A showdown over climate reparations is brewing — and it will determine the success of the COP27 summit

The success or failure of the U.N.’s flagship climate conference is likely to depend on getting wealthy countries to deliver on reparations — a highly divisive and emotive issue that is seen as a fundamental question of climate justice.

The COP27 climate summit gets underway in Egypt from Nov. 6. The annual gathering of the U.N. Climate Change Conference will see more than 30,000 delegates convene in the Red Sea resort town of Sharm el-Sheikh to discuss collective action on the climate emergency.

It comes amid growing calls for rich countries to compensate climate-vulnerable nations as it becomes harder for many people to live safely on a warming planet.

Reparations, sometimes referred to as “loss and damage” payments, are likely to dominate proceedings at COP27, with diplomats from more than 130 countries expected to push for the creation of a dedicated loss and damage finance facility.

They argue agreement on this issue is imperative as climate impacts become more severe.

Rich countries, despite accounting for the bulk of historical greenhouse gas emissions, have long opposed the creation of a fund to address loss and damage. Many policymakers fear that accepting liability could trigger a wave of lawsuits by countries on the frontlines of the climate emergency.

Saleemul Huq, director of the Bangladesh-based International Centre for Climate Change and Development, said he is expecting an “agenda fight” at the start of COP27 — the result of which he said will be critical to the summit’s integrity.

Finance to address loss and damage is on the provisional agenda for the U.N. climate conference. However, policymakers will need to determine whether to adopt it onto the official agenda at the start of the summit.

Huq, a pioneer of loss and damage research and advocacy, said it is feared that once again wealthy countries will refuse to endorse financial support for low- and middle-income countries acutely vulnerable to the climate crisis.

For instance, at COP26 last year, high-income nations blocked a proposal for a loss and damage financing body, choosing instead to engage in a new three-year dialogue for funding discussions. The so-called “Glasgow Dialogue” has been sharply criticized as a program without a clear plan or an intended outcome.

Huq said during a webinar hosted by Carbon Brief that the battle to put loss and damage funding on the official agenda “is going to be the big fight coming up in Sharm el-Sheikh.”

“If we lose the agenda fight then we might as well come home and forget about the rest of COP because it will be useless in the face of what is happening in the world on climate change,” Huq said.

“It is beyond mitigation and adaptation now,” he added. “Loss and damage [funding] is by far the most important issue that needs to be discussed and if the UNFCCC doesn’t do it then it basically becomes redundant.”

The push for loss and damage payments differs from climate finance directed toward mitigation and adaptation.

Mitigation refers to efforts to reduce greenhouse gas emissions that are causing global heating by, for instance, transitioning from fossil fuels to renewable energy sources. Adaptation, meanwhile, means preparing for the adverse effects of the climate crisis by taking action to minimize the damage.

These are two established pillars of climate action. Loss and damage funding, meanwhile, is recognized by many as the third pillar of international climate policy.

Speaking two weeks ahead of COP27, U.S. climate envoy John Kerry said Washington would not be “obstructing” talks on loss and damage in Sharm el-Sheikh. His comments mean that, for the first time ever, the U.S. appears willing to discuss reparations at the U.N. climate conference.

Kerry’s openness to talks on loss and damage funding marked an abrupt change in tone from just one month earlier. Speaking at a New York Times event on Sept. 20, Kerry suggested the U.S. would not be prepared to compensate countries for the loss and damage they’ve suffered as a result of the climate emergency.

“You tell me the government in the world that has trillions of dollars — because that’s what it costs,” Kerry said. He added that he refused to feel “guilty” for the climate crisis.

“There’s plenty of time to be arguing, pointing fingers, doing whatever,” Kerry said. “But the money we need right now needs to go to adaptation, it needs to go to building resilience, it needs to go to the technology that is going to save the planet.”

Advocates of loss and damage funding argue it is required to account for climate impacts — including hurricanes, floods and wildfires or slow-onset impacts such as rising sea levels — that countries cannot defend against because the risks are unavoidable or the countries cannot afford it.

“This is the litmus test for the success of COP27,” said Harjeet Singh, head of global political strategy at Climate Action Network, which includes more than 1,500 civil society groups.

“Looking at loss and damage as a side issue is not acceptable because this is the reality that millions are facing every single day,” Singh said during the same webinar event, citing devastating floods in Pakistan and severe droughts in the Horn of Africa.

Singh said political mobilization over loss and damage funding makes COP27 the most important COP yet. “We now have to make sure it delivers climate justice that we have been demanding by creating a new system of funding so that we can support people who are facing the climate emergency now.”

So far, only one U.N. member state has pledged to offer loss and damage compensation to the most climate-vulnerable areas. Denmark announced in mid-September that it would support low-income nations with over 100 million Danish crowns ($13.3 million).

Nicola Sturgeon, first minister of Scotland, which is not a member of the U.N., announced at the COP26 summit in Glasgow last year a symbolic £1 million ($1.15 million) loss and damage investment in an effort to encourage other wealthy countries to follow suit.

“Loss and damage is happening every single day somewhere in the world — and it will continue to happen every single day from now on,” ICCCAD’s Huq said, citing the damage caused by Hurricane Ian in late September as a recent example.

“Ian is the biggest storm Florida has had so far. But that’s not going to be true next year, they are going to have a bigger one next year and they are going to one even bigger than that the year after. So, we have now entered the era of impacts from human-induced climate change causing losses and damages.”

“We need to deal with that — and we are not prepared to do it at all. Even the richest country in the world, the U.S., is not prepared for this,” he added.

Paddy McCully, senior analyst at non-governmental organization Reclaim Finance, said that although loss and damage funding was highly likely to feature prominently at COP27, nobody is expecting substantial progress.

“Given the geopolitical situation at the moment and the sharply different positions from the north and south on loss and damage, I think it is going to be hard for countries to achieve a dramatic breakthrough,” McCully told CNBC via telephone.

“The sign of a successful COP will be that there is at least agreement on a mechanism for providing finance in loss and damage,” he said. “And I think that a moderately successful COP would be that it doesn’t all fall apart in north-south acrimony, and you have at least agreement on further talks on setting up a mechanism.”