Who Pays for Loss and Damage?  Who Pays for the Climate Transition as a Whole?

There’s a lot going on these days, and it’s easy to miss the important reports. You should definitely not miss The Loss and Damage Finance Landscape, which was just published by the Loss and Damage Collaboration (LDC) and the US office of the Heinrich Böll Foundation. 

The report is pretty comprehensive, but my question is a narrow one – how much money is the Loss & Damage fund going to need, and where is it going to come from? The authors – several of whom, I confess, I know quite well – begin by attacking the first of these questions in an entirely straightforward manner . . .

“Major climate and weather events in developing countries in 2022 caused more than US$109 billion in losses. This does not take into account smaller events which may have been devastating for a local community, slow onset impacts, nor non-economic loss and damage. Therefore, it can be said that the real loss and damage faced by developing countries in 2022 was considerably greater than US$109 billion. Updating widely used modelling of loss and damage in developing countries to 2023 US dollars, gives midpoint estimates of economic loss and damage of US$425 billion in 2020 and US$671 billion in 2030. It is therefore clear that discussion of loss and damage finance should use US$400 billion per year as a floor and acknowledge that financing needs will have to be revised upward over time.”

This is fine opening move, though loss & damage isn’t the only thing we have to worry about.  There’s also mitigation, and adaptation, and the need for a comprehensive global just transition, and the challenge of financing a reasonably fair fossil fuel phaseout. Which is to say that even though the costs of the climate transition cannot be fully reckoned in dollar terms, dollars are going to be needed, and quite a lot of them.  Further, this is now so obvious that even mainstream realists don’t deny it, not if they intend to be taken seriously. Witness this recent and very public comment by the new UN Climate Change Executive Secretary Simon Stiell . . .

“We know the scale of what’s needed is significant. Global models from the most authoritative institutions all converge in the range of trillions annually. According to the work of the UNFCCC’s Standing Committee on Finance, developing countries need nearly 6 trillion dollars to implement their climate action plans by 2030, and that’s with significant gaps in costing adaptation needs.”

You would not have heard this from the UNFCCC Executive Secretary ten years ago, or even five.  But this, it seems, is a new day!  So who knows?  Maybe other truths – now no longer plausibly deniable – will also come to be publicly noted.  We may soon have high-level diplomats telling us that all the costs implied by a sufficiently rapid climate transition can’t actually  be counted as “investments” – which are generally expected to be profitable. Or that loss & damage costs can’t realistically be packaged as loans that highly vulnerable developing countries can reasonably be expected to “pay back”. 

With such honesty in the air, the old Who Pays? question is taking center stage. And the reason why The Loss and Damage Finance Landscape report is so refreshing is that it attempts to answer that question comprehensively. I won’t rehearse the details here, but do consider this beguiling little picture:

I recommend you read section 2 of the report, rather than this brief comment. But do note how much light is cast when the lens is opened this wide.  From the left, the bars represent taxes on the fossil fuel industry (which would be essential to force its phaseout even if there were no loss & damage need), an aviation levy (which should come in the form a frequent flyer tax), a global wealth tax (without which there’s no real hope for our civilization), an international shipping levy (to help us shift towards a new, sustainable kind of globalization), and, very importantly, a bar that represents fair share contributions from developed (aka wealthy) countries, scaled to close the loss & damage finance “gap”. 

This is an interesting and important approach, not least because it suggests that wealth taxes and the fair shares approach can be together fit into the larger climate transition finance challenge.  And because it shows that the great challenge of climate transition finance (beyond even loss & damage finance) is actually solvable, if taxes on the fossil corporates, and taxes on highly polluting activities, and wealth taxes, and fair shares payments from wealthy countries are all taken into account, and if we take care to ensure that, across the entire range, all finance sources are “new, fair and redistributive, predictable and publicly-controlled and follow the polluter-pays principle.”  

It’s especially notable that the fair shares approach – which is designed to ensure that wealthy countries act in proportion to their historical responsibility and capacity to pay – is here being used to close the gap between targeted approaches like windfall oil taxes and, on the other hand, the actual need.  Notably, this need is calculated in a bottom up manner that, to quote the authors,

“must be based on country ownership, driven by citizen and residents needs and views, and countries’ comprehensive needs assessments, which must be developed through participatory and democratic engagement processes that take into account the needs and priorities of all citizens, are pro-poor, inclusive, and based on the best available science.”

There are lots of questions here, about needs based approaches to climate finance and about the overall fairness of a climate finance strategy that casts such a wide net as this.  Which any real world financing regime will have to do, by means that embody not only principles but ad hoc judgments as well.  Which in turn means that good questions will be everywhere.  For example, might it not make sense to rely more heavily on the wealth tax?  Its total potential is here being estimated at being $1.7 trillion annually, but this relies on more than just objective measures of wealth stratification.[i]  It also embodies political judgments about the wise and appropriate scale of wealth taxation.  In a world where tropical droughts and superstorms have become routine horrors, are these assumptions the right ones? 

Debates are in order.  This report could make them more productive.    

[i] “A wealth tax of 2% on the world’s millionaires, 3% on those with wealth above $50m and 5% on the worlds billionaires would raise $1.7 trillion dollars annually. This would be enough to lift 2 billion people out of poverty; fill the funding gap for emergency UN humanitarian appeals; fund a global plan to end hunger; help fill the financing gap for the loss and damage caused to low- and lower-middle-income countries by climate breakdown; and deliver universal healthcare and social protection for all the citizens of low- and lower-middle-income countries (3.6 billion people).”