Updated on 19 January 2024 by ThinkLandscape
The climate crisis is here, and its effects are already being felt. Human activity has warmed the planet by 1.1 degrees Celsius above pre-industrial levels, resulting in prolonged heatwaves, drought, rising sea levels and increasingly frequent and devastating storms, wildfires and floods.
Millions of people around the world are affected by these losses every day – particularly the poorest and those living in island nations, who stand to lose their homes if sea levels keep rising.
We are not acting quickly enough to slow or abate these disasters. In other words, some losses are now unavoidable, and they will most severely impact countries that have historically contributed the least to climate change.
In response, these poorer countries are increasingly calling on the wealthiest to help pay for the costs they’re incurring. At the COP27 climate summit in Sharm El Sheikh in 2022, negotiators struck a historic agreement to establish a Loss and Damage Fund to help fill these gaps in funding.
This was solidified in 2023, when the Loss and Damage Fund was agreed on the first day of COP28 in Dubai. However, there is still debate over how effective this agreement will be.
So, here’s all you need to know about climate “loss and damage,” including what it means, how it relates to climate justice, and what policymakers are doing about it.
The term ‘loss and damage’ generally refers to the inescapable consequences of climate change – those that surpass human capacity to adapt. These consequences can be economic, such as the destruction of infrastructure, property and markets, or non-economic, including loss of life, biodiversity, and cultural heritage sites.
For example, in 2022, extreme flooding in Pakistan caused an estimated USD 40 billion in economic losses, claimed 1,600 lives (non-economic) and destroyed over 2 million homes (both economic and non-economic). Scientists attributed the severity of the flooding to climate change, which increased the intensity of rainfall by an estimated 50 to 75 percent.
In policy terms, ‘loss and damage’ refers to the UN’s collective efforts to “avert, minimize and address loss and damage associated with climate change impacts, especially in developing countries that are particularly vulnerable to the adverse effects of climate change.”
The world’s richest 10 percent of people are responsible for nearly half of all global carbon emissions, according to Oxfam. Meanwhile, the poorer half of the world’s population contributes just 10 percent of emissions.
And yet, the countries facing the greatest climate-related loss and damage are poorer countries and island nations that lack the financial and technical resources to respond.
According to the Grantham Research Institute at the London School of Economics, loss and damage could cost developing countries between USD 290 billion and 580 billion by 2030, reaching USD 1–1.8 trillion by 2050.
These astronomical figures raise crucial – but controversial – questions about fairness, equity and responsibility.
For over three decades, leaders across the Global South have called on the United Nations Framework Convention on Climate Change (UNFCCC) to provide financial resources to address loss and damage. As early as 1991, the island nation of Vanuatu proposed an insurance scheme to help countries affected by sea level rise.
However, the proposal was rejected, and loss and damage did not appear in the UNFCCC framework convention of 1992. It wasn’t until COP27 in 2022 that a financial mechanism to address loss and damage was first announced.
One reason why rich countries have been cautious about addressing loss and damage is to avoid legal and financial liability for causing the climate crisis. If the agreements are not worded carefully, they could face a wave of litigation with no clear resolution.
When an article on loss and damage was added to the Paris Agreement in 2015, it included a clause that ruled out any admission of liability or compensation related to loss and damage, explained Preety Bhandari, a senior advisor at the World Resources Institute (WRI), on GLF Live. “Negotiation is a delicate game of give and take,” she noted.
All future discussions on loss and damage stem from a growing consensus on climate justice and solidarity, rather than from any legally binding agreement. This consensus is largely thanks to the persistence of certain countries, especially island nations, that have the most to lose from climate change.
Loss and damage is hard to quantify, especially when it comes to non-economic losses. A growing field of ‘attribution science’ seeks to link the latest scientific findings with economics to determine which losses are truly unavoidable (and therefore deserving of compensation).
However, many questions remain unanswered. Since COP27, a Transitional Committee has been tasked with establishing new funding mechanisms for loss and damage.
The Loss and Damage fund agreed at COP28 saw USD 700 million pledged from various countries including the United Arab Emirates (USD 100 million), Germany (USD 100 million), Italy (USD 108.9 million) and the U.S. (USD 17.5 million). However, these promises fall far short of the hundreds of billions in losses that climate-vulnerable countries are expected to rack up this decade alone.
The vast majority – 82 percent – of climate funding currently comes from governments. The rest comes from the private sector, according to the Organization for Economic Cooperation and Development (OECD). One of the reasons rich countries were willing to approve the Loss and Damage Fund at COP27 was that it took some of the financial burden off governments. The agreement stresses that funding should come from a variety of donors and innovative finance tools.
Some more controversial funding sources have also been proposed, including windfall taxes on fossil fuel companies, or diverting money from less urgent humanitarian aid to loss and damage relief.
Ultimately, addressing loss and damage will likely require a ‘mosaic of solutions‘ that bring together humanitarian aid, disaster risk management and more accessible insurance schemes for low-income families, according to WRI. Some funds could also be set aside to rebuild critical infrastructure and provide emergency cash when disaster strikes.
The agreement of the Loss and Damage Fund on day one of COP28 in Dubai came after a year of work by the Transitional Committee. This was set up following COP27, which was the first time that UNFCCC negotiators adopted an agreement on loss and damage with a funding mechanism.
Before COP27, the two-year Glasgow Dialogue had been established at COP26 in 2021 to discuss possible solutions for a Loss and Damage Fund. These discussions are still ongoing, but they have been criticized for acting as a “talk shop” with no real power to enact change.
Some governments also agreed at COP26 to fund the Santiago Network on Loss and Damage (SNLD), which offers technical support to developing nations who are experiencing loss and damage.
The specifics of the newly announced Loss and Damage Fund remain unclear, with countries releasing scant details about how, when or to whom the funding will be released.
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