Is the world’s new climate reparations program a ‘good start’ or a ‘political football’?

A contentious program aiming to send money to developing countries after climate disasters hit has launched at COP27, but critics worry it is being weaponized by rich countries to avoid stronger climate measures.

On Monday, the Global Shield Financing Facility was officially launched by Germany, in its capacity as G7 president, and the Vulnerable 20 (V20), which represents 55 countries making up 20 per cent of the world population, but only about three per cent of global GDP.

The Global Shield “is aimed at strengthening insurance, disaster protection financing, providing support for loss and damage and financial mechanisms for slow onset climate events,” said Ghana’s Finance Minister Ken Ofori-Atta, representing the V20.

Loss and damage, sometimes called climate reparations, is one of the three main pillars of international climate finance and would help compensate countries for climate disasters, like the approximate $40 billion in damages from flooding in Pakistan. The other two pillars are mitigation financing, used to bring down global greenhouse gas emissions, like investing in renewable energy instead of fossil fuels, and adaptation funding used to brace for damage already locked in, like building seawalls.

A recent report from the V20 found climate change has cost its member countries $525 billion over the past two decades, with the most vulnerable countries facing dire threats.

“The situation is bound to get worse if we don’t stay within the 1.5-degree threshold,” Ofori-Atta said.

“It is critical that new resources from the G7 and G20 are made available as contributions to the Global Shield,” he added.

Germany’s economic co-operation and development minister, Svenja Schulze, said her country recognizes the need to provide support and said she was glad the international community is recognizing the importance of loss and damage financing, referring to cash to pay for impacts from climate disasters. This is the first year it has been on the official COP agenda.

“That was a good start, but it’s also just a start,” she said. “Those most affected by climate impacts need practical action now, they need protection now, and that is why we’re launching the Global Shield against climate today.”

Details on how exactly the Global Shield program will work are scarce, but it seems to be a combination of financing programs that appear to be primarily aimed at expanding insurance coverage. Last week, Germany committed 170 million euros to the fund, and Canada chipped in $7 million.

Inside the financial fight

Climate policy co-ordinator with Action Aid International Teresa Anderson said the timing of the announcement is important to note.

“The one thing everybody can agree on is that this is the loss and damage COP,” she said. “Loss and damage is the top issue, at the centre of the spotlight … it has to be addressed.”

“Pakistan is recovering from floods where 33 million people have been displaced. In East Africa across Kenya, Ethiopia and Somalia, you've got 22 million people on the brink of starvation because of drought, and we know that the climate crisis is pushing people deeper into spiralling poverty every day,” she said. “That is why developing countries, representing six out of seven people on the planet, are demanding that COP27 establishes a loss and damage financing facility.”

For Anderson, announcing the Global Shield — a program that operates outside the United Nations system — in the context of UN negotiations over a loss and damage fund shows that it’s a “political football” used to avoid real action on establishing a loss and damage program. Moreover, because it appears to largely be government money subsidizing insurance expansion, she questions whether that money will actually end up in the hands of those who need it most.

“Northern governments subsidizing northern corporations does not amount to loss and damage financing for the communities on the front lines of the climate crisis,” she said.

Schulze rejects the notion that the Global Shield is a way to avoid tougher conversations. She said she recognizes paying for loss and damage is important and said Global Shield isn’t intended to be the only solution on offer.

Announcing it at COP27 “is not a kind of tactic to avoid formal negotiations on loss and damage funding arrangements here at this COP and the COPs to come,” she said.

Anderson doesn’t buy it.

“If you listen to developed countries, the statements they've made in the room, they really care about climate change, they really care about impacts. God, their hearts are really bleeding for the poor people on the front lines of the climate crisis, but are they willing to set up a loss and damage funding facility here? No,” she said.

“They want to show that they care without doing anything to address the problem.”

Rachel Simon, climate and development policy coordinator with Climate Action Network Europe, said she doesn’t think Global Shield is cynically aimed at lowering the temperature in the negotiating rooms.

Germany is “saying this should not be a substitute for the facility, so now they need to hold to their word and be clear it's one option … and this largely insurance-based approach isn't sustainable in the long term,” she said.

Polluter pays?

The polluter pays principle, which says those responsible for emissions should be on the hook for its impact, plays an important role in these discussions.

“It is a concept that exists within the UN system and international law more broadly, however, as with many of the principles of international law … there is a gulf between the aspirational expectations of international law and the practical reality on the ground,” said global industry campaign manager with Oil Change International David Tong. “Too often, polluters have gotten away with not paying their bills.”

Last week, Barbados Prime Minister Mia Mottley urged countries to step up on loss and damages. She said the Global South is at the mercy of the Global North and asked how many more disasters must hit before climate change is taken seriously by rich, powerful countries.

“There needs to be a new deal … time is running out,” she said.

UN Secretary General António Guterres is calling for a windfall tax on oil and gas companies, and for that money to be used to fund a loss and damage facility. To date, Ottawa has rejected a windfall tax despite the oil industry raking in more than $20 billion in profit in the first six months of 2022.

“Taxation is the elephant in the room here when it comes to loss and damage finance, and governments don't really want to talk about it,” said Anderson.

Fossil fuel companies are “causing the crisis, so we need to tie these threads together because we have the solutions, there just isn't political will.”