Can the nascent Loss and Damage Fund deliver for Nepal?

The Nepal disaster has put the spotlight on an enduring thorn in international climate conventions: countries that have contributed little to global emissions historically are bearing the brunt of a changing climate, while the systems meant to help them adapt remain underfunded and slow.

It has also raised a more fundamental question: who pays when climate impacts overwhelm a country’s ability to prepare and adapt?

Nepal has estimated its losses at around $5 billion — roughly 10% of its annual GDP — and is looking to the international Fund for Responding to Loss and Damage (FRLD) framework for assistance. But there’s a long queue. 

More than 100 countries have already sought funding totalling nearly $3 billion, while the Fund has received pledges of only around $800 million, of which only about $350 million is available for programmes after operational and secretariat costs. Climate finance for adaptation also remains far below what vulnerable countries need.

The problem is not only about money, or the lack of it. Climate risks in the Himalayas cross national borders, while disaster preparedness, data sharing and early-warning systems are subject to bilateral relations.

Nepal has also sought to clarify its position on who should bear responsibility for climate-related losses. While remarks by its foreign minister were interpreted as a call for compensation from major regional emitters such as India and China, Nepali officials have since said the country is not seeking compensation from any particular country. Instead, Nepal maintains that developed countries have a responsibility to provide climate finance under the UN Framework Convention on Climate Change and the Paris Agreement, while calling for greater regional cooperation with neighbours such as India and China.

Also Read: Beyond a First Responder: India must Co-Underwrite Himalayan Loss & Damage

These questions come at a significant geopolitical moment, with India currently chairing BRICS and the summit in Delhi just round the corner. Can BRICS become a platform for greater cooperation on climate-related disasters? And what can middle powers such as India do when international climate finance remains inadequate?

During a recent webinar, Ulka Kelkar, Executive Director of Climate, Economics & Finance at World Resources Institute India, spoke about the gaps in international mechanisms, including the Loss and Damage Fund, adaptation finance, cross-border Himalayan cooperation and what Nepal’s disaster reveals about the changing politics of climate risk.

The conversation has been edited for length and clarity. A recording of the CarbonCopy event is available here.

Q: Climate predictions made decades ago are now playing out across the Himalayas and elsewhere. What does the Nepal disaster tell us about how prepared development planning is for this changing risk?

The predictions that were made in the 1990s for climate change that were expected in the 2020s are coming through, they’re going to happen right on schedule. The information has been known. It is so difficult to include resilience in development planning as the development plans at any scale are usually made by people with engineering or technical expertise, and often the ecological expertise is not brought in at the same time. But these two things are not looked at together.

Another reason is that often we base these plans on past benchmarks, and these benchmarks are becoming outdated very rapidly. It’s becoming a wider kind of range that you need to cater for. 

Q. Nepal estimates it will need around $5 billion for reconstruction and rehabilitation after the disaster, despite contributing very little to global emissions. Why is it so difficult for countries like Nepal to access Loss and Damage and adaptation finance?

There are many parts to this. One of the issues is that the Loss and Damage Fund, created under the Paris Agreement, has received pledges for around $800 million total. Now, these are just pledges, not actual money.

[As of now, pledges total $822 million, while liquid money available is $486 million]

And right now, it’s at an early stage, the modalities are just being worked out. There is some documentation which says that already more than 100 countries have requested funding from the Loss and Damage Fund, and this adds up to something like just under $3 billion.

The process is also very convoluted, as tends to happen with most of these funds. And this is the first time that countries are applying to it. Other sources of climate funding or international aid are shrinking, whether due to the wars in Europe and Asia, or other reasons.

What we need to do is operationalise the pledges that have been made, and emphasise that adaptation finance should get equal weightage, not just mitigation finance. That has to be actually operationalised.

If the $300 billion per year target [as agreed upon at COP29] were to be actually met, then a country like Nepal, which is putting a bill of $5 billion, actually has some hope of accessing this funding. But that $300 billion per year target is far from being met.

Q. Nepal's call for climate justice has raised questions about liability and compensation. Does the Loss and Damage framework allow countries to seek compensation from those responsible for climate change?

In the Paris Agreement, there has been very careful wording around words like liability and compensation. Loss and Damage is deliberately said to have nothing to do with compensation and liability.

It is for residual impact after you have mitigated, after you have adapted, and you still have loss and damage.

The nice thing about it is that Loss and Damage also allows for non-economic damages, such as loss of cultural heritage, for example.

But on the negative side, it doesn't allow for any kind of compensation or liability. So, if there is a compensation argument being made, then perhaps the International Court of Justice or other courts, where climate litigation is beginning to happen, might be the channel through which this would have to be pursued.

Q. Can Nepal’s request for support become a test of whether the new Loss and Damage Fund can actually respond to countries facing climate disasters?

It is a testbed. But it is also not designed, I believe, for rapid payouts. The rapid response still comes from things like the UN Central Emergency Response Fund.

I’m not sure if we can use this as a pass-fail kind of test. It is still at an early stage; the modalities for FRLD have been worked out for the startup and learning phase. In this particular stage, the upper limit of the funding that you can request for one particular country is $20 million.

We can learn from this and simplify the processes, if possible. We should see how the funds flow, how much time it takes, and how difficult it is. Most climate funds are bureaucratic in their processes. 

One of the things that we keep advocating for is why should every fund have a different process, a different timeline, a different application form? There should be a kind of simplification, standardisation, and capacity building.

Also Read: Climate Change is Reshaping Disaster Risk across the Himalayas

Q. The Himalayas span several countries, but geopolitics has disrupted regional cooperation. Is there still a realistic path towards cross-border adaptation and resilience?

The path to where we are [at present] has seen efforts. It’s not like nothing has been done. SAARC used to have a regional meteorological centre, and had a summit and a joint declaration on climate change. There was also the Bhutan Summit for Living Himalayas. There have been efforts to share data across borders.

ICIMOD, an intergovernmental organisation in the Himalayas, includes China, India, Nepal and Bangladesh, countries that are upstream as well as downstream [as members]. They do facilitate some data sharing. The problem is that geopolitics disrupts these channels of collaboration and cooperation.

The Indus Basin Treaty has been disrupted, because of which a lot of the data that used to be shared across countries has been affected. I think the last time there was systematic data sharing from China was in 2022 or 2023.

Q. India is currently chairing BRICS, with the summit about to take place in Delhi. Can BRICS provide a route for the kind of regional cooperation the Himalayas need?

It would be a wonderful opportunity to bring disaster preparedness into the agenda of the summit declaration, and to announce some kind of humanitarian cooperation and data sharing.

Of course, there are sensitivities in the Himalayas. There are border regions, so it’s not easy. But scientific collaboration can [still] be done. This goes upstream to downstream [countries]. It affects India. Bihar is just downstream of a lot of these [Himalayan-origin] rivers. Bangladesh is affected similarly by the Brahmaputra.

Information sharing, if possible, would be a good thing to do, particularly not just during the [flooding] seasons, but around the year, not just maybe twice a day, but on a much more frequent basis.

Also Read: The Himalayas need a cross-border disaster-warning system

Q. Beyond government-to-government cooperation, what can countries and businesses do to manage growing climate-related financial risks?

There’s a lot that can be done outside of government-to-government cooperation. What we are seeing now, both in Europe and in Asia, is major losses to businesses. The rich and big businesses are also getting affected.

In Europe, a lot of power plants came on the brink of shutdown because the water used for cooling these power plants was getting warmer because of climate change, or the rivers were dwindling to nothing. Here also [in Nepal], hydropower projects have been affected because of this disaster.

Earlier, the response used to be to get insurance. But because of how widespread and repeated these climate change risks are becoming, insurance as a mechanism is also no protection.

What you need is a regional disaster pool, a catastrophe pool, a fund. There have been examples of this in the Caribbean, Latin America and Africa. It can layer different types of government compensation, World Bank-type compensation, some amounts of insurance and reinsurance, and market mechanisms. When you have these kinds of widespread disasters, this regional fund can step in.

I would [recommend] three things: regional data sharing, regional collaboration because of the business risks, and some kind of alternative to insurance — a regional insurance mechanism.

Q. What should countries like India be pushing for within the international climate-finance system?

What the middle powers and others can advocate for is making sure that those climate-finance commitments that have been made under the Paris Agreement are met, [and] that funding is predictable. It’s not just these one-off announcements that happen on the first or last day of the COP, but there is predictability.

There’s also analysis that shows that countries like India are already contributing a lot of climate finance. We are not just recipients; we are also donors. I think we are the third-largest developing country in terms of the climate finance that we have been giving, something like just under $10 billion over the period of 2013 to 2023.

Q. If international climate finance mechanisms remain inadequate to match the speed and scale at which these disasters are occurring, what can countries in the Global South do themselves to prepare for these risks?

We are not helpless. We are not sitting ducks waiting for North-to-South climate finance. We have to prepare; we have to adapt. There are many things we can do at our own level.

We have mechanisms like environmental impact assessments. What we often do not do is cumulative environmental impact assessments. Any one infrastructure project by itself may not be a big risk. But when you put them all together, sometimes the risks may get missed, or they may not get adequately engineered for.

The second is tenders. If you are able to put these higher benchmarks, or greater uncertainty ranges, if you are able to build for higher floodlines, more extreme rainfall events, whatever it is, then these go into the tender specifications. Anybody bidding for that project will have to build in the additional costs of making that project climate-resilient.

The third thing is regional cooperation within the scope of whatever geopolitical tensions there are. For example, there is an India-China expert-level mechanism for transboundary river cooperation. Some of these more limited technical channels of collaboration can be activated or revived and used for mutual benefit.

We need to make sure that the funding flows. But there are many things one can do which are not tied to finance.

Q. Why has adaptation finance remained so difficult to mobilise, even as the impacts are becoming more visible?

The problem in the early years with adaptation finance was that it’s so similar to development. When you talk about adaptation, it sounds like just good development, good governance. And so it becomes very difficult to prove additionality.

If you’re talking about health systems, better healthcare, or clean water, adaptation and development become very close to each other. The thinking used to be that the developing country can invest in a climate-resilient form of development. And that’s the best form of adaptation.

Now, because there is a shrinking of climate finance in general, there is more emphasis on private finance. But from a private investor’s perspective, adaptation is not ideal because private investors look for returns, whereas adaptation actions are distributed across a large number of beneficiaries.

While we have to keep pushing for that balance in international finance between adaptation and mitigation, we also need to look for mainstreaming climate into government budgets. Every department, every line item in the budget should bring in additional climate thinking and use the available public finance for climate action.

The urgency of adaptation finance is becoming more and more apparent. There is just going to be no substitute for it.