the New Collective Quantified Goal and the Loss and Damage Fund

The new climate finance goal, known as the New Collective Quantified Goal (NCQG), is set to replace the existing US$100 billion annual commitment that developed countries agreed to at COP15 in 2009. Parties agreed to source this funding from diverse channels, including public, private, bilateral, multilateral, and alternative sources, to help developing countries mitigate and adapt to the impacts of climate change. Due to the absence of a globally agreed definition for international climate finance, the already mobilized US$100 billion raised several issues that include: counting climate finance that may not be climate-relevant, over-prioritization of mitigation over adaptation, difficulty determining whether the climate finance pledged is new and additional, favoring loans over grants, among others. 

As such, the NCQG needs to address developing countries’ evolving priorities and needs, ensuring that climate finance is adequate and effective in the face of current climate realities, particularly the loss and damage these countries are burdened with. Scheduled for adoption at COP29 in Azerbaijan, the NCQG is currently being negotiated across seven critical issue areas, as outlined in the World Resources Institute’s working paper. These elements include setting the financial target, defining the thematic scope, determining the time frame, identifying contributors, establishing transparency arrangements, ensuring the quality of climate finance, and defining the overall scope of the NCQG.

Within these NCQG deliberations, the issue of loss and damage is an essential component under the thematic scope. Developing countries have emphasized the importance of adding loss and damage as a quantifiable goal within the NCQG to ensure that loss and damage receive separate and equitable attention alongside mitigation and adaptation efforts. At the 2024 Bonn Climate Conference (SB60), these countries pushed for explicit commitments to finance loss and damage as part of the NCQG. However, the conference outcomes revealed a significant need for further progress before COP29, with substantial misalignment persisting between developing and developed countries on this critical issue.

Evolving needs of the Global South

Current sources of climate finance simply cannot meet the needs of the Global South. The existing US$100 billion annual goal covers climate action under two categories: mitigation and adaptation, excluding the increasing frequency and severity of climate-induced disasters that many countries in the Global South are already experiencing and which are worsening. There have been record-breaking heat waves in various parts of Asia, heavy rainfall, some of the worst floods in East Africa, and severe droughts in Southern Africa. In just the first six months of 2024, extreme climate events worldwide are estimated to have caused at least US$41 billion in damage, according to a new report by Christian Aid. 

Non-economic costs frequently remain unaccounted for in these estimates, with only insured losses typically reported. A report published by Climate Analytics Caribbean, the first-ever systematic analysis of how loss and damage are framed and reported in Caribbean countries, highlights this issue thoroughly. The report emphasizes that the impacts of slow-onset events and various other climate hazards tend to go unreported, leading to substantial underestimation of the true costs of loss and damage in the region. This underscores the urgent need for a more comprehensive approach to assessing and addressing climate impacts beyond direct financial losses. Integrating loss and damage into the NCQG could be a crucial initial step toward addressing these gaps.

Furthermore, the Climate Policy Initiative (CPI) estimates the cost of inaction at an overwhelming US$1.2 trillion. In a mid-range scenario outlined by the L&D Collaboration, loss and damage (including economic costs alone) impose a staggering burden on developing countries: an estimated US$425 billion annually in the 2020s, escalating to US$670 billion in the 2030s and reaching approximately US$1.2 trillion annually by the 2040s. Despite these projections, developed countries have shown reluctance to commit to a substantial target, merely proposing an increase from the existing US$100 billion goal. Conversely, while the inclusion of a loss and damage sub-goal in the NCQG remains uncertain, developing countries have staunchly advocated for a minimum floor of US$400 billion till 2030, noting that this is still an underestimate given that loss and damage are often missed in modeling estimates. As a frame of reference, the first needs determination report indicates a need of around US$2.2 trillion for mitigation finance and US$764-835 billion per year for adaptation finance by NDCs. In contrast, loss and damage financing remains significantly underestimated and is also not included in the report, highlighting a critical gap in climate finance.

Assessing the Quality of Current Climate Finance Commitments

Earlier in May, the OECD released new data indicating that wealthy nations, despite a two-year delay, fulfilled their longstanding pledge to provide US$100 billion in climate finance to developing countries in 2022. However, several climate finance analysts and climate justice activists have scrutinized the quality of this climate finance. A significant portion of the funding has been repackaged as loans rather than grants and is often integrated with existing development finance. The OECD report shows that 60% of public climate finance in 2022 was in the form of loans. Additionally, analysis from the Center for Global Development finds that the reported increase in bilateral finance to the OECD was driven by refocusing existing finance from other aid objectives to climate initiatives. 

These critiques underscore the importance of including a loss and damage sub-goal in the NCQG. Doing so not only enhances the quality of climate finance by ensuring new, additional funds are specifically allocated to address loss and damage but also reinforces accountability in meeting the evolving needs of climate-vulnerable countries. These perspectives were reaffirmed by the priorities outlined by the Least Developed Countries (LDCs) and Small Island Developing States (SIDS) for COP29, ensuring that climate finance is genuinely ‘new and additional’ to existing financial flows, thereby reducing the risk of rich countries conflating their climate finance with other financing streams.

Navigating the Concessional Finance Landscape to Secure Loss and Damage Funding

Negotiating parties must carefully consider the relationship of the new climate finance goal with the operationalization of the new funding arrangement that countries are likely to see under the Loss and Damage Fund. The confirmation of the World Bank as an interim secretariat host and trustee for the Fund announced at SB60, is a positive step towards its full operationalization. However, its progress will depend significantly on the outcomes of COP29. This consideration must also be contextualized within the current global concessional finance landscape. Over the 2024-2025 period, nearly a dozen concessional finance entities are scheduled to host their replenishment campaigns. As these funds often rely on the same pool of donors, there could be heightened competition for new resources, including those for the Loss and Damage Fund.

In this context, the idea of a global tax on the ultra-wealthy, championed by Brazil as the current G20 Chair, could be an intriguing avenue to raise climate finance. This proposal has garnered momentum, supported by countries such as Germany, South Africa, France, and Spain. Renowned Economist Gabriel Zucman, who is outlining the technical details of this proposal, argues that a minimum tax of 2% on the wealth of the 3,000 richest billionaires could potentially unlock an additional US$250 billion annually. Economist Esther Duflo also spoke about this at the IMF/World Bank spring meetings, referring to it as a ‘moral debt burden’ tax and proposing exploration of “new sources of funding that we don’t have yet – and therefore, have not yet been assigned to anything – and that are not implausible, that could conceivably exist”. As Brazil aims to push for a joint declaration at the upcoming meeting of the G20 finance ministers next month, there could be an opportunity to advance this approach and bolster financial resources for loss and damage.

The urgency and complexity of loss and damage demand a robust and dedicated approach to finance for the Global South. The inclusion of loss and damage as a sub-goal in the NCQG represents a crucial opportunity to begin addressing these needs. However, it will require substantial commitments and clear differentiation from existing assistance to be truly effective. This is why a dedicated sub-goal for loss and damage in NCQG is so important: it could provide avenues for innovative funding approaches and ensure new, additional funds are specifically allocated to this issue, thereby improving the accountability and quality of climate finance.