The Case Against “Loss and Damage” Payments

The recent U.N. Conference on Climate (COP27) ended with a commitment for so called rich countries to provide “loss and damage” transfers to poor countries to help deal with the consequences of climate change. The Centrist Independent Voter believes that climate change is a serious problem and supports a variety of solutions including a significant greenhouse gas tax and tariff system.

I, personally, do not believe that wealth transfers from richer to poorer nations should be a part of that policy package. In my opinion, there are two major reasons to exclude these wealth transfers from the public policy approach to climate change. The first is political and the second is ethical.

The Political Case Against Loss and Damage Payments

Given the general animosity in the U.S. and Europe toward the loss of jobs to third world countries from free trade, which provides substantial benefits to rich countries, I see the likelihood of popular support for loss and damage programs as close to zero. It strikes me that we will need all of the political capital we can muster to get the consent of the citizens of rich countries to accept the kind of carbon tax systems necessary to help slow the rate of climate change. It would be a shame to squander that political capital trying to get the citizens of rich countries to also accept wealth transfers to poor countries.

The Ethical Case Against Loss and Damage Payments

Loss and damage payments to poorer countries are often defended because most of the carbon in the atmosphere got there as a result of the use of fossil fuels to feed the industrial revolution in rich countries. While that is certainly true, we don’t charge poor countries for the benefits of the industrial revolution either. If faced with the choice of living without the technological changes or the global markets that emerged as a result of the industrial revolution or dealing with the consequences of climate change, I think most poor countries would opt for the technology and the markets. That might not be true for the Maldives, or other nations that face catastrophic losses from climate change, but I think it would be true for most poor countries.

The Alternatives

The Centrist Independent Voter does support a number of responses to climate change that will benefit poorer countries.

First and foremost is the tax and tariff solution, which holds out the best hope for actually having an impact on the rate of climate change. These taxes will be borne disproportionately by consumers in rich countries who consume significantly more energy, and therefore fossil fuels. The benefits in terms of reduced climate change impacts will be enjoyed globally.

Second, we support federally funded basic research into technological alternatives that will reduce the emission of greenhouse gases. Basic research is by its nature a public good and other nations, rich and poor, will be able to take advantage of this research at no charge.

Third, we support research in and potential use of geo-engineering solutions to remove greenhouse gases from the atmosphere. If these technologies prove to be economically justifiable, they will be available globally and the benefits of using them will be felt globally.

Fourth, we might support loan guarantees and insurance arrangements funded by the IMF or World Bank that are intended to offset “market imperfections” that retard private investment in climate friendly technologies in poor countries. I am suspicious of this argument because the “market imperfections” that are often cited are not market imperfections at all. For example, the expected rate of return necessary for a private sector investor to build a solar or wind power generation facility in a poor country might be significantly higher than that required to induce the same investment in a rich country. The reasons are many but include: unstable economic and political (tax) environments and corrupt, or potentially corrupt, government officials. These risks are real and do not constitute market imperfections. If, however, the World Bank and IMF have sufficient clout in poor countries that the participation of these organizations can actually lower the likelihood of expropriation through taxation or corruption then these kinds of loan guarantees or insurance programs for private sector investment might be justifiable. It should be obvious that a quid pro quo for any such programs would be participation by the host country in a climate tax and tariff arrangement. It should also be obvious that threats on the part of poor (debtor) countries to withhold interest payments on debt in order to extract “loss and damage” payments are counterproductive to efforts to create these loan guarantee or insurance programs.

Fifth, I think it also might be reasonable to add incentive arrangements for some countries to the list of policy options to deal with climate change. Rich countries might pay countries that control sensitive ecosystems to restrain the rate of development of these ecosystems. An obvious example would be paying Brazil to restrict the development of the Amazon rain forest.


While much can, and should, be done to reduce the impact of climate change on poor countries, direct wealth transfer programs are both politically counter-productive and ethically unjustified. Nevertheless, the fact that climate change will often have devastating effects on poor countries should help motivate rich countries to embrace the kinds of public polices that will reduce or slow climate change such as: carbon tax and tariff arrangements, funding basic research on climate friendly technologies and geo-engineering alternatives, loan guarantees through the World Bank and IMF that would reduce the disincentives for private investment in climate friendly investment in poor countries, and incentives for the preservation of critical natural environments (such as the Amazon rain forest). The argument here is like the one for free trade: we should do these things because they are good for us and because they are good for others.

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