Loss & Damage in the UN Climate Regime: A Way to Bridge the Ambition Gap?

Loss & damage has only recently been accepted as a formal agenda item in the climate negotiations.  It is now expected to be part of the post 2020 UN Climate Regime to be negotiated by 2015. After years of pressure from a growing number of developing countries,[1] the question of what is to be done about the climate impacts that are not avoided through mitigation and adaptation efforts is thereby, for the first time, squarely before negotiators. This does not necessarily mean that the issue of liability for loss & damage will be resolved in the negotiations, but it means that Parties have agreed to start discussing what should be done about impacts that are not avoided through mitigation and adaptation.[2] This issue, of course, has grown in significance as it has become increasingly likely that global mitigation efforts will be insufficient, and that adaptation efforts will not be capable of preventing serious loss & damage in many parts of the world.[3]

State of the Negotiations

Loss & damage has been formally part of the UN climate negotiations under the UN Convention on Climate Change (UNFCCC) since 2010.[4] At the Cancun session, the Conference of the Parties (COP) agreed to establish a work program on loss & damage under the guidance of the Subsidiary Body for Implementation (SBI), and to invite Parties to submit their views on what should be included in the work program. Since then, loss & damage has remained on the agendas of both the SBI and the COP. The SBI has focused its work on defining and implementing the work program. The focus of the work program to date has been on understanding loss & damage and on building capacity to deal with both extreme weather events and slow onset events. More specifically, the SBI identified three areas of focus for the work program:

(a) Assessing the risk of loss and damage associated with the adverse effects of climate change and the current knowledge on the same;
(b) A range of approaches to address loss and damage associated with the adverse effects of climate change, including impacts related to extreme weather events and slow onset events, taking into consideration experience at all levels;
(c) The role of the Convention in enhancing the implementation of approaches to address loss and damage associated with the adverse effects of climate change. (FCCC/SBI/2011/7, at Par 109)

These themes were formally endorsed by the COP in Durban (FCCC/CP/2011/9/Add.2, at page 5-7). In addition, the COP directed the SBI and the UNFCCC secretariat to continue their work, including through consultations with Parties, the convening of expert meetings, and the development of technical papers.[5] Since then, the COP has broadened its focus from supporting and overseeing the implementation of the work program to also identifying the need for new institutional arrangements for loss & damage. In doing so, the COP in Doha established loss & damage as a negotiating issue for the ongoing negotiations toward a new climate change regime under the UNFCCC.[6] The bottom line appears to be that the door is now open on loss & damage, but that the discussions are still some distance from taking a serious look at the issue of liability for unmitigated climate change.[7]

Liability for Loss & Damage and Ambition

In “Framing Future Commitments” a report released by the Oxford Institute for Energy Studies at the climate change negotiations in Bonn, Germany in 2003, Benito Mueller and others sought to identify the key challenges facing the climate change negotiations at the time and to propose strategies for overcoming them.[8] The focus of the report is on what Meuller calls the twin taboos of the climate change negotiations, the reluctance by developed States to discuss liability, and the resistance by developing States to discuss their role in the overall effort to mitigate climate change.

Mueller relates these taboos to key concerns of the two sides. For developing States, the key concern is with respect to impacts and adaptation. For developed States it is that mitigation needs to take place globally for climate change to be slowed effectively. Taking this assessment of the global political situation at the time as his point of departure, Mueller advocates for a step-by-step effort to break both taboos, with the ultimate goal of openly negotiating both, mitigation efforts in developing countries and liability for unmitigated impacts.

What is particularly interesting about this report 10 years later is that the taboo of mitigation obligations in developing countries clearly has been lifted. The taboo of liability for unmitigated impacts is showing signs of being lifted, but progress has been much slower. The loss & damage agenda item in the current negotiations may provide an avenue to remedy this asymmetry and in the process provide the much needed motivation for all Parties to take mitigation and adaptation efforts more seriously, and to commit to efforts in line with the scale of the challenge ahead.

In the end, if the ultimate liability for loss & damage can be resolved, it will serve to recast “no regrets” actions to bring “no regrets” at the individual Party level in line with “no regrets” at a global level.[9] Currently, based on the Stern report and the IPCC among others, it seems clear that globally, the cheapest and most sensible response to climate change would be to maximize mitigation efforts, as they are considerably cheaper and lower risk than unmitigated climate change.[10] Individual Parties, however, have generally not factored liability for impacts into cost benefit assessments of mitigation efforts, and certainly not liability for impacts outside their own jurisdiction. The assumption underlying the current climate regime is that the way past this barrier to adequate mitigation efforts is to link mitigation of individual countries to a coordinated global mitigation effort.

In other words, the current approach is based on the assumption that individual Parties will accept a fair share of the mitigation obligation as long as they know other Parties will do their share.[11] Liability for unmitigated climate change offers an alternative. If Parties ultimate liability for unmitigated impacts can be clarified and linked to emissions in some form, this could provide the needed motivation for Parties to maximize their own mitigation efforts, rather. If the liability regime permits a Party to reduced its liability by assisting a developing country to reduce its emissions, such a regime can also create the necessary incentives for finance, technology transfer, and capacity building in developing countries. Adaptation help for the most vulnerable countries could similarly be incentivised through credit against liability for loss and damage.

If liability is in fact as an effective way to address the current ambition challenge, a logical next step would be to utilize to the concept of loss & damage as the basis for determining the appropriate level of ambition for mitigation and adaptation, including finance, technology, and capacity building. This could be achieved through the establishment of a loss & damage mechanism to clarify each Party’s responsibility for unmitigated impacts, and to give credit for appropriate mitigation and adaptation actions toward this ultimate liability for unmitigated impacts, on the basis and to the extent that these efforts will reduced this liability.

In the context of the ultimate liability for loss & damage, if the regime could clarify when and how actions in the areas of mitigation, adaptation, finance, technology transfer, and capacity building will reduce a Party’s ultimate liability for loss & damage, such actions could be motivated through such a liability mechanism. Approved actions could reduce liability in two basic ways. Effective efforts in all these areas would, of course, reduce the overall liability (in essence by reducing the cost of future loss and damage through mitigation and adaptation). More importantly, in terms of motivating individual Parties to act, approved actions would have to reduce a Party’s share of the overall liability (either by giving credit for appropriate actions, or more directly through the formula for allocating the share of liability to individual Parties).

Given that the reduction in overall liability is subject to the tragedy of the commons in a way that is similar to the current lack of motivation to mitigate, the motivation to take action has to be linked to reduction in individual liability in order to be effective.[12] It is this basic concept of liability and credit centered on the liability for loss & damage that is explored in the following section.

Integrating Loss & Damage into the Climate Regime

The basic concept would be for the future global climate regime to consider liability for loss & damage as a complement or alternative to the current approach of Party-by-Party emission reduction targets as the primary driver for action. Action that could be motivated through loss & damage liability could range from mitigation, adaptation, finance and technology transfer to capacity building.

It should be noted at the outset that while loss & damage has the potential to create the necessary motivation to ensure that global mitigation and adaptation efforts are adequate, many of the other challenges, such as the equitable distribution of the burdens and benefits of action, and institutional challenges, remain. The concept of liability for loss & damage is therefore offered as a way to address the ambition gap, not as a silver bullet for the range of challenges facing the climate negotiations.

Liability for loss & damage could be allocated based on agreed to principles of equity resulting in an allocation formula. Much work has been done on principles of equity, and these principles are currently the subject of intense discussions in the UN climate negotiations. Allocation based on historical emissions, current emissions and capacity to support emission reductions have all been proposed as equity principles for allocation of responsibility under the UN climate regime. Views on the appropriate mix of equity principles still vary, but capacity and historical responsibility have featured centrally in the discussions for a long time.[13]

A compromise would still have to be found to resolve the outstanding differences on the issue of equity, such as allocation based on some combination of current emissions, historical responsibility from a base year linked to adequate awareness of the problem (such as 1990, the year of the first IPCC report), and some mutually acceptable capacity measure (such as GDP or the HDI). From a practical point of view, it is important to note that the more actual emissions are built into the allocation, the easier it is to motivate domestic mitigation efforts. The motivation would essentially be that a Party could reduce its share of the overall liability for climate change by reducing its emissions.

The resulting share of liability, however allocated, could be turned into annual contributions to a loss & damage fund based on the estimated financial need for loss & damage assuming no mitigation efforts beyond business as usual at the time. Transformative mitigation and adaptation could then be financed through the loss & damage contribution, on the basis and to the extent that the efforts actually reduce the long-term liability for loss & damage compared to business as usual. Alternatively, such transformative efforts could be supported directly by Parties, and credit could be given toward the annual contribution to the liability fund in a manner similar to the current CDM mechanism or the evolving Nationally Appropriate Mitigation Actions (NAMA) mechanism.[14] If the allocation of liability can sufficiently linked to a Party’s own emissions in a manner that is considered equitable, domestic mitigation efforts would not have to be credited, as the control of cumulative domestic emissions would already be a sufficient motivator to reduce domestic emissions.[15] If the link to a Party’s own emissions in the allocation is insufficient in the allocation formula, domestic mitigation efforts would still have to be either funded through the loss & damage fund or, more likely, credited against the liability allocation.

The primary assumption underlying this approach is that it is more expensive to pay for loss & damage than to mitigate and adapt. If this is in fact the case and is generally accepted, and it is possible to reasonably estimate the cost of loss & damage and agree on allocation, it should be possible to use a liability mechanism as described here to create adequate motivation to mitigate and adapt. They key would be to agree on a reasonably initial estimate of the global cost of loss & damage, and to allocate initial shares of liability on an equitable basis. The ability to estimate the cost of loss & damage of unmitigated climate change may still be fairly limited today, but as long as the initial estimate is in the right order of magnitude and turns out to be significantly higher than the cost of mitigation and adaptation, a conclusion that has already been reached by Stern and others, sufficient motivation for mitigation and adaptation could be generated.[16]

It is important to keep in mind that it is not necessary to get the numbers right from the start, as they can and need to be adjusted over time. Initially, Parties would just have to agree on an appropriate order of magnitude of the cost of loss & damage from unmitigated climate change based on business as usual projections for future loss & damage associated with climate change and a reasonable estimate of its monetary value. The loss & damage liability estimates would be reduced over time as a result of cumulative efforts to mitigate and adapt, and they could be refined as the global community gains experience with the actual cost of loss & damage resulting from unmitigated climate change. These periodic refinements would ensure that the liability allocated on an annual basis is in line with what is needed to cover loss & damage over the long term.

Another issue briefly introduced above is the selection of mitigation and adaptation actions that would be eligible for funding or credit under a loss and damage liability mechanism. One approach would be to collect the annual contributions for loss and damage liability and then establish a funding mechanism to decide what mitigation, adaptation, technology transfer, or capacity building efforts should be supported. Under this approach, the key will be to establish a credible and effective institution and to agree on clear rules to ensure the funds are used effectively for mitigation and adapation actions that will actually reduce the long-term liability for climate loss and damage. The debates over the establishment of various funding mechanisms under the UN climate regime serve to illustrate the challenges associated with this approach.[17]

The alternative would be to encourage Parties to earn credits to avoid having to make financial contributions, and to only manage the residual contributions. Under this approach, the key issue will be the eligibility of initiatives, a debate similar to the one that took place with respect to the CDM mechanism in the lead up to the entry into force of the Kyoto Protocol, and that is currently taking place with respect to NAMA’s. Under either approach, a key consideration will be whether funding or credit is allocated based on the effort made, or based on the results achieved in terms of reducing the long term loss & damage liability.[18]

One approach would be to grant credit only for transformative mitigation, such as the phase-out of fossil fuel consumption or production, a shift from private to public and active transportation, a shift away from consumption based economies, or a shift to economies based on closed loop systems of production that are fully integrated with natural systems. Such a focused approach to approving appropriate actions would reduce the risk of funding efforts that do not contribute to long-term mitigation or adaptation, do not contribute to sustainability or otherwise carry with them unacceptable collateral impacts, risks, or uncertainties. Such an approach works best if individual Parties are already motivated to mitigate domestically through the formula that allocates the share of liability for each Party.

An alternative would be to credit or fund a broader range of mitigation or adaptation efforts, and seek to include appropriate safeguards to ensure funded efforts makes an appropriate contribution to the goal of minimizing the liability for long-term loss & damage while making a net contribution to sustainability. Whether this broader approach is necessary or appropriate will depend in part on whether the allocation formula offers sufficient motivation for domestic action, or whether the allocation of credit or funding is needed to encourage Parties to implement a broad range of domestic measures to reduce emissions within their own jurisdictions. If domestic emission reductions sufficiently reduce a Party’s share of liability through the allocation formula, the credit mechanism could focus on transformative efforts in developing countries and avoid the challenges facing the CDM of creating an administrative bottleneck in an effort to ensure that only good projects get approved.[19]

Adaptation efforts would need to be considered separate from mitigation. Adaptation measures would be difficult to motivate through the allocation formula. This would leave the credit mechanism as the most obvious way to motivate adaptation efforts. It is important to note that for countries that have the capacity and responsibility to look after their own adaptation needs, the international regime does not have to create the motivation for action. A key would be to find an effective formula to separate those who would be responsible for their own adaptation efforts from those who would be entitled to support. A focus on transformative adaptation measures that are likely to reduce long-term vulnerability would seem advisable, on the basis that such mitigation efforts would reduce the need for loss & damage funding in the future.

Funding could be made available to assist with the development and fair and rapid dissemination of transformative mitigation and adaptation technologies, such as key renewable energies, efficiency technologies, active and public transportation technologies, and passive building technologies.

One final consideration. It would be important to agree up front on the allocation of any funds in the liability fund that are not needed as a result of cost effective mitigation and adaptation. Experience with other large scale environmental challenges, such as air pollution contributing to acid rain and ozone layer depletion has shown that once serious efforts are made to address the problem, the cost of mitigation can be much lower than originally anticipated.[20] It is therefore conceivable that funds collected through a liability fund would exceed those needed to deal with the ultimate liability for loss and damage of unmitigated impacts. This is particularly important given the view that mitigation is the least cost option for dealing with climate change. In order to ensure that this does not create a perverse incentive to stop mitigation, it would be important to agree to an equitable basis to disburse any surplus funding.

Conclusion

The approach explored in this piece is far from a silver bullet for the climate negotiations.  It is difficult to see some key developed nations accepting liability for loss & damage through a negotiated process, even though agreement on liability now would likely serve even Nations with the highest risk of future liability. More importantly, a regime designed around liability for loss and damage still needs to resolve many of the same issues that negotiators are struggling with in the current negotiations. What an allocation of liability for loss & damage would do, however, is to motivate effective and adequate global action on mitigation and adaptation, rather than continue the pattern of making future generations pay for the lack of ambition today.

The key difference between the approach considered here and a simple funding mechanism is the motivation to mitigate. A loss & damage liability mechanism as explored here should, over time, resolve the debate over how much effort should be put into mitigation, as it should clarify what level of mitigation is cost effective compared to the cost of loss & damage for unmitigated climate change.

Assuming the Stern Report was correct in its conclusion that mitigation is cheaper than paying for adaptation and loss & damage, and the reason for inadequate mitigation continues to be that Parties do not include the liability for loss & damage into their decision-making on mitigation, a loss & damage liability mechanism has the potential to offer a path toward adequacy. The more the cost of inaction can be quantified over time, and the associated liability distributed among Parties, the better chance the global community has of motivating individual Parties to avoid that cost by mitigating.   Whether loss & damage will start to play this role in the UN climate regime remains to be seen.