As climate change-driven storms, floods and other disasters bring escalating financial losses, how will the costs be paid? That’s a crucial question at the United Nations climate talks in Bonn this week.
Researchers say losses from droughts, sea level rise and other climate-driven shocks are likely to reach hundreds of billions of dollars a year by 2030 if planet-warming emissions continue unabated.
Just the cost to the United States to repair the damage caused by this year’s hurricanes Harvey, Irma and Maria – in Texas, Florida, Puerto Rico and the US Virgin Islands – is estimated to be tens of billions of dollars.
Attempts to curb planet-warming emissions are falling short and too little progress has been made in helping communities and countries adapt to the changes. That means “loss and damage is a reality now,” said Saleemul Huq, director of the International Center for Climate Change and Development in Bangladesh.
The question of who might pay the mounting costs of disasters is a controversial one at the talks.
Developed countries – as the biggest emitters of greenhouse gas emissions – have been reluctant to discuss the costs, fearing they could be held liable.
“There are currently no funds set up for loss and damage – that’s the main challenge, and what we want to see happening,” said Harjeet Singh, global lead on climate change for ActionAid International.
Plans for addressing loss and damage within the UN process are enshrined in the Warsaw International Mechanism for Loss and Damage, established in 2013.
The mechanism was created in the face of opposition from the United States and some other industrialized countries that worried it could be used to make them pay for the costs of climate damage.
Four years on, though, the fledgling mechanism has received little finance or resources. Its experts are due to produce a technical paper on possible sources of finance by 2019, which suggests “nothing much is going to happen for the next two years,” said Singh. “We have no clarity on where money is going to come from.”
Developing countries looking for ways to address rising losses, however, say it’s time to make the process begin to work.
Fiji’s ambassador for climate change, Nazhat Shameem Khan, told Reuters: “Having been negotiated with so much difficulty, it’s important that we […] should try to make [the Warsaw International Mechanism] work effectively.”
Developed countries have looked at insurance as one way to cut the risks of extreme weather for poorer countries and distribute recovery funds quickly in the aftermath of a disaster.
Ingrid-Gabriela Hoven, director general with responsibility for global issues in Germany’s Federal Ministry for Economic Cooperation and Development, said climate risk insurance schemes have the advantage of offering fast payouts which can give communities some protection.
“Insurance doesn’t cover all the damage made, but it gives the country a cushion until the whole reconstruction effort can start,” she said on the sidelines of the talks.
“The payout is relatively quick, and not dependent on donors,” she said.
But insurance is no magic bullet, aid agencies say. The poorest who need it most cannot afford to pay for premiums unless they are subsidized, and insurance cannot cover the loss of something – such as a family photograph or cultural tradition – that has no economic value attached to it.
It also cannot deal with a so-called “slow onset” disaster, such as one caused by years of drought, said Timmons Roberts, who is researching ways to finance loss and damage in his work as a professor in the Climate and Development Lab in Brown University.
A range of other innovative ideas also are being explored to pay for climate-related losses, including taxes on fossil fuel companies, airlines and shipping companies. Other options include a global carbon tax, and a tax on financial transactions.
“My speculation is that loss and damage will gain some traction when lawsuits really start to threaten corporations and countries,” Roberts said.
With some 1,200 climate change laws now in place globally, the number of court cases are on the increase – with at least 10 new cases filed every year since 2015, according to the London-based Grantham Institute on Climate Change and the Environment.
“The threat of a lawsuit you think would lead nations to negotiate some kind of arrangement in exchange for protection against lawsuits,” Roberts said.