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The loss and damage fund: an unfulfilled promise at worst and a temporary solution at best

Ines Aranguena Aniceto

In 2022, the 27th UN Conference of the Parties (COP) saw the landmark agreement of a loss and damage fund to compensate the most vulnerable small island and low-lying coastal countries for loss and damage, arising from the pernicious effects of climate change. Fourteen COPs have now passed since the Alliance of Small Island States (AOSIS) first called for its creation; since then the organization has had its work cut out rallying other developing states around the agenda, and finally driving it to fruition at the UN.

According to the final decision - which is admittedly incredibly vague - states eligible for financial assistance will be ‘developing countries that are particularly vulnerable’ to rising sea levels and other environmental impacts. This places small island developing states (SIDS) first in line for the loss and damage money, given that their very grouping reflects their vulnerability. However, there are some delicate questions concerning which definitions of ‘developed’ and ‘developing’ states are appropriate to use; for instance, there are countries which lie outside of the UNFCCC definition of ‘developed nation’ yet still have some of the highest fossil fuel emissions.

In any case, a Transitional Committee was set up in preparation for COP28, which will take place in Dubai, UAE, in December of this year. However, it remains unclear whether a fully-fledged loss and damage fund will emerge, let alone deliver the climate justice that AOSIS and other developing states expect.

Firstly, richer nations have hitherto failed to stick to maintaining the 2009 pledge of spending $100 billion a year in climate aid, so there are valid concerns that the money will never even leave the pockets of the developed world. Further, nations like China and Saudi Arabia maintained that the developed world should pay up, having benefited from the emissions of the industrial revolution. On the other hand, the EU only agreed to the fund on the condition that ‘developing’ countries with higher emissions would also be considered as potential donors.

The blurred lines between what constitutes a developing and developed country, in addition to the fact that there are an increased number of developing states which are high emitters, makes it entirely possible that the loss and damage fund - if ever a list of donors is agreed upon - will constitute a vapid and temporary solution.

Guyana is a former British colony and a SIDS in the Caribbean; as such, it is the perfect case study to illustrate the tension between climate change goals and economic development. The country lies on the Guiana Shield, which is a region imbued with a potential for oil exploitation so promising that it attracted foreign companies like ExxonMobil - who was, unsurprisingly, given permission to drill in 2015, and discovered around 11 billion barrels-worth of oil while it was at it. Needless to say, the discovery has put Guyana on the map as an internationally renowned oil producer, and President Irfaan Ali anticipates that their discoveries will only become more frequent.

This does not fare well when we recall that Guyana is a SIDS, and highly vulnerable to anthropogenic climate change resulting from the same extractive activity it now engages in. On the other hand, there is something terribly unfair about preventing countries like Guyana from pursuing the same economic development that industrialized states once did, even if their gateway to improved living standards is fuelling global fossil fuel dependency. Plus, in terms of historical emissions, Guyana played little to no part in comparison to Western states.

Thanks to this new expansion of the oil sector, Guyana was the only country in the Latin America and Caribbean region to experience positive economic growth in 2020. But isn't this new expansion also fundamentally at odds with the purpose of the loss and damage fund? If it is, then it is also at odds with the climate mitigation agenda.

Indeed, Guyana once acted as a carbon sink for global emissions, as its vast rainforests absorbed more carbon than the country emitted. Guyana also ambitiously aimed to rely entirely on renewables by 2025, but it is evident that this does not coincide well with its new oil venture. If anything, Guyana demonstrates how oil producers and consumers continue to rely on fossil fuels - be that to sustain certain lifestyles or to raise states out of poverty - while simultaneously calling for a green energy transition and financial compensation. In all honesty, there was simply no financial incentive for Guyana to leave that oil in the ground. Vice President Jagdeo also defended the country’s decision by pointing out that blocking this new development would only serve to protect the profits of existing oil producers, such as Saudi Arabia and the US.

He may be right, but there is also a dark side to the oil boom, and it is the concern that its benefits will not be distributed equally throughout Guyanese society, and could further harm Indigenous populations. This is not a groundless worry - it came to pass for Trinidad and Tobago. In light of this, it is difficult to see how the fund will address the future loss and damage that low-lying Guyana has traded in for rapid economic development today.

There is no clear course of action for the UN as COP28 approaches, but it is painfully evident that throwing money at loss and damage without any attempt to resolve these mutually exclusive goals, is futile. The World Bank is one of the biggest sponsors of Guyana's oil sector. If Europe and the US continue to be reticent about a drastic 'green' energy transition and fail to address fossil fuel dependence in the global South, it will come to pass that no amount of money will ever be able to compensate for loss and damage.

Image: Getty Images

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