Compensation for Loss and Damage

Briefing paper

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Date produced: 19/07/2010

Whilst the precise effects of climate change are not totally predictable, it is nevertheless indisputable that climate change will increase the number of natural disasters. Indeed, from 1987 to 1998, the annual number of climate-related disasters averaged 195. From 2000 to 2006, the average was 365, representing an increase of 87 %.

According to the Intergovernmental Panel on Climate Change (IPCC), developing countries have contributed the least to the emission of greenhouse gases but are the most vulnerable to the effects of climate change and have the least capacity to adapt to changes. More than 95 % of all deaths caused by natural disasters occur in developing countries and losses due to natural disasters are 20 times greater in developing countries than in industrialised countries.

Of developing countries, the following three classes of states are the most vulnerable to climate change-induced loss and damage:

  • Least Developed Countries (LDCs);
  • Small Island Developing States (SIDS); and
  • countries in Africa.

These three classes of states are considered the most vulnerable to climate change because: (A) they have the greatest exposure to climate change; (B) they are most sensitive to climate change; and (C) they have the least developed adaptive capacity to climate change, in that they lack the necessary institutional, economic and financial capacity to cope with the adverse effects of climate change (and often, therefore, are reliant on foreign aid in response to natural disasters).

Given this greater risk posed to developing countries and given the fact that developed countries have contributed most to climate change, developed countries are now beginning to acknowledge that they have a role in not only providing financially for mitigation and adaptation options but also compensation.

This paper sets out how the issue of loss and damage has arisen the UNFCCC negotiations and possible options for addressing the issue including insurance mechanisms, non-insurance risk-financing mechanisms and a brief look at a compensation mechanism proposed by WWF.