Financing climate damage in the Global South. How much are we willing to pay?

Loss and damage caused by climate change are already being felt and will increase in magnitude in the future – even with the best possible implementation of the Paris climate goals. Scientific studies show that a large part of this damage will be borne by the lowest-income regions of the world. The extent and type of aid provided by the industrialized countries is still the subject...

of the climate negotiations.

In my dissertation, I therefore deal with the financing of the so-called "residual damages". These are climate damages that cannot be averted by CO2 reduction and adaptation measures to climate change. Who will pay for these costs and to what extent, has been the subject of the UNFCCC climate negotiations for around 30 years. Since the industrialized countries fear excessive costs in the future and the developing countries are demanding a compensation mechanism, the negotiations turned out to extremely difficult. I would like to accelerate this negotiation process by applying two different economic approaches.

Florian Bottner

The first approach includes elements of environmental and legal economics. Since the funds provided should be used as efficiently and purposefully as possible, it is important to examine the different incentive effects and efficiency implications of the financing mechanisms. From this theoretical perspective, a policy measure is to be preferred in which those who caused the climate damages have to carry the costs that they burden on third parties. Simultaneously, a financial transfer from the polluter to the injured party should be established.

Since the theory cannot easily be implemented in reality, I also follow a political-economic approach. In the climate negotiations, it became clear that potential donor countries for financial aid are industrialized countries, mainly in Europe and North America. Since these countries are governed democratically, the financing measures must find majorities in the political decision-making process. If one of the measures enjoys strong support from the electorate, it could also be easier to form majorities in parliament. In addition, the measures preferred by the electorate should not immediately be back on the "abolition list" when there is a change of government. Therefore, with the help of choice experiments, I try to elicit the preferences of the electorate in Austria and the Netherlands with regard to the various funding measures and their respective scope.

Money Plants

The combination of the theoretically optimal measure as well as the experimental results, can reveal a political measure that is as economically desirable and at the same time feasible in the democratic process. In doing so, I would like to contribute that the decision-makers are informed with reliable findings and thereby, accelerating the faltering negotiation process.


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