Financing Loss and Damage: A Look at Governance and Implementation Options

Typhoon Haiyan-Yolanda

To read the full report, click here. 

Executive Summary: 

In 2013 countries agreed to establish the Warsaw International Mechanism for Loss and Damage (WIM) and agreed that it would do three things: a) enhance knowledge; b) strengthen dialogue and coordination and c) enhance action and support, including finance for loss and damage. This third element of its mandate has been sorely neglected. Almost no work has been done on how to fund loss and damage, how it fits with other streams of finance, and how loss and damage finance should be channeled to vulnerable countries. We are no closer now than we were in 2013 to vulnerable people and countries receiving loss and damage finance.

This report explores a number of elements that urgently need to be addressed:

When it comes to implementation loss and damage overlaps with adaptation, humanitarian disaster recovery, disaster risk reduction, migration programs and so on. It’s important that loss and damage strategies and programmes are as impactful as possible for people on the ground. To avoid duplication and unnecessary complication, political and institutional coordination in these various areas will be needed.

When it comes to financing loss and damage activities, experience in adaptation finance shows that it will be useful to be clear what we mean by loss and damage. We review existing working definitions of loss and damage, and a range of illustrative examples, and isolate what makes loss and damage different to adaptation, disaster risk reduction, disaster response and development. As a result, we recommend the delineation of loss and damage by establishing a set of criteria, or guiding questions, as follows:
- Was the impact likely caused by, or made worse by, climate change?
- Does the impact require a significant change to traditional, or existing, livelihood, going beyond adjustments and instead require an altogether different order of magnitude reaction?
- Does it involve loss of something the community values and depends on?

Teamed with an illustrative, but not exhaustive, positive list that can be added to over time, as experience and understanding is deepened.

A proportion of an activity that meets the criteria of loss and damage should be able to qualify as loss and damage, whilst allowing a proportion of the project or activity to fit within other categories (eg: adaptation). Whilst country-driven, the determination as to whether loss and damage finance is justified should also be assessed by a WIM authorized panel.

What stands out most clearly is that there isn’t currently enough funding to even begin thinking about financing loss and damage, with available climate, development, risk reduction and disaster recovery financing all falling short by an order of magnitude. Whilst there is more that should be done in the name of ‘solidarity’, it is very unlikely that developed countries will step up and fulfill their obligations under the UNFCCC as elaborated under long-term financing goals, let alone all of the loss and damaging needs additional to such goals. Therefore, for the generation of international financing for loss and damage – also as a matter to facilitate accounting and to ensure additionality to current funding streams – new sets, of finance that come from outside traditional reliance on ODA and treasuries are needed. Innovative financing (in the form of a carbon levy, aviation levies, financial transaction taxes etc) if implemented well, can fairly and predictably fill much of the loss and damage finance gap. Our work here shows that innovative sources of finance should be able to provide scaled-up financing of USD 200-300 billion per year by 2030. The WIM ExCom should set an objective to generate finance at this order of magnitude, beginning with at least USD 50bn per year by 2020.

When considering various options for a possible international financing mechanism for loss and damage finance, such a discussion must be informed by a set of principles which consider the provision of international finance for loss and damage not as ‘charity’ but as ‘climate justice’. Thus, a fund under the UNFCCC and serving the financial mechanism of both the UNFCCC and the Paris Agreement should be considered. While it is conceivable that the COP, following the joint recommendations of the WIM ExCom and the SCF, could decide the development of a new UNFCCC Loss and Damage Fund, the experience of the GCF, which took five years to its first funding decision, shows that the path forward for a new global climate fund is lengthy and complex.

The SCF could instead take the lead on elaborating the comparative advantages of existing UNFCCC climate funds, in particular the GEF and the GCF, and their potential to channel international loss and damage finance. Both have the capacity to receive dedicated loss and damage financing for example under a separate trust fund, clearly delineating inputs and disbursals on loss and damage from other climate finance disbursements. However, there are significant differences with respect to the financial instruments both funds use, the scale of project and programmes they can support, the type of financial inputs they can receive, their ability to finance agreed full costs, their engagement of the private sector, as well as their experience and capacity with direct access and enhanced direct access, which developing countries favor. The GCF for example has a mandate in its governing instrument to consider financial inputs from alternative sources, and the GCF Board could address the issue of alternative financing sources as a matter of priority, including in time for its first formal replenishment to start in 2018 when its current initial resource mobilization period ends.

This discussion paper, while not presenting the final word on a range of issues related to international loss and damage financing, has nevertheless outlined some concrete steps forward over the next two years. Further analysis and discussion is clearly needed, and we welcome future contributions and comments.

In order to make up for lost time, we propose that the WIM ExCom should treat finance as a priority for the coming two years, and, with the Standing Committee on Finance, work to ensure that by the time the Paris Agreement comes into effect in 2018 it is clear HOW finance for loss and damage will be provided and HOW MUCH finance will be available. With the objective of having finance flowing by 2020 at a level of USD 50bn per year, and a vision of scaling up to USD 200-300 billion per year by 2030.

In the end, while technical discussions and the development of criteria and methodologies matter, ultimately, this is a highly political and deeply moral issue. Important to this process will be, not only intensive work by the WIM ExCom, or the SCF, but also a growing understanding by politicians higher up the food chain, including political leadership. We need Ministers and Heads of State to engage in the solution to this funding gap. And to understand that we have choices. We can take strong mitigation action to minimize loss and damage, we can properly fund adaptation strategies, which will also minimize loss and damage from climate change. Or we can continue to delay and obfuscate – which will not only not reduce the cost of loss and damage, it will rather cause unimaginable suffering and guarantee a less stable, more poverty and inequality stricken, more unhappy, and less sustainable world.