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Lower-income countries must explore alternative funding strategies after the US pulled out of a global fund to compensate them for the worst impacts of the climate crisis, say analysts.

The Loss and Damage Fund was created to ensure that the countries most responsible for climate change compensate those most affected by it for the irreversible damage inflicted.

"The Loss and Damage Fund was established as a lifeline for nations like ours, meant to support communities devastated by typhoons, rising sea levels, and extreme weather events," says Fread de Mesa, Philippines national coordinator for the non-profit 350.org.

The US withdrawal from the fund is a setback for international climate finance and raises concerns about the ability of low- and middle-income countries (LMICs) to recover from environmental crises.

Harjeet Singh, climate activist and founding director of the Satat Sampada Climate Foundation, told SciDev.Net, "The US decision to withdraw from the Loss and Damage Fund reflects a persistent pattern of obstructing global climate finance efforts. It undermines [the] collective action needed to deliver climate justice."

The move is the latest in a series of executive orders reversing environmental commitments since the inauguration of President Donald Trump in January for a second time.

These include withdrawal from the 2015 Paris Agreement, a legally binding treaty on climate change, and from the Just Energy Transition Partnership, a climate financing model to help LMICs transition from coal to clean energy.

A US Treasury spokesperson confirmed the reported withdrawal from the fund, saying it was consistent with Trump's executive order on "putting America first in international environmental agreements."

Concerning precedent

Mohamed Fahim, a professor of climate change at Egypt's Agricultural Research Center, and a UN expert in sustainable agricultural development, described it as "a major setback in international efforts to mitigate climate impacts."

Fahim says the Loss and Damage Fund, which was first introduced in 2022 at the UN climate summit COP27 in Sharm El-Sheikh, is still in its formative stages. It was only operationalized at the start of this year.

"The fund's roles and responsibilities are still being defined, making the US withdrawal a concerning precedent in international climate commitments," Fahim told SciDev.Net.

Hesham Eissa, a climate expert who has worked with the United Nations Framework Convention on Climate Change, points out that it's not the first time the US has withdrawn from climate agreements. The US exited from the Paris Agreement in Trump's first term, which came into effect in 2020.

However, he says there is a critical difference this time: "The global climate crisis has worsened significantly, with the US itself facing severe climate-related disasters, such as the recent wildfires in California," Eissa told SciDev.Net.

He believes the decision undermines global commitments on emission reductions and could lead to other countries backtracking on their promises, rather than following the science.

"Trump's stance—attributing climate disasters to geography rather than emissions—remains controversial and contradicts scientific consensus," Eissa added.

Chuck Baclagon, Asia regional campaigner for 350.org, said, "US withdrawal from the Loss and Damage Fund is more than just another broken promise—it is a severe blow to climate-vulnerable nations, particularly in Asia, where climate change is already a daily reality."

Bridge the gap

Climate experts suggest that nations should explore alternative funding strategies to counter the repercussions of the US decision.

Fahim and Eissa suggest several strategies to bridge the funding gap, including diversifying financial sources by strengthening partnerships with the private sector, leveraging green bonds, and seeking alternative funds from sources such as the World Bank and Global Environment Facility.

Additionally, increased cooperation with the European Union and China—both of which remain committed to climate financing—could provide crucial support, according to Eissa.

He says low- and middle-income countries in Africa, Asia and the Caribbean rely on climate finance to transition to clean energy and build resilience against climate change.

"The loss of US contributions, particularly to mechanisms like the Green Climate Fund [a UN fund for climate adaptation and mitigation], will significantly reduce available funding," he added.

At the national level, Fahim stresses the importance of integrating clean energy strategies into development plans and encouraging local investment in renewable energy.

He says lower-income countries can capitalize on international carbon markets by engaging in carbon pricing mechanisms and implementing emission reduction projects to trade carbon credits.

However, the US must be held to account, stresses Singh.

"While the US exit might not dilute the [Loss and Damage] Fund's ambition, it does not absolve them of responsibility," he says. "As the largest historical emitter, the US must be held accountable for its fair share of climate reparations."