How to address ‘loss and damage’ caused by climate change was for decades a highly controversial topic in the UN climate negotiations. But, over the last few years, it has gained significant ground.
Most notable was the agreement reached at the COP27 climate summit in 2022, where governments decided to establish a fund (the Fund for Responding to Loss and Damage, FRLD) to help developing countries address the challenge.
Two and a half years later, and following intense wrangling in a ‘transitional committee’ over its central features, the FRLD is now up and running.
However, one fundamental question lingers over the institution: how will money for it be raised?
A fund in need of funding
So far, around $768 million has been pledged to the FRLD, of which around 469 million has been made available. This is not nothing, but it is not a lot. The loss and damage-related needs of emerging economies and developing countries, excluding China, are estimated to reach at least $250 billion by 2030 and up to $400 billion by 2035.
Raising large quantities of climate finance has never been easy, but the prospects have deteriorated significantly in just a few months. The administration of President Donald Trump has dismantled USAID and terminated over 80 per cent of its programmes, while many European governments are reducing their aid budgets too.
The entire UN system is being shaken to its core, and an internal UN review is proposing fundamental reforms to its structure and operations.
Meanwhile, the tricky question of how to ‘fund the fund’ is coming to a head. A resource mobilization strategy for the FRLD is to be adopted by the end of 2025. In parallel, the COP29 and COP30 presidencies are developing a roadmap for how to mobilize $1.3 trillion in climate finance by 2035.
This so-called ‘Baku to Belém Roadmap’ will be published ahead of COP30. It will likely include guidance on how to raise loss and damage finance, as well as finance for reducing emissions and adapting to climate change impacts.
Drowning in debt
Addressing loss and damage can have serious implications for debt sustainability, as climate-vulnerable developing countries often need to borrow to fund reconstruction and recovery efforts after a climate-related disaster hits.
As the prominent economist Avinash Persaud put it: developing countries are ‘sinking under oceans of debt before the sea levels rise.’
As climate change worsens, the frequency and intensity of extreme weather events is increasing. The severity of slow-onset events, like sea-level rise and desertification, is becoming ever greater too. This is not a problem that is going away.
Taxing high-emitting sectors to raise loss and damage finance
To avoid being overburdened by debt, climate-vulnerable developing countries need grants to address loss and damage. And they need them at scale. So-called ‘solidarity levies’ are, at least in theory, a suitable mechanism to fund such grants.
The logic behind solidarity levies is that taxes are introduced on high-emitting (and often under-taxed) sectors of the economy – like aviation, maritime shipping or fossil fuel extraction – and the proceeds channelled to support climate action in developing countries.
The revenue-generating potential is high. For example, a levy applied to airplane tickets could raise over $100 billion per year, while contributing to emission reductions.
Ahead of COP30 the Global Solidarity Levies Task Force (GSLTF) – chaired by France, Kenya and Barbados – is seeking to form a coalition of governments willing to introduce one or several levies whose revenues would be used in support of climate and development action.
With this ‘coalition-of-the-willing’ model, the levies would be introduced at the domestic level, so no international tax collecting authority is required. Participating governments could coordinate on how to allocate the revenues. One option could be to channel them to the FRLD.
To gain public acceptance, the levies could be implemented at modest rates and be designed to minimize costs for low-income households. For example, in the aviation sector a ticket levy can target business or first-class flights, while a frequent flyer levy could increase rates in proportion to the frequency of travel.
From FFD4 to COP30 and beyond
In the current political climate, it is unlikely solidarity levies would garner sufficient support globally to generate substantial revenue for the FRLD, or any other organization, in the near term.
Taking a longer view, however, they constitute a promising avenue for raising grants-based loss and damage finance at scale.
Important steps forward can be taken in the next few months. Firstly, the 4th International Conference on Financing for Development (FFD4), takes place 30 June – 3 July. That provides a high-profile opportunity for governments to announce their interest in joining the GSLTF’s coalition.
