Classical economists have consistently failed to get to grips with the cost of climate change. The
methodologies of classical economics cannot be used effectively to quantify the losses and damages
involved. Where in geographical terms do the parameters of losses and damage begin and end? How
should indirect events such as fires be incorporated? How should ‘slow onset’ events such as
droughts or biodiversity losses be quantified? How should ‘natural’ catastrophes be distinguished
from those driven by anthropogenic influences? Over what time scale should damage costs be
considered? These are just some of the issues that have bedevilled attempts to persuade the
developed world that financial recompense on a large scale is a matter of climate justice due to the
global south for the climate extremes they increasingly suffer.

One of the earliest attempts to price the costs of climate change came from William Nordhaus, a
winner of the Nobel Memorial Prize in Economic Sciences in 2018. As far back as the 1990s he was
estimating that a warming of 2.5 o C would result in a loss of income 1-1.5%. This was astonishingly
low, and built on assumptions that a large part of economic activity happened indoors and would be
minimally affected by climate change. Such are the breathtaking assumptions that sometimes
underpin economic models! Even at the time it was pointed out to him by climate scientists that
taking a wider perspective would result in estimates 20-30 times higher. We now know just how
much in error these early estimates were, and can appreciate how much they hindered political
decision making. Last year the respected Moody’s Analytics estimated that a warming of even 2 o C
would cause economic losses of €66 trillion while a recent study by Oxfam and Swiss Re estimated
that the cost of a 2.6 o C warming would be 13.9% each year. Even today, we hear a lot about the cost
of taking action to combat climate change, but relatively little about the cost of inaction.

It might be logical to surmise that insurance companies were wise to the risks involved in insuring
properties vulnerable to a regime of increasing extremes, and they were aware of the potential for
catastrophic losses that might result for them. It might be logical to assume that they would be in
the forefront of policies to tackle climate change and be applying pressure to decision makers to
reduce emissions. But this hasn’t happened and low premium insurance is still available in areas of
known risk. Even in Ireland, insurance for houses recently built in known flood risk areas is possible.
Why this occurred is not clear, but a large part of the explanation is the ability of insurance
companies to outsource their risk to private investors willing to gamble on an event not occurring in
a particular year. The availability of national safety nets guaranteed by governments also helped.
Taking a chance that the 1-in-50 year event won’t happen in 2022 is a fair investment gamble for
some. This has echoes of course of the way the global banking crisis emerged from the offloading of
risky mortgages at the end of the first decade of this century.

Ultimately even this strategy has its limits. The fires in California in 2018 cost the insurance industry
just under €12 billion, a fraction of what Hurricanes Andrew or Sandy cost and a tenth of what
Hurricane Katrina cost. The realisation that risks can’t ultimately be avoided is slowly sinking in. This
has been especially clear in recent years. As climate change has increasingly come home to roost in
the developed world, the issues surrounding loss and damage have moved centre stage. The
arguments made by developing countries, where loss of life rather than loss of property is the main
concern are now better appreciated.

‘Loss and damage’ is the general term used in UN climate negotiations to refer to impacts of climate
change that exceed the adaptive capacity of affected countries, especially when this capacity is limited by finances. Of course, for communities, non-economic losses are the most important: the
loss of life, the loss of home places, even the loss of culture that potentially faces the Small Island
Developing States. In many ways, loss and damage is the third leg of the stool, after mitigation and
adaptation, that must be integrated into climate action. This was recognised in the Paris Agreement
and climate finance directing flows from the global north to the global south is in part a
consequence of this. But institutionalising a response at an international scale has foundered due to
the difficulties in answering the questions raised in the first paragraph above.

The emergence of new techniques in climate science offer an opportunity to address many of the
questions concerned. Attribution is the tool that can unlock the percentage contribution humans
have made to an individual extreme event occurring. This has been facilitated by the exponential
growth in computing power that enables climate models to be run multiple times. One series of runs
can be made with the greenhouse gases at pre industrial levels to ascertain how likely an event
would be under ‘natural’ conditions. A second series then is run with the greenhouse gases added as
they increased over time. By comparing the outputs it is possible to estimate how much more likely
a given event is due to human interference with the atmosphere. So for example the floods in
Germany, Belgium and the Netherlands this time last year were 9 times more likely, the heatwave in
Siberia in 2020 10-100 times more likely, the 2019 heatwave in France 10 times more likely etc.
When the modelling is done for this year’s heatwave in Spain and France a similar figure is likely to

If the damage cost is known and the human contribution can be estimated, the culprits can be
levied. This is the ultimate objective for the global south, forcing the developed world to be
accountable in financial terms for the climate change burden inflicted on the global south. Naturally,
this is not going to be an easy task! Slow onset events such as desertification, biodiversity losses,
land and forest degradation, rising sea levels, ocean acidification etc are particularly problematical,
not to mention the cultural and population displacement issues involved.

At the Glasgow COP26 only limited progress was made in addressing Loss and Damage. The
resistance of the developed world was again demonstrated. As a compromise, a 2-year plan, the
Glasgow Dialogue, was established to chart the way ahead in funding terms. Some funding was
provided to operationalise a scheme, the Santiago Network, to help developing countries with the
technicalities of coping with loss and damage issues. Minister Ryan announced that Ireland would
contribute €5 million to support this technical network. In addition, the Taoiseach committed to
raising Ireland’s climate finance contribution to reach €225 million per annum by 2025. But for
some of the world’s big polluters the chequebooks remain tightly closed. There is no doubt but that
Loss and damage will be the main focus of COP27 in November. However, given the health, war and
economic issues that have characterised the past year, optimism that solidarity with the countries
vulnerable to climate-change related disasters will be reflected in a comprehensive system of
financial transfers must be limited.