Loss and damage

Legal assistance paper

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Date produced: 10/10/2013

If and to what extent are countries responsible for loss and damage attributable to climate change legally obliged to provide compensation? What legal principles may help to keep the compensation issue ‘alive’?

Loss and damage in the current negotiations

The Conference of the Parties (COP) to UNFCCC, at its 18th session in Doha in 2012, acknowledged that further work needs to be done, for example, to understand how loss and damage associate with climate change will affect the most vulnerable groups of society, and to possibly develop risk reduction, risk sharing and risk transfer tools as well as approaches to rehabilitation. This provides a potential entry point to raise the issue of liability and compensation for loss and damage resulting from climate change in the future.

For the time being, however, it appears that liability and compensation have been excluded from the mandate of the new institutional arrangements to address loss and damage associated with the impacts of climate change in developing countries that are particularly vulnerable to the adverse effects of climate change. Functions and modalities of the arrangements that Parties decided to establish at COP 19 in Warsaw are confined to, amongst other things, risk management approaches, the coordination of stakeholders and enhancement of support activities (e.g. finance, technology and capacity-building).

Compensation for serious harm attributable to climate change

States have the sovereign right to exploit their own resources but the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction (e.g. the high seas or outer space). Explicitly referred to in the preamble of the UNFCCC, this is described as the ‘principle of prevention’ or the ‘no-harm rule’. Its existence has been authoritatively confirmed by the International Court of Justice (ICJ). In a recent case the Court found that “[a] State is thus obliged to use all the means at its disposal in order to avoid activities which take place in its territory, or in any area under its jurisdiction, causing significant damage to the environment of another State”.

As climate change results from a multitude of emissions from various sources that alter the composition of the Earth’s atmosphere it may not fit the traditional conception of transboundary pollution. However, science can increasingly attribute damages with anthropogenic greenhouse gas emission and there are few reasons why the general principle should not apply to climate change and its adverse impacts. States, therefore, have an obligation to take all appropriate measures to anticipate, prevent or minimize the causes of climate change, especially through effective measures to reduce greenhouse gas emissions.

Whether a particular State is responsible for an unlawful act under public international also depends on several other legal and scientific questions. For example: the available capacity and resources to act with due diligence or its need for economic development and poverty alleviation. But if, on balance, a State is found to have committed an international legal wrong it is obliged to discontinue the wrongful act, offer guarantees of non-repetition and provide full reparation for the consequences. The purpose of reparation is to wipe out, as far as possible, all the consequences of the illegal act and re-establish the situation, which would, in all probability, have existed if the act had not been committed.

This can take the form of restitution in kind or, if this is not possible, payment of damages, satisfaction or any combination of the three. The claim for reparation may be limited by the requirement of proportionality of measures. Thus reparation for climate change may be limited to a reasonable and equitable amount. But the bottom line is that loss and damage results in a right and obligation to financial compensation.

Access to prompt and adequate compensation

While the principle of prevention has been repeatedly invoked to argue that industrialized countries are liable vis-à-vis the developing world for loss and damage associated with climate change, there are also other relevant norms of public international law. The International Law Commission’s (ILC) 2006 Draft principles on the allocation of loss in the case of transboundary harm arising out of hazardous activities, for example, state: “Each State should take all necessary measures to ensure that prompt and adequate compensation is available for victims of transboundary damage caused by hazardous activities located within its territory or otherwise under its jurisdiction or control.”

The Draft Principles reflect the expected development of public international law and at present there is probably no substantive right to compensation for individual claimants (in the sense of the polluter pays principle). The concept of prompt and adequate compensation, however, appears to enjoy increasing recognition within the international community. States may at least be obligated to gradually develop the necessary legal frameworks on liability and compensation for environmental damage to areas outside their jurisdiction. The ILC Draft principles envisage, in particular, the establishment of international arrangements and funds (to supplement industry-based funds) if only global efforts can tackle a problem.

There are examples for such arrangements by the international community: the international oil pollution compensation Funds (the 1971 Fund, the 1992 Fund and the Supplementary Fund) provide compensation for oil spills from tankers, and the liability regime for nuclear accidents under the Convention on Third Party Liability in the Field of Nuclear Energy (Paris), the Supplementary Convention (Brussels) and the IAEA Vienna Convention on Civil Liability for Nuclear Damage. The UN Security Council established a Compensation Commission in 1991 to process claims and pay compensation for losses resulting from Iraq’s invasion and occupation of Kuwait.

Other international arrangements to ensure adequate compensation include the International Convention on Liability and Compensation for Damage in connection with the Carriage of Hazardous and Noxious Substances by Sea, the International Convention on Civil Liability for Bunker Oil Pollution Damage and the Nagoya–Kuala Lumpur Supplementary Protocol on Liability and Redress to the Cartagena Protocol on Biosafety. The “Hull Doctrine” of international investment law employs a similar standard of prompt, adequate and effective compensation being owed to investors whose property or rights are diminished by a host state.