The Next Big Thing: Loss and Damage Finance

The 2016 UNEP Adaptation Finance Gap Report predicts that, by 2030, adaptation costs will be 3 times greater than current predictions, reaching US$140-300 billion annually, with the potential to be 5 times greater by 2050. Yet, adaptation finance delivered to developing countries in 2014 was a mere $22.5 billion, including the full face value of loans made at market rates. Even with a very generous calculation, current adaptation finance provides only 10% of the amount needed. The specifics of a finance roadmap must be agreed in Marrakech.

This is only one part of the picture. Numbers from the UNEP report are only for adaptation finance—not loss and damage. As specified in the Paris Agreement, loss and damage is a separate matter. Financing must go above and beyond that provided for adaptation. Loss and damage would cost twice as much as adaptation. Costs for all developing countries in a 2ºC warmer world cost an estimated $400 billion per year by 2030, reaching over a trillion dollars per year by 2050.

The most vulnerable countries need at least $50 billion each year now to deal with loss and damage. This amount climbs every year. This month’s Forum of the Standing Committee on Finance, focusing on loss and damage finance, must acknowledge the scale of the problem and put in place plans—call them financial instruments if you will—to generate the scale of finance needed and to identify its sources. While insurance/risk transfer is required as one of the instruments, it is not a panacea to address all impacts, particularly those due to slow onset events.

In particular, innovative sources of finance—additional to existing aid and adaptation commitments—must be mobilised for addressing loss and damage. These innovative sources can also have side benefits. For instance, putting in place a carbon levy on fossil fuels could easily mobilise $50 billion per year, and would help ensure that the industry most responsible for climate damage is the one paying for it. Without such finance to address the costs of loss and damage, it is the impoverished and most vulnerable who will continue to pay the true costs of climate change.