Loss and Damage (L&D) encompasses both sudden and slow onset events and is an incredibly important issue to developing countries at COP23. Although the economic costs of slow onset events have yet to materialize, sudden onset events have proved deadly and costly for developing countries. It is estimated that hurricanes wipe out 1% of the Caribbean’s GDP each year. From Hurricanes Irma and Maria in 2017, the devastation has been so extensive on islands such as Barbuda and Dominica that many people cannot return or have lost their homes. This displacement adds to countries’ L&D from climate change.
Financing for L&D has overshadowed COP23’s discussions around the slow but steady work of the Warsaw International Mechanism on Loss & Damage (WIM) Executive Committee. According to Julie-Anne Richards with the Climate Justice Program, the WIM has a “clear mandate” to enhance Action and Support for loss and damage but as yet, the WIM has largely focused on financial instruments, like insurance, rather than finance mobilization. Richards posits that while insurance mechanisms for sudden onset events may assist developing countries in addressing L&D, insurance mechanisms simply cannot address slow onset events (SOEs).
David Simmons of Willis Towers Watson risk management company explains that the insurance industry currently focuses on short-term risk – the only type of insurance that deals with long-term, inevitable risk is life insurance. However, for this reason, Simmons argues that insurance could be reconfigured to address SOEs. Julie-Anne Richards, on the other hand, argues that other instruments such as funds or levies are more appropriate ways to finance SOEs. An example of a fund working on an SOE is the Land Degradation Neutrality Fund, which pools capital from the public and private sector to finance projects that both prevent land degradation and support revitalization of degraded land. The UN Convention on Combating Desertification estimates that 12 million hectares of land are degraded each year, which is around a third of Germany’s land area. This adds to the bank of 2 billion hectares of already degraded land, which is around the size of the South American continent. Desertification, soil degradation, and the loss of ecosystem services that comes from degraded land are all considered slow onset L&D.
Julie-Anne Richards and the Climate Justice Program are currently working on a new form of finance for L&D – the “Carbon Levy Project.” A tax would be placed on the extraction of fossil fuels, which would then be distributed based on the level of development of the country. If the fossil fuel is extracted by a developing country, the money from the tax would be kept for use domestically. However, if the tax is collected from a developed country, a large percentage of the funds would be placed into a global L&D Fund managed by the WIM.
There is general agreement that L&D needs to be addressed and that this will take money. However, there is divergence on how to finance L&D. From insurance mechanisms and global funds to more innovative approaches, there is momentum behind this issue.