Countries that import the most oil will have to make the biggest contribution to the fund
The biggest achievement at the annual United Nations climate summit last year was committing to create a fund that would compensate the poorest for destruction wrought by global warming. One of the questions at the upcoming COP28 summit will be how to add money to this new loss-and-damage fund.
If history is any guide, it’s going to be a hard problem to solve. In 2009, rich countries promised to provide $100bn annually to poor countries to fund projects that reduce emissions and avoid climate impacts.
By 2020, the deadline to reach that sum, the amount transferred that year stood at just $83bn. And most of that total came in the form of loans rather than grants, according to an Oxfam report published in June.
A possible solution
Avinash Persaud, a Barbados economist who is the island nation’s special envoy on investment and financial services, says a creative solution is gaining traction. It’s rooted in a more successful history of wealth transfers from emitters to victims. He wants to impose a small fee on the world’s oil buyers to fund loss-and-damage payments for poor countries ravaged by floods, fires, storms and heat waves.
The proposal is modelled on the International Oil Pollution Compensation Funds, which date back to 1971 and continue to function today. The funds work by charging a very small fee to more than 120 member countries for every barrel of oil they import only when the pots need to be replenished. If there ever is an oil spill anywhere in the world, IOPC funds can be made available for clean-up costs of up to $250m (with some countries paying extra for protection of up to $1bn).
“The world has been waiting decades for a loss-and-damage fund,” says Persaud. By contrast the IOPC mechanism came about “in just few years.”
The IOPC funds were created after the Liberian tanker Torrey Canyon struck a rock in 1967 on its way to the UK. That oil spill caused pollution both on British and French shores that required an expensive clean-up operation. In more than 50 years of existence, IOPC has dealt with more than 150 incidents and paid out GBP750m ($930m). And the number of annual oil spills requiring IOPC funds to intervene has been falling for decades.
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