How will the Global South pay for climate change damage?

Using market mechanisms will just push the burden onto those least responsible, say Harpreet Kaur Paul and Harjeet Singh.

Lucila Cabrera, 86, sits at the porch of her damaged house by Hurricane Maria, a year after the storm devastated Puerto Rico, near Barceloneta, Puerto Rico, September 18, 2018. REUTERS/Carlos Barria

From victims of increasingly severe droughts in Africa, extreme flooding or scorching temperatures in Asia, or Cyclone Idai, now followed by Kenneth, which tore through Mozambique,Zimbabwe and Malawi causing displacement and devastation earlier this year, those who have done the least to cause the climate crisis are paying the greatest price.

Countries in the Global North ate their fair share of carbon emissions decades ago. High per person consumption habits mean that US citizens reached their quota in 1936, followed by the UK in 1945 and Germany in 1963. Since then, they have been incurring climate debts.

These debts bring a responsibility not only to transition rapidly to zero carbon emissions, but also to finance mitigation, adaptation and recovery in countries whose quotas they have unilaterally swallowed, and where climate impacts hit hardest.

Money talks

The crucial issue of how to finance mitigating the damages that poorer nations already incur from extreme weather was supposed to be addressed at the UN’s ‘Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts’ (WIM) meeting in Bonn, Germany in April 2019.

However, financing was removed from the agenda entirely. Faced with criticism from civil society networks, the UN initially defended its decision not to discuss financing or the upcoming technical paper on the same theme. Consistent pressure, however, eventually led to a compromise: financing could be only included within conversations about the other ‘action areas’ – such as co-ordinating responses to sea-level rise and displacement.

Mozambique is the sixth-poorest country in the world, the average citizen of Mozambique is responsible for 55 times less carbon emissions than the average US citizen, and the IMF profits richly from its for-interest loans 

Frustratingly, discussions in Bonn the previous year were also notably quiet on this same issue. French, Swiss, British, US and Canadian delegates were silent. Germany’s delegate referred to insurance, a market-based solution, as a ‘magic tool’ to redress loss and damage. But these ‘market-based’ solutions are far from adequate.

Historic responsibility

Catastrophe risk insurance is available for low-probability, high-cost disasters but it is no magic bullet. Firstly, premiums must be paid by countries experiencing climate impacts, not those disproportionately responsible. Secondly, slow-onset events or regularly occurring extreme weather events are not insurable, as investors can only bet on making a profit from insured events not occurring within a specified time frame.

Finally, when insurance is available, insurance pay-outs are grossly insufficient. For example, in 2017 Hurricane Maria caused devastating damage in Dominica. The financial loss alone is estimated at about $1.37 billion. Yet, the regional insurance mechanism (the ‘CCRIF’) paid out $19.3 million, less than 1.5 per cent of the cost of economic losses. And, while green bonds can facilitate financing for new resilient infrastructure, they do nothing to fund recovery when damage is incurred.

A market for debt

Additionally, internationally-brokered loans to pay for damage must often be repaid with interest and are, therefore, issued with a view to making profit, not to repairing harms that are increasing with severity due to climate change. The IMF has agreed a no-interest emergency loan of $118.2 million to Mozambique following Cyclone Idai. However, it has disqualified Mozambique from receiving debt relief for pre-existing loans.

This is despite the fact that Mozambique is the sixth-poorest country in the world, the average citizen of Mozambique is responsible for 55 times less carbon emissions than the average US citizen, and the IMF profits richly from its for-interest loans. 

Countries in the Global North, who often present cooked-up numbers about their existing contributions for addressing climate change, must not be permitted to count their loans and contributions to humanitarian assistance or adaptation efforts as loss and damage financing.

‘Just transition’

So what would non-market-based solutions look like? Ending state subsidies for fossil fuels (approximately $5.3 trillion) would free up funds for both a complete transition to renewable energy (estimated at about $1.7 trillion), leaving significant funds available to repair the legacy of greenhouse-gas emitting energy.

Introducing progressive taxes such as a Climate Damages Tax (on oil, gas and coal extraction) together with a Financial Transaction Tax (a small levy to raise revenue from the trading of financial instruments) would not only help mobilize billions – and potentially trillions – for addressing loss and damage but can also fund a ‘just transition’ towards a greener economy, that protects and re-trains workers. Fossil fuel and financial companies have the means and responsibility to repair climate harms.

The Warsaw International Mechanism must be mandated to retrieve and receive the funds required to respond to the scale of the crisis on a needs basis. It must also involve communities that are most impacted by climate change in deciding how finance is allocated and utilised.

After three decades of struggle – led by Small Island Developing States, later joined by the entire developing world – to fully institutionalize a dedicated UN mechanism to address the unmitigated and unadaptable impacts of climate change, delays and obfuscation by minority world countries threaten to cripple hard-fought for gains. 

To find out more, read ActionAid’s new report ‘Market solutions to help climate victims fail human rights test’.

Harpreet Kaur Paul is a policy and campaign strategist. She is exploring avenues to ensure justice for victims of loss and damage associated with climate change through her PhD research at Warwick Law School.

Harjeet Singh is ActionAid International’s global lead on climate change.