Countries promise millions for damages from climate change. So how would that work?

As climate change negotiations kicked off in Dubai, countries reached a historic agreement for a new fund to help developing countries which bear the brunt of climate impacts.

More than $400 million was announced, with the largest pledges coming from Germany and the United Arab Emirates, to kick off the “loss and damage” fund. They are the first pledges since the fund was created at climate negotiations last year.

The idea is to aid developing countries that are already dealing with devastating impacts, like hurricanes, droughts and floods. But the initial funding is a tiny fraction of the overall need. A recent United Nations report found it will cost developing countries $215 to $387 billion per year to adapt to climate change.

Before the fund can make a difference on the ground, countries still have a number of issues to sort out, including which countries will pay into it and which countries will receive funding.

“Pledges should be commensurate with the scale of the needs for loss and damage, which is already costing hundreds of billions of U.S. dollars a year,” said Angela Rivera, speaking for Colombia at the COP28 summit. “We need to scale up quickly to make up for 30 years of lost time.”

What is loss and damage?

Here’s the need that one country is facing: the small island nation of Antigua and Barbuda.

Like many Caribbean islands, it’s extremely vulnerable to hurricanes that are becoming more destructive as the climate warms. In 2017, a massive category 5 storm, Hurricane Irma, hit the islands. The storm’s size was larger than the islands themselves and left widespread destruction in its wake.

“You just have to replace every single thing,” says Diann Black-Layne, climate change ambassador for Antigua and Barbuda. “The homes are damaged, and there’s no place to go. And the whole island gets hit – the entire population is affected.”

The cost of rebuilding has been challenging, she says. And rebuilding does not take into account preparing the country for the next storm. The island’s homes and buildings are mainly built to withstand category 2 hurricanes. Upgrading them to withstand stronger storms, by adding features like wind-resistant roofs, just adds to the cost.

On top of that, rising sea levels are threatening coastal development, which means residents will need to be relocated. That also threatens their fresh water supply, as saltwater creeps inland. Dealing with and preparing for the impacts of climate change will cost hundreds of millions of dollars, Black-Layne says.

“We are looking at 2 or 300 percent of our national GDP just to get ready,” she says. “Our way of life and our ability to live here, our ability to even have an economy is threatened.”

How will a loss and damage fund for vulnerable countries work?

For years, developing countries have sought compensation for the damages caused by climate change. Cumulatively, the U.S. and Europe are responsible for the largest share of greenhouse gas emissions going back to the Industrial Revolution. Developing countries are bearing the brunt of the impacts, having contributed little to climate change.

“This climate problem was caused by the industrialization of rich countries,” says Avinash Persaud, special climate envoy for Barbados. “It is, in fact, how they got rich. And so they do need to show recognition and some responsibility in helping to finance the reconstruction and rehabilitation costs of climate impacts.”

A dedicated fund for loss and damage would be used to help countries prepare communities for the climate impacts that are already happening, as well as deal with the inevitable losses, like flooded burial grounds and other culturally important sites.

After a series of tense meetings over the last year, countries agreed to base the fund at the World Bank temporarily for four years. Some developing countries raised concerns that would burden them with high fees and too much influence from richer nations. As a result, developing countries will have equal representation on the board that controls the fund.

Who will pay for a loss and damage fund?

The initial contributions will mainly get the fund up and running. Germany and the United Arab Emirates both announced $100 million. The United Kingdom announced 60 million pounds and Japan announced $10 million. The European Union says it will pledge 225 million euros overall.

The United States announced $17.5 million as well. The Biden Administration generally faces opposition from Republicans in Congress over international climate spending.

Going forward, hundreds of billions of dollars will be needed annually. There’s still debate over which countries will contribute as well. China, the world’s largest emitter of greenhouse gasses currently, has not committed any funding, though some developed countries are pushing for it to contribute to the fund.

“We expect it will draw from a wide variety of sources,” Special Envoy for Climate John Kerry said at the COP28 talks. “The scale of the challenge is simply too large for any government to be able to finance alone.”

Richer countries are already behind on previous promises to provide financing for climate change. So some developing countries are proposing other ways of raising money for the loss and damage fund like a tax on oil sales or on methane, a potent greenhouse gas produced by agriculture and oil and gas companies. Those questions will be raised as the loss and damage fund is officially set up over the next year.