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How could help for rising climate 'loss and damage' be funded?

Displaced people stand on flooded highway, following rains and floods during the monsoon season in Sehwan, Pakistan, September 16, 2022.
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Displaced people stand on flooded highway, following rains and floods during the monsoon season in Sehwan, Pakistan, September 16, 2022. REUTERS/Akhtar Soomro

What’s the context?

With the costs of climate change-fuelled disasters soaring, what sources of funding could help communities and countries rebuild?

LONDON - As fossil fuel use - the main driver of climate change - continues to climb, economic and other losses are growing from super-charged droughts, floods, storms, wildfires and heatwaves.

Globally, the 10 most expensive weather disasters in 2021 cost more than $170 billion, estimates charity Christian Aid.

For many poor countries that have used only a tiny fraction of the coal, oil and gas burned by richer nations, mounting losses caused by extreme weather and rising seas are economically crippling, and their governments often lack the financial means to help communities recover.

The Caribbean island of Dominica, for instance, saw the equivalent of 90% of its annual economic output lost to Hurricane Erika in 2015, and a whopping 250% wiped out by Hurricane Maria just two years later.

Hard-hit countries - from African nations slammed by drought to Pacific island states battling sea level rise - have long demanded a global "loss and damage" fund to help them tackle rising losses.

A flood-affected older man gets free food provided by a local philanthropist on the banks of the Swat River in Dagi Mukarram Khan, a village in Charsadda district in Pakistan’s northwest Khyber Pakhtunkhwa province, September 1, 2022. Thomson Reuters Foundations/Imran Mukhtar
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But wealthy polluting nations, whose emissions are driving much of the damage, fear being forced to foot an escalating bill, and many - including the United States, Australia and some European countries - have vehemently opposed such a fund.

The issue is expected to be one of the most contentious at November's U.N. COP27 climate talks, with the Egyptian hosts promising to work toward a "creative" but "acceptable" solution.

How might the rising cost of "loss and damage" be fairly handled? Here are some ideas from global experts:

A windfall tax on fossil fuel firms

At September's U.N. General Assembly meeting in New York, U.N. chief António Guterres called for nations around the world to impose a windfall profits tax on fossil-fuel energy firms, which have reported record quarterly profits as Russia's invasion of Ukraine has led to soaring oil and gas prices.

"Those funds should be redirected in two ways – to countries suffering loss and damage caused by the climate crisis and to people struggling with rising food and energy prices," he urged, noting that "polluters must pay" for the damage they cause.

Such a move could be politically popular among some groups.

But Clare Shakya, an equitable climate finance expert at the International Institute for Environment and Development in London, said it was unlikely to work - and not only because the fossil fuel industry has vast political clout.

If taxes were established in some countries but not all, she said, then fossil fuel giants would simply shift their operations around to avoid the levies.

Goats wander among homes and furniture damaged by flooding in Sistan and Baluchestan province in Iran, January 2020

Goats wander among homes and furniture damaged by flooding in Sistan and Baluchestan province in Iran, January 2020. Zohreh Sabagh/Middle East Images via Thomson Reuters Foundation

Goats wander among homes and furniture damaged by flooding in Sistan and Baluchestan province in Iran, January 2020. Zohreh Sabagh/Middle East Images via Thomson Reuters Foundation

More importantly, climate-changing emissions already in the atmosphere mean damaging wilder weather is now locked in for at least decades to come, scientists say, unless huge amounts of carbon dioxide can be pulled out of the air.

Fossil fuels, meanwhile, are likely to become unviable economically in coming decades, leading even those who are not interested in climate action to start switching away from them.

Basing loss and damage finance on a funding stream like that, which is ultimately set to disappear, would not be a wise move for the long term, Shakya said.

Insurance

The one measure rich, high-emitting nations have so far backed to address rising loss and damage is insurance programmes for poorer at-risk nations, with subsidised premiums.

Such policies have so far helped Caribbean nations get swift initial help to deal with hurricane damage, for instance, though the payouts generally cover only a limited share of losses.

Now a range of efforts are underway to expand climate risk insurance to more countries and communities, including a proposal by the G7 group of powerful nations to create a "global shield" based largely on insurance.

Critics say insurance is helpful but not sufficient to deal with the fast-growing scale of losses.

"In the Caribbean, the types of payouts they're getting from the scheme are on an entirely different scale than the impacts they're experiencing," Shakya said.

As well, with climate change-fuelled disasters becoming much more frequent and severe, insurance - designed to cover infrequent losses - may become unaffordable or even unavailable for the hardest-hit countries, analysts say.

"It’s too expensive to get insurance for something that is going to happen every year," Shakya noted.

Airline, carbon or financial transaction taxes

Taxing key drivers of climate change - such as airline flights or other high-polluting activities - makes sense to many people. Or a tiny fee levied on each of the huge volume of stock and other financial asset trades each day worldwide could generate billions while discouraging speculation, backers say.

In 2020, eight out of 10 members of a British citizens' assembly - chosen to be demographically representative of the UK population - 'strongly agreed' or 'agreed' that people who fly more or for longer distances should face escalating taxes in order to meet the country's net-zero emissions goals.

Industries facing the taxes, however, have strongly opposed them, making them challenging to implement in practice.

Rich nations' budgets

The simplest idea for filling a loss and damage fund - having the countries whose historical emissions have driven much of the damage contribute cash directly - has been largely rejected by those who would be expected to pay up.

Only a few have volunteered money.

Homes sit in ruins at Codrington on the island of Barbuda just after a month after Hurricane Irma struck the Caribbean islands of Antigua and Barbuda, October 7, 2017. REUTERS/Shannon Stapleton

Homes sit in ruins at Codrington on the island of Barbuda just after a month after Hurricane Irma struck the Caribbean islands of Antigua and Barbuda, October 7, 2017. REUTERS/Shannon Stapleton

Homes sit in ruins at Codrington on the island of Barbuda just after a month after Hurricane Irma struck the Caribbean islands of Antigua and Barbuda, October 7, 2017. REUTERS/Shannon Stapleton

Scotland last year pledged $1.4 million at the COP26 U.N. climate talks, with the Belgian region of Wallonia making a 1 million-euro ($1-million) commitment. Denmark in September offered another $13 million, with $5 million of that going to insurance efforts.

But those largely symbolic contributions barely begin to address loss and damage needs, projected in one study at $290 billion to $580 billion annually by 2030 in developing countries. 

Nations such as the United States, which do not want to be held liable for sky-rocketing loss and damage, have so far indicated little enthusiasm for helping pay to rectify it.

"You tell me the government in the world that has trillions of dollars, because that's what it costs," U.S. climate envoy John Kerry noted at a New York event in September, when pressed on the issue. 

Lawsuits

Rich nations are reluctant to face an unlimited bill for the loss and damage caused by their emissions. But climate justice advocates say a failure to engage productively on how to pay for losses will drive a different push for cash: lawsuits

Scores of legal actions that aim to hold fossil fuel companies financially responsible for harm caused by their products are proceeding around the world, with more expected to be filed, against governments as well as firms.

Loss and damage is "a story of injustice and violation of human rights caused by just a handful of countries and corporations", noted Harjeet Singh, loss and damage lead for the Climate Action Network and a longtime campaigner on the issue.

Saleemul Huq, director of the International Centre for Climate Change and Development in Bangladesh, said wealthy countries that fear having to pay compensation for climate damages would do better to negotiate limits under U.N. climate talks - something poorer countries are open to - than face higher claims made through bodies like the International Court of Justice.

Samantha Rowe, an international dispute resolution lawyer with legal firm Debevoise & Plimpton, agreed it was preferable to set up effective loss and damage funding mechanisms.

"What you don't want is countries swinging at each other," she said - though she admitted she was "not hopeful" that could be avoided.

"We'll see - and we'll see soon, I think."

($1 = 1.0242 euros)

(Editing by Laurie Goering.)


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