Richer countries are starting to pay poorer ones for climate change damages

It was 2 a.m. when floodwaters started pouring into Christopher Bingala’s house. Cyclone Freddy, the longest-lasting tropical cyclone ever recorded, brought a deluge of rain to southern Malawi in 2023. He managed to get his six kids to higher ground but lost his house and livestock.

As a subsistence farmer, Bingala didn’t have the resources to start over. But then he got a payment of about $750, which he used to build his family a new house.

The payment is one of the first examples of “loss and damage” compensation, a new kind of funding specifically for climate change-related disasters. Low-income countries are bearing the brunt of more intense storms and droughts but have done little to produce the pollution that’s heating up the planet. So last year, wealthier countries agreed to create a fund specifically to pay for the damages from climate change.

So far, about $720 million has been pledged from countries, like the European Union, U.S. and United Arab Emirates. But climate experts warn that with hurricanes and floods only getting worse, that amount will fall far short.

At the COP29 climate summit underway in Baku, Azerbaijan, countries are negotiating how much is owed to developing nations, as part of a larger “climate finance” package that includes loans and investments.

“We just hope that the global north and the nations whose economy is fueled by the emissions – they come to the plate and take up their responsibility to look at what they’re causing us,” says Philip Davis, prime minister of the Commonwealth of the Bahamas.

Finding a way to start over

The havoc from Cyclone Freddy was widespread across several countries, displacing 650,000 people from their homes in Malawi alone. The country received six months of rain in just six days.

After their house collapsed in the floodwaters, Bingala and his family took refuge on higher ground, but the situation quickly deteriorated. They started running out of food.

“We got to a point where we would eat meat from animals that had died from the cyclone because we lacked food,” Bingala says. “This was a very difficult moment in my life.”

Along with thousands of others, he and his family were relocated to temporary camps. But as a small-scale farmer and fisherman, Bingala had no safety net to fall back on. Then he received the cash payment, which allowed him to move to a new village and build a better house. There are still challenges – Bingala is still trying to get his kids back in school and he’s hoping to get a few livestock again. But he’s glad his family is living in a less flood-prone region.

“They are better off here because they are not in danger of the water challenges we had back in Makhanga,” Bingala says. “This is a dry and upper land, so my children are ok and they’re happy. They’re living a happy life.”

Piloting a system to pay damages

The payment Bingala received came from the government of Scotland, the first country to dedicate funding specifically for loss and damage. The funds have gone to several countries so far. In Malawi, they were given out by GiveDirectly, a non-profit that specializes in providing cash grants to those in need with no strings attached.

About 2,700 families got payments of around $750, which can be equivalent to two years of income in Malawi. Many used the money to rebuild homes, while others invested in seeds, fertilizers and livestock, or putting their kids back in school.

“Low-income households in low-income countries have far less protections from extreme events,” says Yolande Wright, vice president of partnerships at GiveDirectly. “They may not have any sort of insurance. There may not be any insurance products available, even if they wanted to buy them.”

The program in Malawi is a pilot, in a sense, for a larger system to pay for loss and damage. Last year, countries agreed to create the fund as a way to compensate lower-income countries, which have low greenhouse gas emissions overall. Almost half of all emissions since the Industrial Revolution have come from the U.S. and Europe.

“The very poor, low-income households in Malawi have contributed the least to the climate problem,” Wright says. “Many of them are not connected to electricity. They don’t own a car or even a motor bike.”

A ballooning need for loss and damage funding

Increasingly severe hurricanes, storms and droughts pose a massive financial burden on developing countries, especially those already in debt. In the Bahamas, Prime Minister Davis says his country’s national debt went up after Hurricane Dorian hit in 2019.

“For me to recover and rebuild, I have to borrow,” Davis says. “Forty percent of my national debt could be directly attributed to the consequences of climate change.”

So far, the majority of $720 million pledged for loss and damage has yet to start flowing. At the COP29 summit, countries finalized the paperwork to create the fund, which will be housed at the World Bank. The fund’s guidelines have yet to be set up, like determining which countries will receive funding and for what kinds of damages.

Many low-income countries have argued the funding should go to more than just disaster recovery. Some could be used to relocate villages in the path of sea level rise, or to compensate countries for the loss of important cultural sites or ecological resources, like coral reefs.

The need for loss and damage funding is only expected to balloon as disasters get more extreme. One recent study found it will reach $250 billion per year by 2030. Davis says he hopes richer countries will contribute more in “enlightened self-interest,” since many humanitarian crises do not stay confined to country borders.

“If they do nothing, they will be the worst for it,” Davis says. “When my islands are swallowed up by the sea, then what do my people do? They’ll either become climate refugees or they’ll be doomed to a watery grave.”