Author: Zoha Shawoo Inès Bakhtaoui Aaron Maltais et al.

Designing a fair and feasible loss and damage finance mechanism

Source(s): Stockholm Environment Institute

Severe climate-related disasters have already disproportionately affected some of the world’s most vulnerable countries, which are typically some of the least-responsible for the catastrophes. This report highlights the stalemate of international loss and damage support and what can be done to shore up higher-income countries’ responsibilities – starting with COP26.

Key messages

  • Vulnerable countries and communities are already experiencing severe losses and damages from unavoidable climate change impacts, and they urgently need finance to support their recovery, protect human rights and development gains, and prepare for future displacement
    and livelihood losses.
  • Eight years after the Warsaw International Mechanism on Loss and Damage was established, efforts to mobilise finance for affected countries remain stalled, mainly due to disagreements over liability and compensation.
  • Breaking this stalemate is a priority for developing countries and may be critical to the perceived legitimacy of the climate negotiations. The immediate task is to find ways to advance loss and damage finance within the existing constraints, without closing off more equitable alternatives.
  • Drawing on our research, including stakeholder interviews, we propose mobilising loss and damage finance imminently on the basis of solidarity, accounting for local needs, historical responsibility and the “polluter pays” principle, and the well-established notion of “common but differentiated responsibilities and respective capabilities”.
  • At the Glasgow Climate Change Conference (COP26), countries can take a first step by pledging bilateral finance for loss and damage. The Executive Committee for the Warsaw Mechanism can also initiate a process to identify the most viable near-term options for channelling finance.
  • National-level loss and damage systems should be set up to thoroughly assess needs within countries, ensure that finance flows respect principles of country ownership, additionality and transparency, and ensure that finance reaches the most vulnerable communities.
  • Given the scale of global needs, a formal, dedicated loss and damage finance mechanism should remain the long-term goal. Including loss and damage as part of the post-2025 climate finance target under the Paris Agreement could be a first step towards this.

In the lead-up to the Glasgow Climate Change Conference (COP26), mobilising “loss and damage” finance for highly vulnerable countries has been widely cited as a top priority – especially for those already facing catastrophic and escalating climate change impacts.

Loss and damage (L&D) refers to impacts of climate change that cannot (or have not) been avoided through mitigation or adaptation. The world’s poorest and least-developed countries, which have contributed very little to global greenhouse gas emissions, face many of the worst impacts: from extreme weather events such as hurricanes, to slow-onset events such as sea-level rise that are gradually rendering places uninhabitable. These impacts not only threaten human rights, but also limit countries’ ability to pursue development goals such as poverty reduction, health and food and water security.

Recognising the urgency of the issue, this briefing paper examines how a fair and feasible financing mechanism for loss and damage could be developed. It identifies near-term actions – starting at COP26 – to mobilise L&D finance on the basis of solidarity, as well as paths forward towards a formal, dedicated L&D mechanism that is better suited to mobilising finance at scale in the longer term.

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