Southeast Asian governments should support the call to set up a new global loss and damage (L&D) financing facility, empowered with a broad and responsive mandate. It is insufficient to merely strengthen old institutions. An L&D facility is in every country’s interest.
Climate change and natural disasters such as floods, droughts and heatwaves are undermining food security around the world. Floods in Pakistan, for example, have pushed the country towards a food crisis and fuelled demands for the establishment of a loss and damage (L&D) finance facility to give financial compensation to developing countries that are disproportionately affected by climate change.
The question of L&D finance, and climate finance more generally, will likely stoke North-South tensions at the UN Climate Change Conference (COP27) which has just started in Sharm El-Sheikh. In 2009, developed countries pledged to provide US$100 billion in climate finance per year by 2020, but in 2020 only US$83.8 billion was mobilised. A study by CARE International in 2022 also suggests that the G7 has diverted US$103 billion from development aid budgets to climate finance, which means that very little additional money was mobilised for climate actions.
Around 58 per cent of climate finance goes to climate mitigation (reduction of emissions), and so developing countries have been calling for more climate-adaptation financing to cope with the ravages of floods, drought, cyclones, rising sea levels, and other negative effects of climate change. According to the UN, developing countries require US$300 billion per year for climate adaptation. However, in 2021 developed countries pledged to increase financial support for adaptation to only US$40 billion per year by 2025. A study published by the ISEAS – Yusof Ishak Institute in 2022 also suggests that Southeast Asia “is in dire need of climate adaptation”, but the region received only US$10.42 billion of adaptation financing between 2000 and 2019.
Many Southeast Asians are concerned about climate-related L&D in their countries. Natural disasters this year have also harmed agrifood production in many countries. Super Typhoon Karding/Noru in the Philippines, for example, caused 3.12 billion Philippine pesos (around US$53 million) worth of agricultural damage. Over 134,000 tonnes of rice – Asia’s staple food – worth 2.05 billion Philippine pesos (US$35 million) has also been lost. In Thailand, floods have not yet subsided but the government has estimated that around five million rai (approximately 800,000 hectares) of farmlands have been majorly affected. Domestic vegetable prices have drastically increased due to flood-related supply reductions and transportation difficulties.
Climate mitigation and adaptation will help to reduce future L&D, but there should also be compensation for climate-related L&D that have already occurred. The Vulnerable Twenty (V20) Group – a coalition established by finance ministers of the world’s most climate-vulnerable countries – has estimated that their countries have already lost around US$525 billion in the last 20 years due to climate change, and that they would be 20 per cent wealthier today if not for climate change. Following Typhoon Karding/Noru, farmers and local civil society groups in the Philippines have also demanded that the government declare a climate emergency, and that an L&D finance facility be established at COP27.
At COP27 and beyond, Southeast Asian governments should collaborate with other developing countries to increase their bargaining power.
Southeast Asian governments should support the call to set up a new global L&D financing facility, empowered with a broad and responsive mandate. It is insufficient to merely strengthen old institutions, such as the Global Climate Fund and the World Bank, because they do not recognise non-economic L&D nor L&D triggered by slow-onset events, such as rising sea levels.
Climate insurance, which is sometimes proposed as an option for L&D, has distinct limitations. As activists have pointed out, insurance might not cover all aspects of L&D, poorer populations may not have access, and developing countries might be saddled with rising insurance premiums as climate change intensifies.
Developed countries may not support an L&D facility because they do not want to be held financially responsible for their historically-high greenhouse gas emissions, and they may struggle to sell the idea to their electorates. It should be noted, however, that there are many ways to fund L&D compensation without necessarily burdening the medium- and low-income populations in developed countries. As the U.N. secretary-general Antonio Guterres has suggested, developed countries could impose a wind-fall tax on fossil-fuel companies and use the funds to help people struggling with inflated food and energy prices — as well as countries suffering from climate-related L&D.
Alternatively, international NGOs have suggested that a Climate Damages Tax (CDT) on polluters has the potential to raise US$210-300 billion a year. If the G20 countries were to reduce fossil fuel subsidies by four per cent annually and rechannel the proceeds, this could also raise US$245 billion for an L&D facility.
Climate finance should also be linked with debt relief and forgiveness. Without this, many climate-vulnerable developing countries may not have the fiscal space for climate action. Debt for Climate (DFC) swaps can also be used to help indebted countries finance domestic climate projects instead of continuing to make external debt payments.
At COP27 and beyond, Southeast Asian governments should collaborate with other developing countries to increase their bargaining power. Three ASEAN member states (the Philippines, Cambodia and Vietnam) have already joined the Climate Vulnerable Forum — a grouping of 55 developing countries — which has launched the #PaymentOverdue social media campaign to highlight the lack of climate financial support for developing countries. As Brazil’s president-elect Lula da Silva has suggested, Indonesia could also form an alliance with Brazil and the Congo. As the three countries holding the largest tropical rainforests in the world, they can negotiate as a bloc to demand more international funding to help preserve their rainforests.
In an interconnected world where developing countries provide important sources of labour and raw materials, as well as manufactured goods and technologies that sustain the global economy, it is ultimately in the developed countries’ interest to support an L&D facility. They could do this as a way to show solidarity with developing countries and to support basic development rights globally.
Prapimphan Chiengkul is Visiting Fellow with the Climate Change in Southeast Asia Programme, ISEAS – Yusof Ishak Institute.