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Study: 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 corals, 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 overburdened 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 financial sources to address loss and damage. It systematically 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.