Cop27: EU proposes radical loss-and-damage funding in effort to break deadlock

Deadlocked UN climate talks in Egypt have been extended into the weekend, having been upended by a dramatic intervention by the EU. It proposed a loss-and-damage fund on Friday with an expanded range of financial sources for the most vulnerable countries.

The proposal was tied in to a requirement that countries pursue increased ambitions on reducing emissions, building on what was agreed at Cop26 in Glasgow last year – and keeping the key Paris Agreement target of maintaining global temperature increases below 1.5 degrees.

The Egyptian presidency chairing the talks, however, published a draft agreement that offered no firm proposal on the first part and fell short on the second, suggesting an impasse as loss and damage is regarded as the litmus test issue on whether Cop27 will be a success or not.

The EU proposals bring the fossil fuel sector into the frame by way of making it contribute to loss-and-damage funds for poorer countries being hit by climate-related disasters. The bloc wants large developing-world emitters such as China to pay in.

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In exchange, countries would vow to peak global emissions before 2025 and to “phase down all fossil fuels” – not just coal, which was spelt out in last year’s Glasgow Climate Pact.

It is pushing for a redrawing of country classifications in place for 30 years of Cops. At stake is the question of whether some of the world’s leading economies – such as China, Saudi Arabia and other Gulf petrostates, Russia and countries with high per capita income such as South Korea and Singapore – should start contributing for the first time to help the poorest countries experiencing the most severe climate impacts.

“The UN Framework Convention on Climate Change [UNFCCC] was written from a 1992 perspective,” said Minister for the Environment and Climate Eamon Ryan, who is leading EU negotiations on the loss-and-damage issue. “The scale of the climate crisis here and now is something we did not expect then.”

At a briefing, he said countries responsible for high levels of emissions, and with the capability and resources to provide financial assistance to poorer nations, should be part of the extended “donor base” for any new fund – as well as the aviation, shipping and fossil fuels sectors, which will earn $3.9 trillion in net profits this year.

“Large emerging economies with significant resources should be included,” he said. “Saudi Arabia said on Thursday night it must be all the responsibility of the developed world. But they have not insignificant resources. Surely they have the capability of providing funding?”

Facing into late-night negotiations, Mr Ryan said he was hoping a breakthrough was possible as it was fundamentally about climate justice. If it was not possible on this occasion, it would be revisited, he predicted.

The EU move prompted an intensification of negotiations throughout Friday. The response of the G-77 bloc of 134 developing countries, China and the US will have a big say on a possible resolution – all sides accepting a deal on loss and damage will likely ease the pathway to agreement on other issues.

This proposal “puts us on the cusp of a historic breakthrough”, said chair of the Elders leaders’ group Mary Robinson. “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.”

She added: “If adopted, this could well ignite bold reform of the wider international financial system so multilateral development banks open their coffers for those in need of loss-and-damage financing.”

If agreed, 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”, she believed.

The draft political decision calls on multilateral development banks and international financial institutions to align their spending with climate goals.

That’s a big win, according to Laurence Tubiana of the European Climate Foundation. “The moment is right,” she said. “Climate impacts are beginning to be understood as a macroeconomic risk.”

While these reforms have been talked about for years, there are two big developments forcing a change finally. Developing countries are under stress from rising inflation, growing debt burdens and currencies declining in value against the dollar. At the same time, developed countries are failing to meet their climate-finance contributions to developing countries.

Ms Tubiana said the proposals could go a long way in solving both problems.

“If Cop27 fails to explicitly call on countries to phase out production of fossil fuels, it will be a colossal political failure and a win for an industry that is killing between 3 and 5 million people annually from air pollution,” said Clare O’Connor of Friends of the Earth. “Staying below 1.5 degrees of warming requires an immediate and complete phase-out of oil, coal and gas worldwide – a ‘phase-down’ is not enough.”

Siobhán Curran of Trócaire said: “Cop27 hangs in the balance and in the final hours we urge Ireland and the EU to deliver meaningful and substantive progress on a loss-and-damage finance facility, based on equity. Affected communities can no longer be left to pay the price.”