Loss and Damage of Climate Change – from Managing Risks to the Politics of Compensation

By Swenja Surminski

With the passing of the Paris Agreement on Climate Change, efforts to fight the changing climate’s causes and consequences have received increased support. This article discusses how the “losses and damages” of climate change can be managed, especially in poor and highly vulnerable countries.

loss-and-damage-of-climate-change-featuredGlobal efforts to fight the causes and consequences of a changing climate have received a welcome boost: the Paris Agreement on Climate Change has now passed the required threshold of country ratifications, and entered into force on 4. The aim is to keep the level of global warming well below 2° C and to better prepare for and adapt to current and future climatic changes. If and how all signatories will adhere to their pledges remains to be seen, it is a very encouraging step.

The Paris Agreement also promises increased support for those affected by a changing climate, particularly in poor and highly vulnerable countries. Under the heading “Loss and Damage” this aspect has now become a third pillar of the international climate architecture, with Article 8 of the Paris Agreement stating a goal of “averting, minimising and addressing loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events”.

This topic is not new to the international climate change negotiations – the Alliance of Small Island States (AOSIS) alongside other developing countries and NGOs have since the 1990s been advocating for losses and damages arising from climate change to be recognised under any global climate change agreement.

Although lacking a clear definition, in its widest sense the United Nations Framework Convention on Climate Change’s (UNFCCC) Loss and Damage concept refers to the negative consequences of climate change, which are particularly challenging for those poor countries already exposed to harsh climate conditions. These impacts include both extreme weather events such as storms and floods, and slow onset phenomena such as sea level rise, ocean acidification or loss of biodiversity and desertification, with negative consequences for people’s livelihoods, assets, land, culture and ecosystems.

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The first official recognition of Loss and Damage within the UNFCCC framework came during the 16th Conference of the Parties (COP) in 2010, when the Cancun Adaptation Framework was adopted. This process culminated in 2013 at COP19, where the Warsaw International Mechanism (WIM) was established to promote implementation of approaches to address Loss and Damage associated with impacts of climate change. Its Executive Committee guides the implementation of the functions of the WIM and is accountable to the COP. Co-chaired by Tuvalu and the United States, this Executive Committee is tasked with identifying instruments and tools suitable for addressing losses and damages in developing countries.

The Paris Agreement reinforces this commitment towards Loss and Damage and it signals wide agreement across the international community that those countries most vulnerable and exposed need support. Less clear is how to achieve this: the interpretation of what Loss and Damage is and which tools are most appropriate differ widely amongst those involved in the discourse.1

 

What Are The Options for Addressing Loss and Damage?

Without doubt, the first line of defence against Loss and Damage is the reduction of emissions: in simple terms, more emissions will lead to higher future losses and damages. This creates uncertainties as nobody knows how successful the international community will be in achieving the below 2° C aim. But at the same time it re-emphasises why emission reductions are so important.

In addition to climate change mitigation, a further strategy to limit loss and damage is climate adaptation. Any efforts to reduce vulnerability and increase resilience can influence the extent of Loss and Damage today and in the future. This includes a range of tools and mechanisms from disaster risk management, poverty reduction, to investments in resilient infrastructure. All of those can be combined under a comprehensive climate risk management strategy, which identifies efficient and acceptable measures for different types of climate risks.(see Mechler et al.,2014)2

However, there is another dimension of Loss and Damage, which is often referred to as the “residual loss”.3 This includes those losses and damages that either have not been avoided or can’t be avoided through mitigation or adaptation.4 Developing countries and particularly island states – whose very existence is threatened by sea level rise – frame the issue in compensation terms, urging the global “North” to acknowledge its responsibility and pay for the losses and damages caused to the global “South”. This has long been a red line for most developed nations, who are concerned about liability charges and open-ended compensation requests. There have been proposals to address this aspect of Loss and Damage, most notably AOSIS’s call for an international insurance scheme to be funded by mandatory contributions from industrialised parties on the basis of their Gross National Product (GNP) and relative greenhouse gas (GHG) emissions. The aim was to create a mechanism that would compensate small island and low-lying developing nations for losses and damages resulting from sea level rise.5 This proposal was not taken further due to the political complexities arising from the questions of compensation, liability and fairness.

Instead the focus of the UNFCCC Loss and Damage work shifted to the relatively uncontroversial ideas of extending and enhance adaptation and climate risk management to help prepare vulnerable countries for climate change. While not addressing all of the dimensions of loss and damages there is a lot to be gained from a sensible use of disaster risk management and adaptation tools in poor countries: Foremost it establishes a culture of forward planning that can help to avoid and reduce some of the negative impacts of climate change. Risk reduction is the first, ex ante, step to be taken preventatively in order to minimise the impact of extreme weather events. It can be structural (e.g. better infrastructure) or non-structural (focusing on behavioural change and early planning) and works best when dealing with climate-related stressors that occur frequently and have relatively small impacts.

This can be complemented by risk retention, which allows countries to build a buffer and to enhance the resilience of its population through reserve funds or through social protection measures. Another option are risk transfer approaches, such as insurance, which spread the risk over space and time and offer certainty about post-disaster support, while delivering faster and more efficient reconstruction, thus reducing immediate welfare losses and consumption reductions6 after a loss occurs. The experience to date suggests that insurance can help to improve climate resilience, particularly when combined with other tools such as land-use planning and investments in resilient infrastructure. This is particularly important as risk transfer does not directly reduce the risk of negative impacts from climate risks. Ex-ante prevention and preparedness measures remain the main instruments for reducing fatalities and limiting damage from disasters.

In a warming world, without efforts to reduce risks, both post-disaster assistance and insurance will become increasingly expensive and ultimately unsustainable.

Until today these ex-ante tools and instruments remains widely under-used in most developing countries, who continue to rely on their post-disaster aid.7 By improving the climate risk management of poor countries the impact of some of the losses and damages from climate change can be reduced – particularly with regards to extreme events. This is in line with the United Nations International Strategy for Disaster Reduction’s (UNISDR) Sendai Framework for Disaster Risk Reduction, which provides a road map to better disaster risk management. Several risk-transfer projects such as the G7’s InsuResilience initiative are working towards this better integration of prevention, retention and insurance.

However, for the more gradual changes such as sea level rise these traditional risk management tools face clear limitations. This is particularly evident in the case of insurance: the existing insurance schemes are focusing on current climate risks, rather than future changes. While some pilot schemes explore forecast insurance as well as insurance against gradual changes in rainfall amounts, most schemes only grant cover over a 12-month period and do not consider any longer term climate change projections. Therefore insuring some of those irreversible losses projected appears outside the usual scope of insurance. For this we need to explore alternative means, for example by securing dedicated international funding for vulnerable communities that will inevitably be displaced by sea level rise.

In addition there are practical challenges around data, measurability of impacts and facilitation of the pay-outs, as well as the planned time horizon of any scheme – can we set up mechanisms to deal with current and future impacts, and how will we judge what type of losses and damages would qualify under such schemes? It is hard to imagine how any pay out for a flood or a windstorm would be based on differentiating between climate change and socio-economic risk drivers such as urbanisation, poverty and population growth? This remains scientifically very controversial and would lead to lengthy legal battles: new approaches have been developed to quantify the attributable part due to human influence on the climate system, but climate models suffer from a number of limitations.8 The attribution challenge is linked to the distinction between “general causation” and “specific causation” found for example in US environmental litigation. While the evidence of the effect of anthropogenic climate change impacts in the general causation sense is abundant, specific causation requires detection and attribution to estimate the relative magnitude of human-induced climate change compared with the effect of other factors.9 It therefore remains unclear how to deduct other contributing factors, such as poor governance or lack of land-use planning and building codes, which also determine how climatic changes will affect countries, communities or individuals.

Fairness and equity are key aspects that need to be incorporated in any Loss and Damage responses.

These challenges are also recognised by the UNFCCC’s Executive Committee on Loss &Damage: at its 4th meeting in September 2016 it approved the establishment of a clearing-house on insurance to enhance understanding and application of insurance. In addition, it established a dedicated task force on displacement related to slow-onset events, exploring how to address climate change impacts that are not routinely tacked with insurance schemes.

This two-way approach is promising: While a lot can be gained from applying existing risk management instruments and tools it is clear that innovative ideas are needed. At the same time it is important to see Loss and Damage in the context of the Sustainable Development Goals that were agreed in 2015 by the UN member countries: climate change is a threat multiplier – it amplifies the problems that many individuals are already facing, be it access to water, housing, livelihoods or conflicts. There is still a tendency to treat these issues separately, resulting in a myriad of different institutions and mechanisms all attempting to address certain aspects. This is unlikely to benefit those who really need support – and the UNFCCC’s Loss and Damage Executive Committee should use caution and restraint before establishing yet further institutions and mechanisms.

Above all it is important to recognise that there is a moral case beyond the economic considerations.

For many parts of the world Loss and Damage is not a distant threat but a current reality. The political complexities of the Loss and Damage discourse and the technical challenges of climate attribution should not distract from this.

Featured image: An activist hold a poster during a demonstration near the Eiffel Tower, in Paris, Saturday, Dec.12, 2015 during the COP21, the United Nations Climate Change Conference.
Photo courtesy: Thibault Camus

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swenja_surminski_4170Swenja Surminski is a Senior Research Fellow at the Grantham Research Institute on Climate Change and the Environment, part of the London School of Economics and Political Science (LSE), where she works as Programme Leader for the “climate risk, insurance and private sector” work-stream at the institute, overseeing research projects from a multi-disciplinary field.

References
1. James, R. et al. (2016) Characterizing loss and damage from climate change, Nature Climate Change, vol. 4, pp. 938-939
2. Mechler R, Bouwer L, Linnerooth-Bayer J, Hochrainer-Stigler S, Aerts J, Surminski S (2014)852 Managing Unnatural Disaster Risk from Climate Extremes. Nature Climate Change 4:235–237
3. Verheyen, R. & Roderick, P. (2008) Beyond Adaptation–The Legal Duty to Pay Compensation for Climate Change Damage (WWF-UK)
4. Surminski, S. and Lopez, A. (2015), “Concept of loss and damage of climate change – a new challenge for climate decision-making? A climate science perspective”, Climate and Development, vol. 7, no. 3, pp. 267-277
5. AOSIS (2008) Submission on Shared Vision to the Chair’s Assembly Document, in FCCC/AWGLCA/2008/Misc.5/Add.2; Linnerooth-Bayer, J., Mace, M.J., and R. Verheyen (2003). Insurance-Related Actions and Risk Assessment in the Context of the UNFCCC’. Background paper for UNFCCC workshop on insurance-related Actions and Risk Assessment in the Framework of the UNFCCC, May 11-15, 2003, Bonn.
6. Benson, C. and Clay, E.J., (2004). Understanding the Economic and Financial Impacts of Natural Disasters. Washington, DC: World Bank.
Hallegatte, S., (2011). ‘How economic growth and rational decisions can make disaster losses grow faster than wealth’, World Bank Policy Research Working Paper No. 5617, World Bank, Washington, DC.
7. Surmiski,S., Bouwer, L. and Linneroth-Bayer, J. (2016), “How insurance can support climate resilience”, Nature Climate Change, vol. 6, pp. 333-334
8. Surminski, S. and Lopez, A. (2015), “Concept of loss and damage of climate change – a new challenge for climate decision-making? A climate science perspective”, Climate and Development, vol. 7, no. 3, pp. 267-277
9. Huggel,C. , Wallimann-Helmer, I.,Stone, D. and Cramer, W. (2016), “Reconciling justice and attribution research to advance climate policy”, Nature Climate Change, vol. 6, pp. 901-908
10. Ranger, N. and Surminski, S. (2013), “A preliminary assessment of the impact of climate change on non-life insurance demand in the BRICS economies”, International Journal of Disaster Risk Reduction, vol. 3, pp. 14-30

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