World Bank pilots climate insurance

RELEASE DATE

03 September 2013

The World Bank’s leading official for the Asia-Pacific region has highlighted the Bank’s support for action on climate change, insurance and disaster risk management, as Pacific leaders meet this week in the Marshall Islands.

Axel van Trotsenburg is the new World Bank Regional Vice President for East Asia and Pacific, taking up his position last February. Van Trotsenburg is in Majuro this week as an observer at the Pacific Islands Forum in the Marshall Islands.

Working with the Secretariat of the Pacific Community (SPC), the World Bank is developing a regional insurance scheme to strengthen immediate responses to natural disasters.

Last January, a two year pilot insurance program began for five countries (Samoa, Tonga, Vanuatu, Solomon Islands and Marshall Islands). With finance from Japan, the pilot includes a regional pooled fund that allows smaller states to secure US$45 million of insurance coverage for damage from cyclones, earthquakes and tsunamis – insurance that each country would find it hard to access on their own.

Van Trotsenburg said that the insurance pilot is part of a wider program to improve risk assessment and response: “Insurance is just one element in a whole array of activities that should not be limited to what happens after a natural disaster strikes.”

“When disaster hits there are different ways of responding,” he added. “This insurance scheme is clearly when it hits, but we have a crisis response window in the International Development Assistance (IDA) that can support it. We have an immediate response mechanism that can allow the existing portfolio to quickly mobilise resources.

“We see that our activities should not only be after the fact. We see that you also need to do preventative as well as preparatory work. We need to look at a comprehensive approach rather than regard insurance as a panacea.”

Loss and damage

Through the Alliance of Small Island States (AOSIS), Pacific governments have been supporting a work program on “loss and damage” at the global climate negotiations. Given the delay by industrialised countries in reducing their greenhouse gas emissions, there will be damage and permanent loss associated with extreme weather events such as tropical cyclones and flooding, as well as “slow onset” events like ocean acidification and sea level rise.

AOSIS has called for the creation of an international mechanism to address loss and damage, incorporating elements such as risk management, insurance, rehabilitation or compensation.

But talk of compensation for loss and damage is fiercely opposed by the major polluters. Last December, in response to debate on loss and damage at the UNFCCC talks in Doha, Australia’s shadow Minister for Climate Change Action and Environment Greg Hunt stated that “we will consider any agreement carefully once we see the detail, but we categorically reject a $3 billion blank cheque.” Hunt is likely to be Australia’s Environment Minister after a Coalition victory in Australia’s elections this Saturday – the day after the Forum ends.

Axel van Trotsenburg agrees that compensation is a difficult issue facing the next round of UNFCCC negotiations in Warsaw.

“The compensation debate is always contentious, because who is ultimately responsible?” he said. “The problem is that it incites a lot of emotions but ultimately no solutions. So how can you constructively move forward with concrete measures that help the people? Populations need to look not at words but at deeds.”

Donor co-ordination

A 2012 World Bank policy and practice note ‘Acting today for tomorrow’ identified “the institutional rigidity of donor organisations” as a problem in climate and disaster responses in the Pacific. The study found that complex bureaucracy and institutional competition amongst donors can limit access to the resources that Pacific communities need to respond to the adverse effects of climate change.

According to the report, joint programming by donors of adaptation and disaster risk reduction activities was not widespread in the Pacific islands: “The policy frameworks, governments, regional organisations, and donor and development institutions responsible for carrying out disaster risk reduction and climate change adaptation often work in isolation from one another, and in isolation from the actors involved in socioeconomic development planning and implementation.”

Van Trotsenburg agreed that better donor co-ordination was important for small island states, who often had limited capacity to deal with diverse bilateral and multilateral partners with different timelines, reporting requirements and financial standards.

“The co-ordination issue is critical for most developing countries. It’s also the area where there are weak spots amongst the donors,” he said. “It’s one thing to talk about but harder to act. I think there is a vast improvement of aid co-ordination worldwide and also in the Pacific. But does this mean we are there? No! We need to continuously look how we can harmonise better, how we can complement instead of substitute and how we can ensure that in the co-ordination, the countries themselves are in the driving seat.”

Expansion in the islands

In per capita terms, the World Bank and ADB give comparatively little to Pacific Island countries when compared to other nations of similar Human Development Index ranking. But in recent years, both the World Bank and ADB have expanded their profiles across the region, gaining formal observer status with the Pacific Islands Forum, sending delegations to the annual Forum leaders’ meetings and opening Joint Liaison Offices in Solomon Islands, Tonga, Samoa and Vanuatu.

By the end of 2013, the World Bank will have committed more than US$120 million to help Forum member countries adapt to climate change and build resilience to disasters, including $80 million from global trust funds and from partners, and $40m from the International Development Association (IDA), the World Bank’s fund for the poorest.

Through the Climate Investment Funds, the multilateral banks been involved in a Pilot Program on Climate Resilience (PPCR), with operations managed by ADB in Tonga and Papua New Guinea and the World Bank in Samoa.

The first $15 million tranche of funds for Samoa was approved in December 2012, for construction to raise and improve the west coast road on Upolu. A further $10 million is allocated under the program for work with coastal communities to develop actions plans, with the World Bank involved in 40 per cent of communities and UNDP in the remaining 60 per cent.

Van Trotsenburg said there was room for more engagement in the region by the Bank: “Over the last couple of years, all these countries have become eligible for IDA, the World Bank’s fund for the poor. The result is, we have been expanding our operations enormously, The Marshall Islands and Federated States of Micronesia have become IDA-eligible and now we have our first operations here.”

“I see further room for scale-up, largely because there is a general recognition by the international community, that international donors say we need to deal more with fragile states and small island states,” he said.

Ending fossil fuel subsidies

The recent World Bank global report “Turn Down the Heat” warned that, without ambitious climate action, the world could experience a 4ºC increase in average global temperatures by the end of the century. 

However the World Bank itself is often criticised for continuing to provide funding to fossil fuel energy systems such as coal fired power stations, through tax breaks, reduced prices and government contributions to coal, oil and gas investment.

The International Energy Agency (IEA) reported that fossil-fuel subsidies rose by almost 30 per cent in 2011, to US$523 billion (that year, global investment in renewable energy totalled only $257 billion). For financial years 2008-2012, the World Bank Group allocated US$8 billion for renewable and clean energy sources but more than $18 billion for fossil fuel subsidies.

Last March, the International Monetary Fund (IMF) published a report calling on governments to reform subsidy policies if they want to tackle climate change. Over 50 major church and non-government organisations wrote to World Bank President Jim Yong Kim calling on the Bank and other international financial institutions to stop using public resources to subsidise the fossil fuel industry.

Speaking at this week’s Panel of Climate Experts in Majuro, the Secretary General of the Pacific Islands Forum Secretariat (PIFS) Tuiloma Neroni Slade highlighted the contradiction that developed countries provided billions in subsidies for fossil fuel projects, at the same time that small island states still find it hard to access the climate funds needed for adaptation to the adverse effect of global warming.

EU Climate Commissioner Connie Hedegaard, another participant at the Majuro Panel of Climate Experts, has stated: “Instead of offering unsustainable and environmentally damaging subsidies for fossil fuels, public finance should encourage the development of new industries and businesses that are emerging in the course of the low-carbon transition.”

The World Bank’s van Trotsenburg acknowledged the tension between funding different energy systems: “It’s a sensitive issue because ultimately it will need to be resolved by the countries themselves. This raises awareness about the consistency of approach. Clearly when you have a global challenge like climate change, consistencies and inconsistencies will need to be debated and ultimately resolved.”