Operationalizing the Loss and

Damage Mechanism:

A principled approach for financing

climate risk management

Reinhard Mechler, Thomas Schinko (IIASA)

Session

Climate finance at scale: emerging

opportunities?

Our Common Future Under Climate Change

Paris, 9.7.2015

• Establishment of the “Warsaw international

mechanism for loss and damage:” to deal with

support for residual climate-related damages

after adaptation

• “3rd pillar of the work under the UNFCCC in

addition to mitigation and adaptation”

• Contested terrain

– ‘Southern countries’ at risk (such as AOSIS)

demand climate justice

– OECD negotiators willing to support good

risk management, but liability and

compensation considered red lines

• Workprogramme adopted Fall 2014:

Balancing the two perspectives

Loss & Damage Mechanism: a contested

terrain…

Climate risk

Hazard

Intensities, duration and frequencies of

some hazards changing (IPCC 2012&14)

Extreme event attribution in early stages

(James et al., 2014; Trenberth et al., 2015)

Exposure

Dominating Factor - currently

(IPCC, 2012&14)

Vulnerability

Key driver, knowledge gaps, significant

adaptation deficit (IPCC, 2012) Images:

IPCC, 2014

Lack of finance for pre-disaster risk

management

Disaster–related financing 1991-2010

Prevent: 13%

Kellet and Caravani, 2013

Political principles Needs: coping capacity Liabilities & rights

Policy & Implementation Rights & Needs- based

Climate Risk Management

Time horizon Short to medium term Medium to long term

Ethical principles Distributional justice Compensatory justice

A principled approach

Principles

• Principle of strict liability cannot yet be applied to

climate risk

• Argue for a pragmatic policy approach to the L&D:

balance between consequentialist and non-

consequentialist ethics (see also Dellink et al., 2009)

• Supporting climate risk management as early

adaptation: national to local

• Integrate evidence from attribution studies

Methodological elements – needs based

perspective

• Identify country-level risk

• Identify country level adaptive capacity: stress-testing

• Risk layering principle:

– risk reduction for more frequent risks

– Risk financing and assistance for infrequent risks

• Support from national to local

Country-level risk

GAR-Global Assessment Report, 2015

Risk coping

Layering risk management to identify

entry points

Mechler et al., 2014

Support for

risk beyond

national

capacity

Country-level financial stress testing

IIASA CATSIM model

Country-level financial stress testing

Financial gaps

Williges et al., 2015 for GAR 15

Global costs to cover gaps

0

3

6

9

12

15

18

21

24

27

[10 to 50] [50 to 100] [100 to 250] [10 to 500]

Wo

rld

wid

e A

nn

ual

Co

sts

(bill

ion

s 20

12 U

SD

)

Risk Layers Covered (in terms of year events)

Maximum (No cap) Baseline (25 bn cap) Minimum (5 bn cap)

For example:

50-100 year layer:

~ $ 4.5 billion [2.7-6.7] /a

necessary for absorbing risk

beyond adaptive capacity

Country perspective: how to effectively

disburse financing?

• Regional and national: Risk pooling and

financing- Sovereign insurance and regional pools:

Caribbean, Pacific, Africa

• National to community level: Public-private

partnerships for risk reduction

• National funds to bolster community-level risk

management partnerships (Peru)

Example Peru

• Devolution: National-local

• $ 100 M Fund to support

disaster risk management

• Strong-community-led

partnerships emerging

(Zurich Flood Resilience

Alliance)

Discussion points

• Adaptation vs. Loss&Damage: can approach help

to overcome the red lines?

• Climate risk management as early adaptation

• Capacity to absorb finance: Innovative partnerships