Financing loss and damage: reviewing options under the Warsaw International Mechanism

Abstract

After decades of pressure from vulnerable developing countries, the Warsaw International Mechanism on Loss and Damage (the WIM) was established at the nineteenth Conference of the Parties (COP 19) in 2013 to address costly damages from climate change. However, little progress has been made towards establishing a mechanism to fund loss and damage. The WIM's Executive Committee issued its first two-year workplan the following year at COP 20 which offered, among other things, a range of approaches to financing loss and damage programmes, which we review here. We provide brief overviews of each mechanism proposed by the WIM ExCom, describe their current applications, their statuses under the UNFCCC, some of their advantages and disadvantages, and their current or potential application to loss and damage. We find that several of these mechanisms may be useful in supporting loss and damage programmes, but identify three major gaps. First, most of the mechanisms identified by the WIM ExCom are insurance schemes subsidized with voluntary contributions, which may not be adequate or reliable over time. Second, none were devised to apply to slow-onset events, or to non-economic losses and damages. That is, if harms are to parts of a society or its ecosystems that have no price, or if they occur gradually, they would probably not be covered by these mechanisms. Finally, the lack of a dedicated and adequate flow of finance to address the real loss and damage being experienced by vulnerable nations will require the use of innovative financial tools beyond those mentioned in the WIM ExCom workplan. Key policy insights• Despite a full article of the 2015 Paris Agreement devoted to loss and damage, there is little international agreement on the scope of loss and damage programmes, and especially how they would be funded and by whom. • Most of the loss and damage funding mechanisms identified by the WIM ExCom are insurance schemes subsidized with voluntary contributions, which may burden the most vulnerable countries and may not be reliable over time. • None of the mechanisms were devised to apply to slow-onset events, or to non-economic losses and damages.Policy Relevance Statement: After years of arguments by developing countries for recognition of loss and damage (beyond their ability to adapt to climate impacts), a full article of the 2015 Paris Agreement was devoted to the issue. International mechanisms to address loss and damage are receiving increased attention, particularly given the intensification of climate impacts occurring and projected to occur in the coming years, and the inability of mitigation and adaptation projects to adequately address those impacts. However, there is little international agreement on the scope of loss and damage programs, and especially how they would be funded and by whom. As such, it is crucial to identify potential funding sources and assess their efficacy, reliability, and equity, so that loss and damage response programs can be institutionalized, implemented, evaluated and improved.

Twenty-five years of adaptation finance through a climate justice lens

“…The Copenhagen and Cancun texts as well as the Paris Agreement promise "predictable" funds, which is essential for developing countries to establish their own budgets and to plan for adaptation responsibly, but predictability did not increase in this period. Some quite developed proposals were put forward to levy international air passengers a small flat fee or to finally tax bunker fuels used in international shipping, instituting a tiny international transaction tax, or a tax on carbon, or even a tax on arms trade (see Gewirtzman et al 2018; Richards and Boom 2014). However, none of these proposals were advanced and climate finance remained voluntary, depending most apparently on political expediency in the wealthy countries (Khan 2015).…”

Making sense of the politics in the climate change loss & damage debate

“…All of this suggests that the current approach to L&D in the climate change governance architecture remains ambiguous ( Calliari, 2016a , Vanhala and Hestbaek, 2016 ) and concerns about the financial implications of addressing L&D persist, given the slow nature of progress on this topic and the focus on market-based and private sector instruments within WIM discussions ( WIM Excom, 2016 ). As a result, fostering action and support for L&D remains challenging: it is hard to agree on what the scope of L&D programmes should be, and how and by whom they should be financed ( Gewirtzman et al, 2018 ).…”

Clouded skies: How digital technologies could reshape “Loss and Damage” from climate change

“…The same applies for relocation programs for communities displaced by the most severe impacts of climate change (McNamara, Bronen, Fernando, & Klepp, 2018). The risk management approach puts great faith in markets and financial tools, such as “catastrophe bonds” or insurance schemes (see Gewirtzman et al, 2018 for an overview), as well as in better warning and information systems (Roberts & Pelling, 2018; Warner et al, 2012). But in spite of the differences (normative, epistemological, institutional), these approaches share a similar modernist horizon.…”

“…Insurances are a key mechanism through which the implementation and funding of L&D has been envisioned (Gewirtzman et al, 2018; Mace & Verheyen, 2016; O'Hare, White, & Connelly, 2016), particularly within the risk management framing (see Section 2). The approaches the WIM Executive Committee has proposed (for a review, see Gewirtzman et al, 2018) boil down to insurance schemes subsidized with voluntary contributions, such as catastrophe risk insurance, contingency finance, climate‐themed bonds, and catastrophe bonds. Such instruments are becoming increasingly popular in the whole field of disaster risk financing, and they have been heralded as the most promising solutions to the impasse of climate finance.…”

“…The WIM itself recognizes significant gaps in knowledge on the impacts of slow‐onset and extreme weather events on migration and displacement. Direct links between L&D and displacement are also captured by the concept of non‐economic loss and damage (NELD), which identifies secondary and tertiary impacts in social systems, including the loss of livelihoods, homelands, cultures, landscapes, identity, and agency (Fankhauser, Dietz, & Gradwell, 2014; Gewirtzman et al, 2018; Morrissey & Oliver‐Smith, 2013). Displacement can be both cause and symptom of NELD.…”