Broadening the scope of loss and damage to legal liability: an experiment

The 2015 Paris Agreement represents a historic deal in the form of a strong international response to address climate change. This outcome came as a surprise for some, as several controversial issues had been postponed from previous conferences, and were expected to complicate the talks in Paris. One related to the Warsaw International Mechanism on Loss and Damage (L&D), and potential legal remedies for L&D in the form of compensation payments. This issue had been particularly contentious with some developing countries advocating ideas for climate damage liability, which developed countries were unwilling to include in an agreement. Although the negotiations on L&D secured many positive outcomes, Decision 1/CP.21 adopting the Paris Agreement notes that there is no possibility of claiming liability and financial compensation for developing countries. This article, however, argues that, rather than triggering endless compensation claims disputes, a liability mechanism could actually serve as a commitment and reciprocity device, ultimately increasing global policy ambition. In this regard, this article reports the results of two experiments testing the effects of liability rules on the climate policy investment decisions of two players that differ in wealth and vulnerability. Results show that liability rules imposing a responsibility for precaution on both parties increase cooperation significantly, consequentially minimizing risk of L&D occurrence in the first place. Liability rules could thus not only help to address future losses, but also to drive global mitigation and adaptation ambition.POLICY RELEVANCEThe research results presented in this paper suggest that policymakers would be well advised to further intensify negotiations on a climate-related compensation mechanism beyond that already committed to in the Paris Agreement. Our findings show that a compensation mechanism that implements a rather simple negligence rule makes climate cooperation more attractive and rewarding, potentially leading rich and poor nations to boost their investments in mitigation and adaptation for climate protection. Thus, far from opening up a Pandora's box of endless compensation claims towards industrialized countries, a liability mechanism could make global climate cooperation more effective, and in the longer run also less costly.