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It’s too late to just rely on insuring against losses from climate change - it’s time for polluter nations to pay up
When climate change impacts strike, they hit vulnerable populations and developing countries first and worst. These are the same populations that are least responsible for causing climate change, and yet most frequently lack the financial resources to prepare for and cope with the impacts, like storm surge, high winds, flooding, droughts and heat waves.
The impacts that cannot be avoided by reducing emissions or by adaptation efforts result in what we call “loss and damage” in climate change policy.
It took decades of pressure from vulnerable developing countries, but the United Nations Framework Convention on Climate Change (UNFCCC) finally established a body to address loss and damage in 2013 at COP 19.
It’s been five years since this body (the Warsaw International Mechanism, or the WIM) was established. And it’s been two years since the nearly 200 countries signed the Paris Agreement, which dedicated an entire article to loss and damage efforts.
So, are we putting our money where our mouth is?
According to our team of researchers and experts, not so much.
In our recent article in Climate Policy, we report that there has been little tangible progress toward establishing funding sources or finance streams for loss and damage programmes. Further, the approaches that the WIM Executive Committee has proposed appear to be grossly inadequate in terms of efficacy, reliability, and equity.
The WIM’s proposed options, each of which we review in turn, include:
1. Comprehensive risk management capacity with risk pooling and transfer;
2. Catastrophe risk insurance;
3. Contingency finance;
4. Climate-themed bonds and their certification; and
5. Catastrophe bonds.
The majority of the proposed loss and damage funding mechanisms are insurance-based. Encouragingly, there has been substantial progress in insurance mechanisms in recent years, such as the establishment of the InsuRelience Global Partnership last year at COP23.
But loss and damage is a massive problem, and while helpful, insurance efforts won’t solve it alone. Most insurance mechanisms are voluntary, market-based, and disaster relief-focused. Because contributions to support them are voluntary, funding may not be reliable over time. Because they’re market-based rather than “solidarity-based”, they may burden the most vulnerable countries, forcing them to pay out of pocket to clean up what are truly developed countries’ messes. And because they’re disaster-oriented, they don’t do a good job of addressing gradual impacts climate change, or slow-onset events.
In fact, none of these five mechanisms were devised to apply to slow-onset events, such as steadily rising seas or desertifying agricultural fields. And none of them apply to non-economic losses and damages, such as eroding cultural heritage, disappearing traditional livelihoods, or collapsing ecosystems.
The WIM workplan also includes a very broad sixth category: “financing approaches to making development climate resilient”. This category could include innovative financial mechanisms such as a financial transaction tax, an international airline passenger levy, a solidarity levy, a bunker fuels levy, a fossil fuel levy, or a global carbon pricing system. We discuss these innovative mechanisms - which we find much more promising - in a previous paper, blog post, and policy briefing.
International discussions, such as the UNFCCC’s scheduled review of the WIM in 2019, must consider establishing permanent, equitable and adequate financial mechanisms for loss and damage. Extraordinary global climate impacts demand extraordinary global responses.
We know losses from climate change are already happening. It’s too late to just rely on insuring against them - it’s time for polluter nations to pay up.
Jon Gewirtzman researches climate policy in Brown University’s Climate and Development Lab and ecosystem ecology at Boston University. Timmons Roberts is the Ittleson Professor of Environmental Studies and Sociology at the Institute at Brown for Environment and Society.
