The biggest achievement of the United Nations’ annual climate summit last year was a commitment to create a fund to compensate the poorest for the damage caused by global warming. One of the questions at the upcoming COP28 summit will be how to add money to this new loss-making fund. If history is any guide, it will be a difficult problem to solve. In 2009, rich countries pledged $100 billion a year to poor countries. By 2020, the deadline to reach that amount, the amount transferred that year was just $83 billion. Most of that total came in the form of loans rather than grants, according to an Oxfam report published this week.
A creative solution is gaining traction, says Barbados economist Avinash Persaud, the island nation’s special envoy for investment and financial services. It is rooted in a more successful history of wealth transfers from expellers to victims. He wants to impose a small fee on the world’s oil buyers to pay for loss and damage payments to poor countries hit by floods, fires, storms and heat waves.
The proposal is modeled on the International Oil Pollution Compensation Funds since 1971. The funds operate by levying a very small fee on each barrel of oil imported from more than 120 member countries only when the containers need to be filled. In the event of an oil spill anywhere in the world, IOPC funds can be made available for clean-up costs of up to $250 million (some countries provide an additional amount of up to $1 billion for protection). “The world has been waiting decades for a loss and damage fund,” says Persaud. In contrast, the IOPC system came into being “within a few years”.
The IOPC funds were created in 1967 after the Liberian tanker Torrey Canyon hit a rock on its way to the UK. That oil spill caused pollution on the British and French coasts, requiring expensive clean-up operations. Over 50 years, the IOPC has handled more than 150 incidents and awarded over 750 million pounds ($930 million). And the number of annual oil spills that IOPC funds must intervene in has been declining for decades.
Persaud’s trial balloon is part of the latest effort led by Barbados Prime Minister Mia Mottley to reset the conversation on climate finance. She launched her Bridgetown initiative last year to rethink the global economic architecture to address rising inequality, climate change and biodiversity loss. At a summit in Paris later this month, along with French President Emmanuel Macron, Motti hopes to convince rich countries to support several initiatives aimed at reforming existing multilateral development banks (MDBs) such as the World Bank and International Monetary Fund. To solve today’s biggest problems.
Some of those demands are laid out in an unreleased document titled “Bridgetown 2.0” reviewed by Bloomberg Greene. It calls on the IMF to create $100 billion worth of currency exchange guarantees, which it claims could raise $1.5 trillion for projects that reduce carbon emissions. It also aims to boost lending from MDBs, which the proposal says could unlock $500 billion to spend on the UN-backed Sustainable Development Goals. An additional $100 billion annually will be recognized through “taxes, charges or other sources” for weather loss and damage.
All the loss and damage money should be paid in grants, Persaud argues, and there’s not a lot of money to do that now. The total amount paid by rich countries for all foreign development aid is about $200 billion a year. Despite Persaud’s optimism that support is growing for a global fee on oil imports to offset climate damage, the man who has overseen the IOPC for decades is less convinced. “If there is political will for such an idea, it can be done,” says Mans Jacobson, who served as director of the IOPC Funds from 1985 to 2006, “but I doubt there is political will.”
Countries that import the most oil will have to contribute the largest to the fund. A country like India, which is vulnerable to climate change but historically much less so than the US, will have to pay more than an energy exporter. (It should also be noted that the US is not a member of the IOPC funds; it created its own response system under the Oil Pollution Act after the major Exxon Valdez oil spill in 1989.)
Persaud says a fee on oil imports won’t be the only way to replenish the loss and damage fund. Another idea floated by the Marshall Islands in 2021 is to charge the International Maritime Organization (IMO) $100 per ton of carbon dioxide emitted by the world’s shipping fleet — a policy it faces growing pressure to adopt to tackle climate change. change The climate problem is now clearly an economic problem. As impacts mount, the amount of money invested in solutions will balloon and calls for compensation will increase. That is already clear from the first day of statements by countries in Bonn, Germany this week ahead of setting the agenda for COP28 in Dubai at the end of November.
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