The extreme costs of climate change and the Loss and Damage Fund

Professor Ilan Noy's research aims to guide resilience policies by examining the economic impacts and mitigation strategies of natural disasters.

Extreme weather events lead to many wide-ranging adverse consequences, disrupting many aspects of society, the economy, and the natural environment. In Aotearoa New Zealand, 2023 has been an especially disastrous year, as the insured costs associated with the Auckland Anniversary floods in January, and extratropical cyclone Gabrielle in February, likely amounted to more than the costs associated with all the weather events that occurred in the country in the previous quarter century. Exactly how much these events cost us is unknown, however, as the New Zealand government does not collect these figures.

Climate change, caused by the human emission of Greenhouse Gases (GHGs), is changing the frequency and intensity of these weather extremes, and in most cases (except for cold waves) increasing them. These influences, however, differ across extreme weather types (e.g., extreme heat or extreme rainfall) and regions. Methods for identifying the climate change footprint, and attributing individual extreme weather events to climatic change, have been developed over the last two decades by climate scientists. More recently, and with many colleagues, we have been using this attribution method, in combination with information about the socio-economic impacts of extreme weather events, to link climate change to its impacts on economies and societies (see examples of this for Aotearoa and globally). This Extreme Event Impacts Attribution (EEIA) approach adds to existing methods of quantifying the costs of gradual climate change, such as the ones associated with sea-level rise or ocean acidification.

Concurrently with the development of EEIA, the United Nations’ Loss and Damage (L&D) Fund was slowly negotiated, and finally established, in December 2023, to provide funding for vulnerable countries for the climate change impacts they are already experiencing. Extreme event impact attribution (EEIA) can usefully inform how much money this L&D Fund needs to have, which countries the money should be paid to, and for which damage and loss.

The possible role of EEIA for the L&D process can be described with a figure. The L&D Fund starts with political negotiations about how much money high-income countries will contribute (blue). This is followed by an internationally negotiated determination of which particularly vulnerable nations are eligible for these funds and what types of losses and damages they are eligible for (outer yellow funnel). Further international negotiations will quantify how much of the losses and damages that are eligible were caused by climate change (inner red funnel). EEIA can directly inform that last quantification.

As we showed in our global analysis, the macro-national aggregate damages from extreme weather events that are caused by climate change, over the last two decades, were dominated by a small number of catastrophic disasters in each country. These were triggered by tropical cyclones (hurricanes), floods, and heatwaves, all well modelled in the context of attribution. The conclusion from that analysis, as summarised by the Guardian, is that globally, every hour, climate change is costing us more than NZ$ 25 million, through the increased frequency of extreme weather events.

Together with several colleagues, we recently argued that EEIA is the best tool currently available to measure loss and damage and inform the L&D process. To avoid further delays after a mostly actionless decade on providing these Loss and Damage payments, we argued we should start using this EEIA method, and start compensating mostly low-income communities and countries (the ‘vulnerable developing countries’ in the UN jargon) for the damages and losses they have been suffering because of a climatic change that they have not caused.