Is Cop29 a waste of time? Not if rich countries commit to paying for climate damage in developing world

“An ambitious new climate finance goal” should be the priority of every nation at the latest round of international climate negotiations in Baku, Azerbaijan. That’s according to Simon Stiell, who heads the United Nations process for negotiating an agreement to limit global heating.

Discussions are deadlocked at the start of the second week. The objective is to raise money to drive a global shift towards clean energy and ensure that those who bear the brunt of escalating climate disasters are resilient enough to respond.

Finding this funding is more difficult in the wake of the US election. President-elect Donald Trump has promised to pull his country, the world’s richest and biggest historical emitter of greenhouse gas, out of the Paris agreement (again) and possibly out of international climate negotiations entirely.

Political bedfellow Javier Milei, the far-right president of Argentina, has withdrawn his country’s delegates from the talks.

Trump has also suggested he will repeal the Inflation Reduction Act of 2022, which extended tax credits for renewable energy and green technology investments in the US and mobilised private finance for climate action to the tune of billions of dollars.

Neglecting these efforts will fuel mounting climate disasters such as the recent floods in Valencia, Spain. How the global community acts to compensate the countries least able to bear these impacts is more important than ever.

Why does it matter?

The stakes are huge for low- and middle-income countries. Extreme weather, along with slower impacts like sea-level rise or soil degradation, can hurl developing countries into spiralling debt, forcing them pay to rebuild over and over again.

This diverts money from measures to reduce carbon emissions, but also from healthcare, education and other public services. Many of the economic gains of poor countries in recent decades are being undone by climate change.

The loss and damage caused by a warming climate has loomed over negotiations between rich and poor countries for more than a decade. Last year’s summit, Cop28 in Dubai, opened with an announcement that a new fund would be established. Direct compensation for the disproportionate loss and damage sustained by the poorest nations is not on the table, but what the fund will finance is still to be decided.

After seven years of observing the politics of climate loss and damage at the UN negotiations, it has become apparent to me that the trickiest issues are kicked down the road. Important decisions are devolved to poorly resourced bodies while committees are stubbornly split between developing and developed countries.

With the loss and damage fund, there remains no answer to the question of where funding will come from, whether it will be anywhere near enough to address the mounting costs and who will be able to access it.

This is not to say that there hasn’t been progress. Rich countries pledged about US$700 million to the fund at Cop28. The fund’s board has chosen the Philippines, a large country on the frontline of climate change, as its host. This grants the board legal personality to form partnerships, including with the World Bank, which will host the secretariat responsible for implementing the decisions of the board.

How much? And how will it be paid?

Even conservative estimates suggest that the total cost of loss and damage could reach between US$150 and US$300 billion (£119-238 billion) a year by 2030.

The question is somewhat dependent on how loss and damage needs are defined. Developed countries want to focus on projects that, for example, address losses from slow-onset hazards and avoid the topic of compensation. Developing countries on the fund’s board have said that at least US$100 billion a year of support should be provided by 2030, and while they avoid the word “compensation”, they emphasise the importance of public finance – that is, money raised by governments, rather than private sector funding.

Meanwhile, developed countries prefer investment from individuals and companies to fill the gap. But the business case for funding programmes to address climate losses – museums to commemorate cultural heritage that has disappeared under rising seas, or counselling for children dealing with the anguish of hurricanes – looks very different to, for example, investing in renewable energy.

A degree of imagination is required. Civil society groups have pushed for innovative forms of climate finance, like a tax on flights or a levy on shipping.

Most models of public climate finance provide grants for particular projects. This is not so helpful for addressing loss and damage, which demands money urgently for repairs and recovery efforts.

Senegalese and American banker Ibrahima Cheikh Diong was recently appointed the executive director of the fund. He led an international agency that pooled insurance for African countries following extreme weather.

Developed countries have long preferred insurance, as opposed to publicly funded grants, to finance loss and damage. Some observers worry Diong’s background will prime the fund accordingly. But as climate impacts escalate, some assets, like homes and businesses in vulnerable coastal towns or farming villages, may no longer be insurable.

Slow but relatively certain changes such as sea-level rise are also not suitable for insurance-based financing. And then there are losses related to cultural heritage, physical and mental health and vanishing livelihoods that cannot be compensated through insurance.

Since the money pledged in Dubai for the fund has not been delivered yet, and the sources, types and ways of accessing the fund have yet to be determined, the fund’s fate remains ambiguous.

Next year’s conference will mark 30 years of climate change negotiations. No wonder people are asking whether this process is working. The loss and damage fund is a microcosm of the wider negotiations. Its success or failure would indicate whether these summits are, or ever were, fit for purpose.

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