Developing countries poised to abandon climate reparations fund

Member nations have rejected a proposal by the US and EU to establish the fund within the World Bank

The beneficiaries of a proposed global climate reparations fund have shot down a US- and EU-backed plan to host it within the World Bank, threatening to abandon negotiations entirely ahead of next month’s COP28 climate summit if Washington does not budge on the matter, sources familiar with the discussions told Financial Times on Friday.

The G77 nations plus China are “deadlocked” with the US regarding who will run the fund, which is meant to pay for “loss and damage” incurred by nations considered “particularly vulnerable” to climate change.

The World Bank’s structure could complicate the fund’s ability to receive philanthropic donations or raise money on capital markets, G77+ representatives have warned, while its focus on loans and other revenue-generating transactions is also a sticking point. Developing nations, often struggling with debt burdens imposed by international institutions in the guise of lifting them out of poverty, want grants, not new financial obligations. 

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Luis Pedroso Cuesta, the Cuban chair of the G77+, explained that while the bloc initially wanted an independent fund, they would compromise on hosting by an international body like a UN organization or another multilateral development bank.

However, the World Bank was not an option as it lacks a “climate culture” and drags its feet on important decisions, making it ill-suited to urgent climate crises, the G77+ has argued. Even the US admitted as much when it pushed the bank to finance more clean energy projects last week. 

“We have been confronted with an elephant in the room, and that elephant is the US. We have been faced with a very closed position that it is [the World Bank] or nothing,” Cuesta complained. 

Some analysts from the G77+ countries claim the US is hiding behind the World Bank to distract from its own inability to fulfill its climate finance promises. “People like [US climate czar John] Kerry will say, well, public funds are limited, so you’ve got to look at all these other measures,” Moroccan think tank director Iskander Erzini Vernoit told Politico on Thursday. 

Christina Chan, a senior advisor to Kerry, condemned such criticisms as “irresponsible,” denying the US was being “obstructionist.”

The parties are also at odds over financing. The G77+ demands developed nations – specifically the US – pay up. However, despite its status as the world’s top historic emitter of greenhouse gases, Washington has pledged nothing to the fund as of Friday, instead leaning on China to pony up.

At last year’s COP27 climate summit, 200 countries agreed to establish a loss and damage fund to help developing nations recover from the effects of climate change they had already endured. The US, long a holdout from such proposals, consented on condition that it would not equate compensation with legal liability.

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