Climate damage is increasing. How will we pay for it?

Swirling masses of water engulf homes and bridges in Slovenia. Boats rescued tourists from forest fires in Rhodes, Greece. The extreme heat and drought in Spain leads to a decline in yields of onions and olives, among other things. Europe, too, is increasingly being presented with the bill for extreme weather events triggered or exacerbated by climate change.

In the climate crisis, finance will play an increasingly important role between insurers and governments, but also in the courtroom and international climate consultations. This concerns not only the future, but also compensation for the damage already incurred.

coverage

One place where receipts are down is with insurance companies like the big Swiss Re. This Swiss reinsurer reported on Wednesday that natural disasters had already caused €46 billion in insured damages worldwide in the first half of this year. The impact of climate change is clear, according to Swiss Re’s chief economist, Jerome-Jean Heegele.

There should be a joint catastrophe fund from insurers and the government, said Joss Payten, director of insurance company ASR in February. De Volkskrant. He points to the growth of “the frequency and scale of natural disasters”. It also warns of uninsured risks in the Netherlands, which will run into billions of euros.

This discussion between insurers and the government is becoming increasingly topical, says Wouter Bautzen, professor of the economics of climate change and natural disasters at VU University Amsterdam. According to him, the floods in Limburg made it clear that the damage coverage in the Netherlands was not properly arranged. The government can help with, among other things, the Disaster Compensation Act. However, there are no clear rules about what damage is compensated, to whom and how much. It always depends on a political choice at the moment. You don’t already know.

Putzen says developing a new compensation model is a matter of national importance. We live in a country below sea level. The risks of large-scale natural disasters are too great and too costly for insurance companies alone. If, for example, an important flood defense fails, prompt and effective damage settlement is very important. Not only out of solidarity, but also out of economic interest. We all benefit from rapid reconstruction.

The professor advocates for a new insurance package in which the government would be a financial participant along with insurers and insurers acting as the professional claims handler.

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Financial interests, such as a claim for climate damages, are often litigated in the courts. For example, a Peruvian mountain guide is facing energy company RWE in a German court. At the request of the German Working Group, he demanded that the main source of carbon dioxide contribute to combating the consequences of a melting glacier in the Andes.

Lawyer and (climate) damage specialist Stijn Franken sees a rapid development of climate issues, in the Netherlands and other countries. All kinds of distribution mechanisms based under pressure. We are familiar with insurance policies, government emergency funds, and liability law. This system is not designed for a problem of the magnitude of climate change.

Franken says the question of whether someone should withdraw the wallet is still hard to answer. In legal terms, it is about causation and cause and effect. What is the role of a particular company in global warming, a phenomenon of unprecedented proportions? What damage can be specifically attributed to climate change? These are very complex questions.

finance

Europe’s problems are minor compared to the disasters in the rest of the world, especially those in the Southern Hemisphere. In international climate consultations, more and more speaking time is devoted to finances. How are the costs of damage and climate policy divided between the “rich north” and the “poor south”? Research conducted by Dartmouth College showed that climate damage is greatest in countries that have made a relatively small contribution to the climate problem.

At the Climate Summit in Egypt in November, the Global Climate Fund was signed. It is still not clear how many billions “traditional polluters” will put into this huge fund. “It’s a battle over responsibilities, with increasing complexity,” says Botzen. “China and India, for example, are suffering a lot of damage from climate change, caused largely by Western economies. However, they are now emitting an increasing share of all greenhouse gases. Could they also appeal to the fund?

Dams

Ultimately, Boutzen says, preventing disaster is more important than compensating later. “In the end, we all pay. Because of higher insurance premiums, higher taxes or general economic damage. So the fight against global warming is very important, as is climate adaptation, for example in the form of higher dams. Prevention is simply much cheaper than compensation.