Australian politics: All the unanswered questions about climate change damage fund at COP27

Will Australia have to compensate CHINA for climate change damage? All the unanswered questions about the ‘$3trillion fund’ for poor countries Anthony Albanese signed up to

  • Australia agreed to international climate loss and damage fund for poor nations
  • Fund will help pay for disasters caused by climate change rich countries created
  • But very little is known about how it will operate and how much it will cost
  • Details will be thrashed out over the next year at least before anything spent 

Questions are mounting over how an agreement by rich countries to pay developing ones for loss and damage from climate change will actually work – and who will have to foot the bill. 

Australia was a key proponent of the potential multi-trillion fund agreed to on Sunday at the COP27 summit in Egypt last week, but hasn’t yet committed real dollars to it.

Climate Change Minister Chris Bowen was invited by organisers to help lead negotiations on the issue, which was of paramount importance at the meeting.

But almost nothing about how the fund will work is known and even less agreed to, and will have to be thrashed out before COP28 next December.

Opposition Leader Peter Dutton was within hours attacking it as ‘giving away’ Australian tax dollars during hard economic times.

The Coalition renewed its attack a day later, claiming the agreement would result in Australia giving money to China, prompting a fiery clash in Question Time – with senior ministers furiously denying taxpayers could have to foot the bill for Beijing.

But experts said the reality is Australians won’t be contributing a cent any time soon, and the whole thing may collapse anyway.

Climate Change Minister Chris Bowen was invited by COP27 organisers to co-facilitate negotiations on the loss and damage fund, which was of paramount importance to the host

Climate Change Minister Chris Bowen was invited by COP27 organisers to co-facilitate negotiations on the loss and damage fund, which was of paramount importance to the host

What was actually agreed to?

As with many agreements made at climate summits, very little was actually set down and much of it may prove to be meaningless.

The text of the agreement only begins the process of establishing a fund with vaguely defined aims, and sets up a ‘transitional committee’ to make recommendations to COP28 about how it should work.

Australian National University Climate Institute director Mark Howden said how useful the fund ended up being would depend on how funding will be addressed, how money is allocated and under what circumstances – none of which are known.

A less ambitious agreement was made in 2009 for a US$100 billion fund, but very little of it actually materialised – so there’s no guarantee this will happen.

How much money will the fund have?

The figure bandied about in the past few days, including by Mr Dutton in parliament on Monday, is US$2 trillion ($AUD3 trillion) a year.

This, like all other details, was not actually agreed to at COP27 and comes from a UN-backed report presented to the summit.

The report by the British and Egyptian governments estimates that much will be needed by 2030 for developing countries to cut their emissions and cope with the effects of climate breakdown.

So a loss and damage fund would only need to cover part of this, as the figure also factors in the cost of emissions reduction.

Secondly, the report estimates that more than half the figure – US$1.4 trillion ($2.1 trillion) could be raised from ‘local sources’, such as by strengthening domestic capital markets.

Only the remaining portion would be needed from a loss and damage fund, so at most about US$600 billion ($1.2 trillion).

The fund is supposed to be separate from the US$100 billion pledge (that wasn’t delivered), but not even that was firmly agreed to.

Aymara Indigenous people pray on a day of fasting in a call for rain on the sacred Inca Pucara mountain in Chiquipata, Bolivia. Residents in the highlands of La Paz say the lack of rain and frost since September is not allowing them to plant potatoes, beans, carrots and peas

Aymara Indigenous people pray on a day of fasting in a call for rain on the sacred Inca Pucara mountain in Chiquipata, Bolivia. Residents in the highlands of La Paz say the lack of rain and frost since September is not allowing them to plant potatoes, beans, carrots and peas

Who will pay and will it include China?

The idea is for rich countries that spent much of the past 200 years pumping CO2 into the atmosphere to be the ones to fix the problem they created.

Exactly who is on board is yet to be ironed out, but Australia, the US, and the EU, among others, are all in support.

The sticking point is whether countries like China, Saudi Arabia, and India that are classed as developing by the UN but have huge economies and are among the biggest emitters need to kick in too.

The US and EU are adamant China at a minimum should contribute, but Chinese officials have said they should not be required to pay because the country is considered a developing nation.

This will be endlessly debated and the whole deal may hinge on it.

Professor Howden said it was ‘much more likely than not’ that China would eventually contribute to the fund.

Reasons would include a sense of duty, exerting its soft power and remaining a leader of developing countries, and showing it was powerful enough to contribute.

The sticking point is whether countries like China (pictured), Saudi Arabia, and India that are classed as developing by the UN but have huge economies and are among the biggest emitters need to kick in too.

The sticking point is whether countries like China (pictured), Saudi Arabia, and India that are classed as developing by the UN but have huge economies and are among the biggest emitters need to kick in too.

Former immigration minister Alex Hawke claimed during Question Time on Tuesday that China would actually benefit from the fund. 

 ‘Why on earth did this government sign up to a new UN fund, which will channel Australian taxpayers’ money to other countries, including China?’ he asked.

Mr Bowen lashed out at Mr Hawke in response, before explaining that China wouldn’t receive money from the fund, and he would seek to make Beijing contribute.

‘It is unsurprising perhaps to get a question like that from this opposition led by a man who thinks that the impact on the Pacific of climate change is a laughing matter, who thinks it is a great big joke,’ he said.

‘But those of us on this side of the House, we will work with the Pacific because we know that that is in our interests as a country in a very complicated geopolitical environment.’

‘Australia successfully argued that the donor base should be reviewed so that the countries that were not rich in 1992 but have now become developed and are now wealthy be should contribute, not receive, should contribute to the fund.

He said Australia was joined by the US, the EU, New Zealand, and Canada, among others, in calling for this.

‘I understand the difference between donor and recipient might be a little confusing [to the opposition] but that’s exactly what we argued,’ he said.

‘That is exactly reflected by the text, which indicates a multiplicity of donors and a revision of the database.’ 

A map showing the emissions per capita around the world. Australia's would be higher if the map accounted for coal and gas exports

A map showing the emissions per capita around the world. Australia’s would be higher if the map accounted for coal and gas exports

Who will benefit and what can they claim?

Most of the countries most at risk of climate disasters are those that contributed the least to global emissions and have the least capacity to pay for them.

Pakistan was the hardest hit in recent weeks with devastating floods wreaking destruction across a third of the country. About 1,700 people died and it cost US$40 billion ($60 billion) in damage.

Closer to home, Fiji loses five per cent of its GDP a year to climate change disasters.

African countries would need a lot of help to deal with droughts and island countries in the Pacific and Caribbean suffer wild weather and rising sea levels.

What kind of disasters qualify, how bad they have to be to receive aid, and which countries are eligible is a long way off being decided.

As climate change worsens and more disasters occur, there could be ugly fights over which is more worthy of limited funding.

How the money would be distributed and what it could be used for are also undecided.

Notre Dame Global Adaptation Initiative index gauges countries' vulnerability based on their exposure, sensitivity and ability to adapt to the negative impacts of climate change

Notre Dame Global Adaptation Initiative index gauges countries’ vulnerability based on their exposure, sensitivity and ability to adapt to the negative impacts of climate change

When would we have to pay up?

International agreements like this, even when they are actually followed through on, take a very long time to be agreed and implemented. 

Nothing will happen until the recommendations are presented at the COP28 summit in Dubai, starting November 30 next year.

These will then be argued about and haggled over for months if not longer, so a likely agreement wouldn’t come until 2024.

A clause could also be inserted to hold off on actual funding, or ramp it up over time, so governments can account for it in their budgets.

The world would likely look very different by then, and the current cost of living crisis Australians are dealing with could well be a distant memory.

Professor Howden said it would be years at its most optimistic before the fund was something the government needed in its budget.

‘It would be hard to see that fund becoming functional within two years, so at least that,’ he said.

Nakeeyat Dramani Sam, of Ghana, poses for photos at the COP27 Climate Summit on Friday

Nakeeyat Dramani Sam, of Ghana, poses for photos at the COP27 Climate Summit on Friday

How much would Australians be paying?

We are a very long way off knowing how much Australian taxpayers would need to fork out, and even further from actually paying up.

There are so many unanswered questions that Mr Bowen on Tuesday wouldn’t even commit to contributing anything at all.

‘There’s many many steps to go, the fund hasn’t even been established yet, no country has determined how much they will put in,’ he told ABC Radio National.

‘There’s a long way to go yet but this was a material step forward.’

He said they had to make sure they designed the fund so it works, especially as there were other funds that didn’t.

Pressed on whether Australia would commit to contributing at all, Mr Bowen again kicked the can down the road.

‘No fund yet exists, we have to see the structure, the rules, the donor base… the cabinet will, once the fund is up and running, whenever that is, look at all the rules and structure and consider how we engage,’ he said.

Mr Bowen pointed out that the October budget increased foreign aid to Pacific Island nations by $900 million, in part to deal with climate change.

The government was also developing a Pacific green climate infrastructure fund.

Mr Bowen said these were ‘no small things’ and Australia would underline that in discussing how much it would contribute to the international fund, but would continue discussions about what more could be done elsewhere.

The flood damaged Parallel Motors in Eugowra near Forbes in central-western NSW as flash flooding, overflowing dams and swollen rivers continue to deeply affect the area

The flood damaged Parallel Motors in Eugowra near Forbes in central-western NSW as flash flooding, overflowing dams and swollen rivers continue to deeply affect the area

The minister said COP27 agreed to make loss and damage fund a ‘third pillar’ of climate change action, alongside emissions reduction and adapting to the effects of global warming.

‘We were particularly strong in this point of view that the multilateral development banks need to step up and lift their game,’ he said.

‘I was very grateful to receive strong support from other countries for that point, that the World Bank in particular has not been doing enough and that’s reflected in their decisions.’

Professor Howden said number was likely to be determined by politics more than the ‘brutal calculus’ of economic muscle, but Australia had 1.7 per cent of the world’s GDP and 2.66 per cent of the OECD’s GDP.

Should the maths be that simple, it would equate to $15 billion or $24 billion of a $600 billion fund. 

‘I think its in Australia’s interests to be involved in organising this as it will increase the likelihood of effective governance and expenditure. Australia would like to see the money we put into it well spent,’ he said. 

Youth activists hold signs encouraging world leaders to maintain policies that limit warming to 1.5 degrees Celsius since pre-industrial times and provide reparations for loss and damage at the COP27 summit

Youth activists hold signs encouraging world leaders to maintain policies that limit warming to 1.5 degrees Celsius since pre-industrial times and provide reparations for loss and damage at the COP27 summit

What has the opposition said about it?

Mr Dutton argued in Question Time on Monday that Australian tax dollars should be spent in Australia instead of being used as what was essentially foreign aid.

‘At a time when Labor’s policies are driving up cost-of-living pressures for families, the government has just signed up to funding a $2 trillion loss and damage climate fund which will send money overseas and beyond our region,’ he said.

‘Prime minister, doesn’t charity begin at home? When will you start helping Australian families instead of giving away their money?’

Prime Minister Anthony Albanese said the question was offensive and a tactic by the Coalition to ‘dog whistle’ to racist voters.

‘The idea that any foreign aid is giving Australians money to foreigners ahead of Australian interests, the leader of the opposition knows better, and he knows exactly what he is doing with that question,’ he said.

‘And the only people who are pleased about that question are the people sitting in the corner up there.

‘Because they represent seats that have rejected that sort of dog-whistling tactic from the Liberal Party.’

Opposition Leader Peter Dutton argued Australian tax dollars should be spent in Australia instead of being used as what was essentially foreign aid

Opposition Leader Peter Dutton argued Australian tax dollars should be spent in Australia instead of being used as what was essentially foreign aid

The ‘people sitting in the corner’ were the teal independents who snatched safe Liberal seats at the election by combining pro-business policy with progressive social policy and support for climate action. 

Mr Albanese’s reference to ‘dog whistling’ describes a strategy of using coded language to appeal to a particular group without saying something others are likely to take strong issue with.

Mr Bowen on Tuesday said Mr Dutton’s attacks were unfounded because it was in Australia’s interest anyway.

‘I know the opposition has decided to make some cheap political points out of this but I think that just underlines that they just don’t get it,’ he said.

‘Acting on loss and damage is important for developing countries, especially in our region… it’s also in Australia’s strategic intertest in a complicated geopolitical world for Australia to be actively engaged in these conversations.’

Professor Howden said the opposition would likely run that argument even when economic pressures returned to normal.

‘There’s always an argument for it not being the time to do something. I think the more relevant point is that this is the right time to take action and this is part of the action Australia needs to make,’ he said.

Bushfires raged across Australia's east coast in 2019 and 2020, made worse by climate change drying out the land and creating a dangerous fire environment

Bushfires raged across Australia’s east coast in 2019 and 2020, made worse by climate change drying out the land and creating a dangerous fire environment

Why did it take so long to agree to this?

Vanuatu, one of the countries most at risk from climate change, first called for the fund in 1991 and it has been debated ever since.

The US and EU long resisted the idea of paying for damage they caused through historical carbon emissions, fearing massive legal claims.

Few thought the measure, which developing countries including host nation Egypt pushed ferociously for, would be successful. 

However, both relaxed their position as the week went on when it was agreed it would be a fund they contributed to, not the threat of direct claims.

The text of the agreement does not include any references to ‘liability’ or ‘compensation’ and requires no admission of guilt.

Massive disasters in Pakistan and elsewhere are believed to have brought the issue to the fore and galvanised dozens of developing countries to push harder than ever.

Victims of the unprecedented flooding from monsoon rains use makeshift barge to carry hay for cattle, in Jaffarabad, Pakistan, in September

Victims of the unprecedented flooding from monsoon rains use makeshift barge to carry hay for cattle, in Jaffarabad, Pakistan, in September

Will anything actually happen?

History is not optimistic about the success of climate agreements in general, let alone ones that require handing over billions of dollars.

There are fears this will be yet another ‘placebo fund’ that is agreed to but never actually delivered.

The 2009 US$100 billion-a-year pledge didn’t deliver, and neither did three funds established in 2001 – including one to help developing countries.

Analysts believe this one has a higher likelihood of success as pressure to follow through will only increase, and everyone would take a PR hit from pulling out.

‘There’s high likelihood of it coming together but the question of how useful it will be will very much depend on the detail,’ Professor Howden said.

‘The pressure to have something like this is not going to go away.’ 

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