Loss, damage and Cop28’s multi-trillion-dollar challenge

Reuters/Wolfgang Rattay

The deliberations at Cop28 will range around climate, emissions, forests, oceans and ecosystems, but underlying every discussion will be money.

The sums involved are mind-boggling. The International Renewable Energy Agency estimates that $35 trillion is needed by 2030 for a successful energy transition, with similar or even larger amounts required in the decades up to the Paris Agreement target date of 2050.

This is the cost – as Cop28 chief Sultan Al Jaber put it recently – of “unplugging” the hydrocarbon economy and setting the world on a renewable and non-polluting alternative path.

Nobody expects Cop28 to come up with a formula for magically summoning such vast sums from the air. But let’s look at just one element of the financial equation under discussion at the United Nations summit: the question of “loss and damage”.

This has been on Cop agendas since the 2007 conference in Bali but has become more urgent since last year’s meeting in Sharm El Sheikh – when a decision was finally taken to set up a fund, with a $100 billion target mentioned.

Readers will spot the discrepancy between $100 billion and $35 trillion, but let’s set that aside and consider why loss and damage has been such a difficult concept on which to reach agreement.

There is no basic consensus on what the term means. Most of the Cop28 parties sincerely believe that poorer nations need financial help to get to grips with climate change, but the loss and damage debate has taken on a more profound significance for many developing countries and especially oil-producing countries in the Middle East.

Most of the CO2 in the atmosphere now comes from the US, Europe, China and India.

Middle East oil producers are responsible for a small percentage of the total – although admittedly they are bigger polluters on a per capita basis. Why should they pay for others’ environmental sins, they argue?

Historically, the sense of grievance is even stronger. Europe, the US and Japan fuelled their industrial revolutions and the economic growth that resulted through the unrestricted use of hydrocarbons of the dirtiest kind.

But those same developed economies now want to deny the economic benefits of oil, gas and coal to the poorer countries of the world.

This is why some countries in the Gulf – Saudi Arabia in particular – are balking at the prospect of being forced into a global loss and damage fund under terms set by American and European policymakers.

It is not a case of being tight-fisted or hypocritical, as one Western official reportedly suggested last week with the crack: “If you can pay millions to Cristiano Ronaldo you can pay into the fund.”

It’s a matter of due diligence and financial probity, to ensure that the money comes from those who can afford it in line with their responsibilities, and goes to where it is most urgently needed and will serve the best purpose.

There is a body of opinion in the Middle East that the loss and damage concept, as currently framed, is not fit for purpose. It should be broader – with contributions from the public, private and philanthropic sectors – and much bigger.

A $100 billion fund will not buy much beyond a few sea walls in low-lying Pacific islands and maybe some reforestation in desert areas.

To make a real difference, a multi-trillion-dollar structure is required to invest in the capital-intensive areas – such as renewables, nuclear power, and carbon capture and removal – that will put a serious dent in global emissions 

There are some signs that the impasse over loss and damage is being resolved. Over the weekend, a committee of Cop participants agreed on a blueprint for a fund, to be administered initially by the World Bank and activated by the full meeting at the end of this month.

Even if this is approved at Cop28, it should be regarded as the first step in a process to raise the enormous amounts of money needed for energy transition. While they’re talking about it, they should come up with a new name too, to avoid the victimhood connotations of loss and damage.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He also acts as a consultant to the Ministry of Energy of Saudi Arabia