Change in stance puts spotlight on US and China, which have both objected to fund.
A breakthrough looked possible in the deadlocked global climate talks on Friday as the European Union made a dramatic intervention to agree to key developing world demands on financial help for poor countries.
In the early hours of Friday at the Cop27 UN climate summit in Egypt, the European Commission vice-president, Frans Timmermans, launched a proposal on behalf of the EU that would see it agree to establishing a loss and damage fund.
Rich countries had been holding out against this key demand, arguing it would take time to establish whether such a fund was needed, and how it would operate.
Timmermans said on Friday morning the EU had listened to the G77 group of developing countries, for whom the establishment of a fund at this summit is a core demand.
Loss and damage refers to the ravages of extreme weather on the physical and social infrastructure of poor countries, and the finance needed for rescue and reconstruction after climate-related disasters.
Timmermans said: “We were reluctant about a fund, it was not our idea to have a fund. My reluctance was because I know from experience it takes time before a fund can be established, and more time before it is filled, whereas we have existing instruments. I really believe we could move faster with existing instruments [for climate finance]. But since they [the G77] are so attached to a fund, we have agreed.”
Timmermans added that “clear conditions” would be attached to any fund. It would be geared towards supporting the most vulnerable, with a broad financial donor base contributing.
The fund would not operate in isolation, but as part of a mosaic of solutions that includes reform of multilateral development banks, for example.
In parallel, the EU wants more ambition on cutting emissions, with stronger provisions on updated national plans for emissions cuts in line with the 1.5-degree target in the Paris Agreement and peaking global emissions by 2025. “This would have to be a package deal,” Timmermans said.
Developing countries are considering the proposal. Carla Barnett, the secretary general of the Caribbean Community, gave an ambivalent response: “There’s only one option for small island developing states, a financing fund that delivers a just pathway for the future of our countries. Division and delay tactics will not work. This is a matter we defend on the basis of justice.”
One G77 negotiator, who asked not to be named, was not impressed by the EU’s proposal. “It is a predictable attempt by the EU to break up the G77 in talks. Of course, it’s not a breakthrough. They are merely repeating its original negotiating position by making it sound like a compromise when they know very well that it is not. It is completely disingenuous.
”But some welcomed the proposal. Mary Robinson, Chair of The Elders and former president of Ireland said: “This proposal from the ministerial co-leads Jennifer Morgan and Maisa Rojas on loss and damage finance puts us on the cusp of a historic breakthrough. We’ve gone from not even having loss and damage finance on the agenda at COP27 to having a fund, a mechanism, and a flow of finance all within our grasp.
“If adopted, this could well ignite bold reform of the wider international financial system so multilateral development banks (MDBs) open their coffers for those in need of loss and damage financing. If this text is agreed at COP27 it not only delivers a UNFCCC answer to loss and damage finance, it could initiate the restructuring of international financial architecture to meet today’s global challenges.”
Australia said it welcomed the EU’s contribution and would “engage constructively with it”. On loss and damage, it was “very attracted to a new fund that benefits from a broad contributor base and focuses on the most vulnerable”.
“We want to fully examine how other institutions such as multinational development banks can interact and further develop their interaction with this fund,” said Chris Bowen, the Australian climate change minister.
There was concern that more clarity would be needed. Yamide Dagnet, director for climate justice at the Open Society Foundations, said: “I expect Friday’s discussion to turn around the issue of defining vulnerability. Both the EU and the pair of ministers’ proposals on the table refer to the “most vulnerable countries” a those who should benefit from this fund – begging the question, who is included and who is excluded into this framing, which has never been clearly defined in UN terms and could limit the benefits of the fund.”
The EU’s move throws the spotlight on the US, which has also objected to a fund and has not yet responded to the proposal.
“The EU proposal crucially establishes the principal that payments to developing countries for climate adaptation must be matched by overall global reductions in greenhouse gas emissions, which after all is the central goal of the Paris agreement,” said Paul Bledsoe, a former Clinton White House climate adviser, now with the Progressive Policy Insitute in Washington.
“But labels matter. Such payments to other nations must always be described as general foreign aid, never climate compensation or reparations, in order to gain US support. With that proviso, they stand a decent chance of gaining support from the Biden administration.”
The EU’s decision places much greater pressure on China, which has up to now avoided any obligation to provide climate finance to the poorest countries, despite being the world’s biggest emitter and second-biggest cumulative emitter, and the world’s second-biggest economy.
Under the 1992 UN Framework Convention on Climate Change, under which the conference of the parties takes place, countries are strictly delineated into developed and developing, and China is still classed as developing under the treaty.
Timmermans said: “[The fund] donor base should be under the Paris agreement and take account of the economic situations of countries in 2022 not 1992, as in the G77 proposal.”
Canada’s environment minister Steven Guilbeault said his country is supportive of the EU’s proposal, but countries like China, Saudi Arabia and Qatar should contribute to the fund given their historical emissions and wealth.
He told the Guardian: “We need to have a serious conversation about expanding the donor base. We recognise our responsibility but we are less and less large emitters compared to others. It’s in the interest of vulnerable countries to have more donors… China should definitely be there. I think there are a number of oil producing nations in the Gulf region that should be part of that. I haven’t looked at the UAE’s figures but Qatar and Saudi Arabia, yes.”
Preety Bhandari, from the World Resources Institute, said countries had three options on loss and damage. Two involved agreeing to establish a fund, either immediately or next year in Dubai. The third – the preference of the US – would not mention a fund, but agree to work on funding arrangements in and outside the UN, a reference to the need to reshape the World Bank and other international agencies to better deal with the climate crisis.
“It all boils down to political will,” Bhandari said. “This is the time for concessions and compromises. Let’s hope that common ground is found.”