Updates on Loss and Damage Fund at COP28: Realizing Climate Justice and Its Implications to Indonesia
Setyawati Fitrianggraeni, Muhammad Soufi Cahya Gemilang[*]
Following discussions since COP27 in 2022, COP28 finally came up with a new agreement on the mechanism for the Loss and Damage Fund (L&D Fund). Originally proposed by Vanuatu in 1991 to push forward climate justice, L&D Fund progress had been beset by the notion of responsibility by developed countries to developing countries. However, the COP27 held in Sharm el-Sheikh, Egypt passed the agreement for the L&D Fund. COP 28 taking this further with a new agreement on the mechanism of fund distribution.
The L&D Fund is a fund to address climate-induced loss and damage that ranged from cultural and economic to ecological. The term loss and damage refers to the negative costs or consequences incurred from the impacts of climate change. While climate mitigation addressed the source of climate change and adaptation addressed the impacts, loss and damage intended to address the unavoidable and irreversible negative impacts of climate change. Highlighted in the L&D Fund is the notion of climate justice for the developing countries suffering the most out of climate change from the developed countries of the Global North, historically the biggest emitter of greenhouse gases.
This piece addressed the mechanism of the L&D fund distribution after the COP28 and its impacts on Indonesian climate strategy. Specifically, the piece would like to (1) highlight the agreed L&D Fund proposal agreed on the COP28; (2) the subsequent mechanism for the operationalization of the fund; and (3) how it would impact Indonesian climate strategy.
THE L&D FUND: HIGHLIGHTS FROM COP28
COP27 laid the basis for the current COP28 agreement for L&D Fund by agreeing on the L&D Fund and establishing a transitional committee to make recommendations for COP28. In the COP28, an agreement was set-up that focuses on the governance mechanism for the fund. We highlighted three main points of the agreement:
Following the recommendations given by the Transitional Committee, COP28 has agreed that the L&D Fund will be governed and supervised by a Board of the Fund. Comprised of 26 member states which mostly consisted of states from developing countries, the Board will provide guidance to the World Bank as the Trustee of the Fund to establish the operationalization of the Financial Intermediary Fund (FIF) for the period of 4-years. Apart from the, The Board’s main tasks can be summarized as follows:
To execute the project, a new independent Secretariat accountable to the Board will be formed. The Secretariat’s main tasks can be summarized as follows:
Following the principles of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) designed by the UNFCC, the Fund will prioritize developing countries that are particularly vulnerable to the adverse effects of climate change. In terms of access, modalities to facilitate access will be developed by the Board of the Fund. These may include ranges of modalities from small grants for communities, rapid disbursements, disbursements via partnerships with entities accredited to other Funds or multi/bilateral entities, and direct budget support for governments.
The main financing instruments used to distribute the Fund consists of grants and highly concessional lending. To ensure the sustainability of the Fund, COP28 also declared that the Fund should also be able to facilitate blended financing and to deployed additional financing instruments that take into account debt sustainability to optimize and augment the capacity of public funds to deliver the results for vulnerable populations.
HOW WOULD IT AFFECTS INDONESIA’S CLIMATE ADAPTATION
Currently, Indonesia has no specific mechanism to address the loss and damage aspects of climate change. Research on the prioritized needs is currently being conducted by the Indonesian National Agency for Disaster Management (BNPB) in partnership with the World Meteorological Organization (WMO). The research focuses on the extreme climate-related disaster risks, future projections, and the current capacity of the disaster management with a focus on the early warning system (EWS). Findings from the research are going to be utilized not only to provide the fundings for specific prioritized needs in disaster risk reduction but also to map the vulnerable regions where the fund could be disbursed in the form of relevant programs/projects.
Apart from the ongoing research, Indonesia also possessed the National Adaptation Plan – Climate Change Adaptation (RAN-API). The RAN-API has outlined key priority sectors for climate adaptation, namely, water, marine & coastal, agriculture, & health. To tackle problems in those sectors, the RAN-API employed their frameworks which consisted of infrastructure, technology, capacity building, and governance. Despite the differences between adaptation and L&D in principle as mentioned above, the L&D Fund can be utilized to enhance adaptive capacities in crosscutting sectors. These include investments for nature-based solution infrastructures for disaster-prone areas that had been overlooked as climate adaptation measures and providing financial assistance for disaster risk insurance. To conclude, the L&D Fund will provide ample opportunities for Indonesia to strengthen its adaptive capacities in the face of climate change.
However, one important note should be considered. The new financing terms set up by the COP28 explicitly stated that L&D Fund would consist of grants and highly concessional lending. This agreement had been criticized as increase debt risks for countries, especially developing countries. Despite the statement that the fund will be of a highly concessional one, Indonesia needs to pay attention to the terms and interest rates if it were to access L&D Fund in the form of a loan, so as to not fall into a debt-trap situation.
*Setyawati Fitrianggraeni holds the position of Managing Partner at Anggraeni and Partners in Indonesia. She also serves as an Assistant Professor at the Faculty of Law, University of Indonesia, and is currently pursuing a PhD at the World Maritime University in Malmo, Sweden. Additionally, Muhammad Soufi Cahya Gemilang is a a Researcher at Anggraeni and Partners. The writers express their gratitude to Dr. Hary Elias for generously dedicating his time to provide valuable feedback on their article.
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