Climate Finance for Addressing Loss and Damage How to Mobilize Support for Developing: Countries to Tackle Loss and Damage


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The planet is burning. Devastating droughts, hurricanes, wildfires and floods, dying corrals, melting glaciers, and thawing of permafrost provide overwhelming evidence that dangerous climate change is happening ‒ and it is hitting faster and harder than ever predicted by scientific researchers. 2019 is likely to become another year of
record-high climate-induced loss and damage, making it hard to adapt and leaving more than one hundred poor and vulnerable countries and hundreds of millions of people largely unprotected against disastrous consequences. Pope Francis has declared a state of climate emergency. Swedish schoolgirl Greta Thunberg told heads of state that the young generation would never
forgive their continuous inaction. Philip Alston, the
UN Special Rapporteur on extreme poverty and human rights, has raised the question as to whether the world has set a course towards “climate apartheid”. Still, these warnings did not resonate at the UN Climate Action Summit held in September 2019 or result in clear commitments by major polluters to decarbonize by 2050 and to halve emissions by 2030. Meeting this civilizational challenge still means keeping below the benchmark figure of 1.5 degrees Celsius, and thus limiting climate-induced loss and damage effectively. As long as this fails to happen, climate vulnerable countries and their populations have every right to call for climate-induced loss and damage to be redressed as an additional core issue of
climate justice and global stability.

It is shown that higher capital costs caused by climate vulnerability, increasing stranded assets due to high climate risk exposure, and higher economic inequality among nations resulting from climate change are not only future risks, but experiences we have seen both past and present. Loss estimations totaling several hundred billion USD per year clearly underline the fact that climate poor and vulnerable countries are facing a huge
protection gap that is going to grow further due to reasons beyond their control as low-emitting countries. They also show that if left alone by the international community, these countries will be financially over- burdened by the task of tackling current and future
climate-induced loss and damage. If the international community does not provide support, climate vulnerable developing countries are very likely to face constantly
increasing economic loss, making it almost impossible for them to meet the Sustainable Development Goals (SDGs) and, at worst, increasing the risk of these nations ending up as failed states.

Based on various cost estimations made in this
report, Bread for the World considers the financial scale of adequate international assistance required to minimize and redress loss and damage to be at least USD 50 billion in 2022, rising to at least USD 300 billion in 2030. Assessing the impact a lack of real political progress in international climate negotiations is having on financial
redress mechanisms to tackle loss and damage, and the significant weaknesses of the technical paper published by the UNFCCC in 2019 on sources and modalities for accessing financial support to address loss and damage, the report argues that the driving force for resolving the financial protection gap cannot come from inside the UNFCCC process alone; the barriers must be broken down from the outside by infusing more visionary ideas, testing and implementing them, and by building new
alliances between state and non-state actors.

The report introduces the climate justice criteria of mutuality, solidarity, accountability, and the transversal principle of transparency of finance for assessing fi- nancial sources to address loss and damage. It systema- tically reveals the distinct roles of these criteria, and the underlying pro-poor principles as well as humanitarian, human rights, gender equality, and polluter pays principles, in finding adequate solutions.

This leads to the justice-based analysis of possible
financial sources, including, inter alia, an international airline passenger levy, a bunker fuel levy, a financial transaction tax, a climate damages tax, carbon levies, and other innovative sources, including voluntary contributions. The report shows that the options for new and innovative sources go far beyond the status quo
presented in the technical paper by the UNFCCC secretariat, and that the estimated total revenues from these sources, or only some of them, would be sufficient to
cover climate-induced loss and damage. However, all the options are also beset with different limitations and, most importantly, sufficient political support is still
lacking. Thus, the investment of political capital is
needed to capitalize on one or more of these sources. To start with, the mobilization of voluntary contributions seems to be the lowest hanging fruit. Certainly, it would be most preferable to employ the polluter pays principle with regard to sources, hence referring to the accountability principle. This, however, might be more difficult
to achieve than the solidarity or mutuality principles, at least in the short term.

In a next step, options for funding mechanisms to address climate-induced loss and damage are discussed, i.e. existing mechanisms, for instance the Green Climate Fund (GCF) or regional risk transfer facilities, followed by the modification of existing mechanisms in order to enhance coverage of loss and damage. The report then explores the establishment of completely new funding mechanisms, for instance a Global Loss and Damage Fund as part of the new financial architecture of the
PA, or a Global Solidarity Fund to address loss and
damage as a voluntary multi-donor fund outside the
PA, following the example of the Global Fund.

The report concludes with a number of recommen- dations:

• Address information gaps regarding the financial
dimension of loss and damage.

• Provide international financial support to address loss and damage in developing countries amounting to USD 50 billion annually as of 2022, rising to USD 300 billion or more by the 2030s if global warming
exceeds 1.5°C permanently.

• Establish a financial tracking system so that it will be possible to present an accurate picture of the
means of financial support provided.

• Pushing for finance to address loss and damage not only from inside but also from outside the climate
regime. As a first step, the UN Secretary-General should appoint a High-Level Panel to write a report on innovative finance sources to address loss and
damage, following a similar approach to the one
taken with regard to the future financing of humanitarian work.

• Regional risk pools and risk insurance, based on mutuality, should widen their approach by introducing elements of solidarity. Risk financing and risk in- surance must become more affordable for poor and
climate vulnerable countries and populations by
providing financial support to lower risk financing costs and by covering insurance premium costs for those who cannot afford them.

• The set of pro-poor principles, as discussed in this
report, should be adopted by all mechanisms that contribute to financially addressing loss and damage. They empower stakeholders to understand the legitimate justice concerns of vulnerable populations and help to better address them.

• A human rights-based approach should be adopted by all mechanisms that contribute to financially addressing loss and damage. It sharpens the perception of legal state obligations relating to redressing loss and damage that threatens or violates the human rights of the climate vulnerable. Particularly the transversal human rights principles of participation, empowerment, non-discrimination, transparency, and accountability are of great importance to identify, include, and prioritize the most vulnerable
people adequately with regard to redress measures. It is strongly recommended that this issue be put on the Warsaw International Mechanism (WIM) agenda.

• A broad discussion on possible sources and agendasetting needs to be initiated. In the short term, the mobilization of voluntary contributions, similar to the approach taken by the Global Fund, seems to be the lowest hanging fruit, while in the long term,
finance to address loss and damage would ideally be raised, managed, and spent under one obligatory
international scheme. Thus, a twin-track approach is being proposed where the development of one international sourcing mechanism is combined with
approaches that look at sources already in existence, including at national levels, and which can be accessed and partly used more easily, with the potential to be scaled up later.

• From a climate justice perspective, revenues generated by carbon pricing are well aligned with the accountability principle, providing the opportunity to redress loss and damage and to apply compensatory justice. A general carbon levy or tax (initially introduced at the national level), an airline passenger levy, and shipping levies are potential sources that should be promoted and further explored. Phasing out fossil fuel subsidies and using part of the savings to redress loss and damage is another potential source, leading to compensatory justice.

• It is highly recommended not to promote only one funding mechanism, for instance a Global Loss and Damage Fund, but to advocate for multiple mechanisms that can be introduced in parallel and comprehensively complement each other. This would
be a similar approach to the one that has been followed and implemented with regard to mitigation
and adaptation.

• InsuResilience Global Partnership, GCF, AF, and specialized funds from the MDBs should put more effort into financially addressing loss and damage based on grants and concessional loans.

• MDBs, as well as national development banks, should set up loss and damage trust funds, providing support to make climate risk insurance and risk
financing affordable, or to focus on climate-induced loss and damage caused by slow onset events.

• A Global Solidarity Fund to address loss and damage should be established as a voluntary multi-donor fund outside the UNFCCC and the Paris Agreement (PA), following the example of the Global Fund to Fight AIDS, Tuberculosis, and Malaria. This fund could put a particular focus on addressing the financial needs of climate-induced resettlement and of
rehabilitation in the aftermath of extreme climate events that cause loss and damage.

  • Publisher: Bread for the World
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