Loss and damage mechanism

An opportunity and challenge for region

By Diane McFadzien, Espen Ronneberg and Ewan Cameron

February 2013

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Pacific Islands Countries have long been advocating for strong reductions in greenhouse gas emissions to avoid the impacts of climate change.

Fully realising that such actions may not happen at a sufficiently urgent rate, these countries began looking for options when a lack of “reductions ambition” would result in unavoidable losses to their territories and economies.

As early as 1991, Vanuatu presented a draft proposal to set up an insurance mechanism for the most vulnerable countries. This would be funded by all industrialised countries, but with additional penalties for those countries that did not meet their reduction targets.

The proposal was not adopted in full, but there are references in the United Nations Framework Convention on Climate Change (UNFCCC) to measures such as insurance.

Work in this area commenced when a work programme for action was agreed to at COP 16 in Cancun. After two years of intense negotiations on how to get all parties on the same page as to the scope of a mechanism, a decision was finally reached at the Conference of the Parties in Doha, Qatar in December 2012.

“Loss and Damage” is used in the UNFCCC to refer to a range of damage and permanent loss associated with certain climate change impacts.  These can include impacts from “extreme weather events” (i.e. tropical cyclones, flooding event) and “slow onset events” (i.e. sea level rise, ocean acidification).

Under the UNFCCC, the Pacific, through the Alliance of Small Islands States (AOSIS) has been advocating for the establishment of an International Programme that would address these negative impacts associated with “Loss and Damage”.

Going into the negotiations, the Pacific suggested specific elements that should be included in such a work programme:

  • An Insurance Component

This would be funded by developed countries and would provide insurance payments for climate related damage and loss of infrastructure, homes and crops, including the loss of income from tourism; all of which affects the economies of Pacific Islands Countries (PICs). Extremely important considerations such as the loss of lives, cultures and other non-economic impacts are yet to be included.

  • A Rehabilitation/Compensatory Component

This would provide financial assistance to PICs to deal with the unavoidable loss and damages imposed by climate change. Examples of unavoidable losses would include sea level rise that erodes coastal beaches used by families and the tourism sector. It also covers freshwater sources and food crops contaminated by saline water; ocean acidification and increased ocean temperature causing bleaching of coral reefs, which is also likely to force reef fish to migrate, impacting on fishermen being able to provide seafood for their families.

  • A Risk Management Component

This would inform and support both the insurance and the rehabilitation/compensation component by promoting ideas and suggestions to calculate and reduce risk where possible. An example of this is planning the best location and design for a building that could avoid or minimise damage from a tropical cyclone. As such, it would be very closely linked to various stages of the other two components, for example risk management measures could be a pre-requisite for eligibility to participate in the insurance mechanism. The risk management component could also provide an estimated cost of loss from climate change impacts that are unavoidable or outside the reach of being able to adapt or mitigate, such as ocean acidification and increased ocean temperatures which bleach coral reefs. An example of this could be the reef fish that fishermen used to catch for free in order to sustain their livelihoods are no longer available. This may thus force fishermen to travel in a boat further to a reef not yet bleached or fish outside of the reef in the ocean.

Needless to say there were many differing views on the scope and nature of a loss and damage work programme, in particular as to whether or not existing functions under the UNFCCC could undertake the work. PICs were united with AOSIS and the rest of the developing countries in insisting that the matter was of such high importance as to warrant a separate and in-depth consideration.

It was deemed important to the Pacific as it establishes an international fund that helps with the immediate issues at the time of natural disasters, which will become more extreme and frequent with climate change, for example cyclones, flooding and drought. It will also financially help PICs with the long-term slow onset events.

In addition, adaptation funding for responding to the impacts of climate change is currently limited, although we know that climate impacts are rising and adaptation costs will thus only get higher.

While the Pacific is certainly no stranger to climate related events, we are tending to see increased loss and damage from extreme events throughout the Pacific. Recent examples include the devastation caused by Cyclone Evan in Samoa and Fiji and the need for relocation of the people of the Carterets Islands in PNG due to inundation of the island by sea level rise. And while it is impossible to attribute any of these events to climate change, they are harbingers of the sorts of impacts that the region has been concerned about, and which will be difficult to adapt to.

It is important that we put in place a mechanism to ensure that Pacific economies are not over burdened by the increasing costs of adapting to the impacts of climate change. There is also limited insurance coverage in the region for climate related events.

Many Pacific islands no longer have any insurance coverage available for cyclones or other extreme events. Small economies with relatively high risk of extreme events are unattractive markets for private sector insurance companies. As climate change impacts rise and risks increase, it is going to be even more important that risk sharing mechanisms are put in place to assist Pacific economies affected by climate change.

In support of this negotiating position, the Pacific used numerous international reports, such as the World Bank report produced in 2011 as part of the Pacific Catastrophe Risk Assessment and Financing Initiative by the Secretariat of the Pacific Community.

This report provides alarming numbers for the Pacific islands. For example, the report assessed the cost of natural disasters on the Cook Islands and revealed that over the next 50 years, the Cook Islands have a 50% chance of experiencing a loss exceeding US$75 million and casualties in excess of 130 people. There is a 10% chance of experiencing a loss exceeding US$270 million and casualties in excess of 200 people.

Ana Tiraa of the Cook Islands delegation to the COP summed it up aptly: “As a small islands developing state, the Cook Islands is facing a big problem in loss and damage. We know this. The latest science shows us that climate change impacts are escalating in an accelerated manner.”

“The recent SREX report (IPCC Special Report on Risks of Extreme Events) makes it clear that sea level rise will contribute to increased extreme coastal high water levels, coupled with the likely increase in tropical cyclone maximum wind speed.”

A major issue of the negotiations was how to deal with climate-related loss and damage that cannot be addressed through adaptation measures—situations where adaptation is either physically or economically impossible, such as weather extremes and slow onset events, including sea level rise and increasing temperatures.

Positions of developed and developing countries differed substantially and the question of whether an international mechanism for addressing loss and damage should be installed proved particularly controversial.

As the controversy could not be resolved by the subsidiary bodies, the issue was forwarded to the ministerial level and became the single key issue of the final marathon all-night session. In the end, a compromise was found with the agreement to establish “institutional arrangements, such as an international mechanism” at COP19 in Warsaw, a compromise formula tabled by the Qatar COP President as part of the entire final package of decisions. This effectively takes the discussion to a different level, to actually making a decision on how to deal with these issues.

The final text does not mention the term “compensation” that was included in a previous text version and which many developing countries, in particular African countries, Least Developed Countries (LDCs) and AOSIS countries, wanted to see reflected in the final decision.

However, others had strongly opposed any terms that could imply legal liability, therefore reference is only made to rehabilitation from climate-related loss and damage.

The question on where the issue of loss and damage should be discussed beyond Doha was also not free of controversy. While developing countries favoured a continuation and expansion of the work programme, some developed countries preferred the issue to be treated under existing technical fora.

The final decision stresses the importance of continuation and requests the Subsidiary Body on Implementation to elaborate activities to further the understanding of and expertise on loss and damage.

The COP decision further requests the UNFCCC secretariat to carry out three interim activities under the work programme on loss and damage prior to its next session, namely an expert meeting (with strong interest from Kiribati to host this meeting) to consider future needs associated with possible approaches to address slow onset events, a technical paper on non-economic losses and a technical paper on gaps in existing institutional arrangements within and outside the UNFCCC.

The latter technical paper will be utilised when developing the functions and modalities of the institutional arrangements.

With the inclusion of loss and damage in the Doha Climate Gateway, developing countries achieved historic recognition of the drastic consequences they are already experiencing due to climate change.

However, key questions regarding the institutional arrangements and the potential establishment of a mechanism remain unanswered and will have to be discussed together with open questions on the sources of funds and how they would be disbursed.

There is therefore clearly much more work to be done, and SPREP stands ready to provide technical support and advice to the Pacific Islands Countries in this endeavour.

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