Why climate finance for the Arctic should include compensation for loss and damage

As the Arctic continues to warm three times faster than the global average, the diminishing ice cover, thawing permafrost, and altered species behaviours are taking a toll on people and ecosystems. As ELENA F. TRACY explains, it is time for a discussion of how to compensate Arctic and Indigenous communities for the losses and damages they have experienced because of the climate crisis.

Climate finance can be explained as funds drawn from a variety of public and private sources to address the climate crisis through mitigation and adaptation. An example of mitigation climate finance is investing in renewable energy sources to reduce greenhouse gas (GHG) emissions. Adaptation finance covers a broad spectrum of activities to help communities adapt to rapidly changing environmental conditions.

The climate crisis has exacerbated growing social and economic inequalities. As the recently released Intergovernmental Panel on Climate Change report emphasized, victims of extreme weather conditions like droughts and floods are more likely to live in poor countries that have scarce financial resources to help communities adapt to or recover from devastating climate events.

Environmental justice

Not surprisingly, at the heart of climate finance lies a key principle of international law on environmental justice: common but differentiated responsibilities. Essentially what this means is that whereas all nations are responsible for collectively addressing the environmental degradation of the global commons (including the global climate), more prosperous societies must assume a greater share of the responsibility.

This is because their past economic development, unimpeded by today’s environmental regulations, is associated with large volumes of GHGs that were emitted during the industrialization process. Industrialization elevated per capita consumption in these countries to levels that are unattainable for less developed nations. As a result, these more prosperous societies should help those that are less developed to transition to green energy so all nations can collectively reach net-zero GHG emissions by 2050 and limit the global temperature increase to 1.5 °C or less.

In the Arctic context, the principle of environmental justice has also been applied in mitigation and adaptation finance with regards to remote Indigenous and northern communities that still rely on diesel as their primary energy source. The Government of Canada has established a fund to finance the transition from diesel to solar, wind or geothermal energy in remote northern and Indigenous communities. Similarly, the Government of Alaska focused on adaptation strategies when establishing its Alaska Climate Change Impact programme. The programme delivers climate finance to remote communities threatened by climate-related natural hazards, such as coastline erosion, flooding and thawing permafrost.

But given the magnitude and dynamics of the impact of the climate crisis in the Arctic, the current scope of adaptation finance can be seen as too little, too late. For example, reindeer herders in Fennoscandia and Russia have witnessed losses in their herds due to extreme weather events caused by the climate crisis. The immense loss in ice cover has reduced the period when hunters in northwest Greenland can travel by dogsled to only three months from five months and has reduced the safety of transportation on ice. What can compensate for these losses?

Arctic communities need their own loss and damage climate finance

An important innovation in climate finance is the establishment of the loss and damage funding arrangement during the COP27 negotiations in 2022 in Sharm el-Sheikh. United Nations Secretary-General António Guterres called on all governments “to tax the windfall profits of fossil fuel companies” so these revenues can be redirected towards vulnerable communities that are struggling due to the effects of climate change—such as devastating floods, crops destroyed by droughts, and rising food and energy prices.

Yet while the UN-based climate finance mechanism provides a commendable model, it is not suitable to address the needs of vulnerable Arctic populations. The COP27 focus on developing countries delegates future climate reparation to be distributed on a country-by-country basis, leaving Arctic communities outside the bounds of global compensation payments. Legally, these communities are located within the developed world, so they will not be eligible for these emerging international mechanisms.

For example, Inuit communities fall under the sovereignty of wealthy nations like the US (Alaska), Canada, Denmark (Greenland) and Russia (Chukotka). Yet in terms of socio-economic conditions, these communities have more in common with the vulnerable populations of the global South. Indigenous populations in northern regions are suffering the impacts of the economic model that was imposed on them by the colonial powers that treated the Arctic as a place to exploit and extract natural resources.

It is clear that building strong and resilient Indigenous communities in the Arctic is possible only through a meaningful reconciliation process that includes compensation for the damage that has been done to the very fabric of Indigenous identities and livelihoods. To be fair, this compensation should also include payment for losses and damages caused by the climate crisis.