What is ‘non-economic’ loss and damage (NELD)?

Economic versus non-economic loss and damage

In the field of climate policy, loss and damage (sometimes referred to as ‘losses and damages’) refers broadly to the adverse impacts of climate change on human societies and the natural environment that have not been or cannot be minimised through climate adaptation efforts or by reducing global greenhouse gas emissions. These impacts are already being felt acutely by climate-vulnerable developing countries, especially small island developing states (SIDS). The term ‘Loss and Damage’ (L&D) (with initial capitals), takes on an additional meaning in international climate negotiations and policy, where it refers to debates around who is to pay for loss and damage. Our explainer What is climate change ‘Loss and Damage’? addresses this topic in more detail.

Loss and damage can be described as either economic or non-economic. The former affects resources, goods and services that are commonly traded in markets, which can be evaluated using market prices. Economic loss and damage could be damage to crops, homes or infrastructure. In contrast, non-economic loss and damage (or ‘NELD’) – the focus of this explainer – refers to a broad range of harmful impacts that are not so easily quantified, especially in financial terms. This makes it difficult to perform consistent and accurate evaluations of NELD that reflect the many forms of harm, and the severity of harm, experienced by local actors. Ultimately, there is no comprehensive, widely agreed definition of loss and damage or, by extension, of NELD specifically.

Impacts and importance of NELD

NELD has major implications for societal and ecological welfare. It may include harm to individuals (including to life itself, health and mobility); societies (e.g. loss of territory, cultural heritage, Indigenous and local knowledge, and certain untraded ecosystem services); and the natural environment (e.g. loss of and damage to biodiversity and habitats).

Discussions of NELD are highly pertinent to – and often initiated by – small island developing states that are threatened existentially by climate change. There is growing input from other climate-vulnerable developing countries on NELD.

The concept of NELD also features in climate justice discourse, where climate change-induced cultural loss can be viewed as a human rights violation.

Recognition of the importance of NELD is illustrated by its inclusion in the Paris Agreement (Article 8); in other UN Framework Convention on Climate Change documents like this 2013 technical paper and the subsequent Warsaw International Mechanism; and in national disaster risk reduction planning (although NELD may not be adequately reported in these documents).

Competing approaches to evaluating NELD

Some experts endeavour to translate NELD into quantifiable terms, e.g. by comparing it to other forms of harm, including economic ones, under the umbrella of holistic ‘total economic value’. A key UN technical paper commissioned after COP18 in 2012 reviewed several ‘quasi-economic’ approaches: economic valuation, multi-criteria decision analysis, risk indices, and semi-quantitative assessments. Economic valuation may include ‘willingness to pay’ questionnaires to gauge the hypothetical value of non-economic losses. This technique has attracted some criticism since lower-income communities will have fewer financial resources available and will, therefore, typically state that they are willing to pay less to rectify NELD than higher-income peers.

Others question these quasi-economic approaches on grounds of methodology, philosophy and usefulness for real-world policy design. Instead, contrasting voices propose qualitative, descriptive, rights- and power-based frameworks. These alternative approaches purport to understand NELD beyond financial compensation to support strategic planning for and responses to NELD. They promote consultation with affected communities to identify and evaluate loss and damage in non-quantitative terms.

Different ways of understanding NELD diverge on several questions, including adoption of qualitative versus quantitative frameworks; different non-economic value systems; and the extent to which they promote ‘bottom-up’, consultative evaluation techniques. Qualitative descriptions of NELD are useful to grasp community needs in advance planning and in navigating disaster response. However, in international negotiations and finance, it may be necessary to adopt primarily quantifiable frameworks.

Additional considerations for evaluating and predicting NELD include accounting for non-climate factors that determine the extent of loss and damage, e.g. the prevalence of adequate adaptation planning; and recognition that some forms of loss and damage are not obvious or predictable before they occur. These considerations suggest that evaluations of NELD must be flexible enough to account for human capacity to adapt both before and after damaging impacts have occurred. Evaluation also needs to be highly tailored to local contexts, given the diversity of local impacts.

Incorporating holistic understanding of NELD into advance planning, disaster response and international negotiations will require practical research into defining and evaluating NELD.

NELD in climate change adaptation planning

Initial research into national policies’ treatment of NELD in small island developing states indicates that this form of loss and damage is largely omitted from national adaptation planning. Where components of NELD are named, these impacts may be listed separately under items such as ‘incidence of disease’ or ‘loss of traditional lifestyles’ rather than included as a distinct form of loss and damage. Omitting NELD from national planning can affect cost–benefit analyses, which may not assign sufficient value to supporting the reconstruction of vulnerable communities’ ways of life as a result.

NELD in UN negotiations and processes

In November 2022, at the COP27 UN climate conference in Egypt, world leaders decided to establish a Loss and Damage Fund to address the adverse impacts of climate change, especially on developing countries. In the lead-up to COP28 in 2023, members of the multi-country Loss and Damage Transitional Committee are meeting to develop and propose a design for the new Fund that will be structurally sound and adequately endowed. Both economic and non-economic Loss and Damage are being considered, though discussions about the latter are hindered by the lack of consensus over how to define and evaluate NELD.

At the UN Bonn climate conference in June 2023, the second session of the Glasgow Dialogue on Loss and Damage was the primary forum for Loss and Damage discussion. The Dialogue is a process established at COP26 in 2021 that operates in parallel, but complementarily, to the work of the Transitional Committee. The second Dialogue appeared to focus on high-level principles like the need to avoid redundancy with existing channels for humanitarian aid, rather than on how to design or fill the Loss and Damage Fund, including how it will address NELD.

This Explainer was written by Alejandra Padin-Dujon with review by Denyse Dookie and Georgina Kyriacou.