EU proposal to create loss and damage fund turns heat on developing countries

The proposal, which implies substantial dilution of the principles of equity, common but differentiated responsibilities and respective capabilities, has the potential to splinter developing countries

Last night, as a session to take stock of the negotiations at COP27 kicked off in Sharm el Sheikh, Egypt, the EU put forward a proposal that sent the room into a tizzy. Seizing the moment and recognising the pressure that had been built to deliver something substantial to address loss and damage due to climate change impacts, the 27-country bloc from Europe, proposed to create a fund that would be tied specifically to the financing needs arising from loss and damage for particularly/most vulnerable countries. In order for the fund to be created, developing countries would have to sign on to mitigation targets in line with reducing global GHG emissions by 2030. “These are two sides of the same coin, as far as the EU is concerned,” said Frans Timmermans, vice-president of the European Commission on the floor of the plenary. 

The offer is hardly a product of magnanimity though and comes with a catch, and a pretty big one at that. According to the deal presented by Timmermans at the stocktaking plenary on Thursday night, the fund would be contingent not only on expanding the donor base beyond the conventional contributor base of developed nations and historic emitters, it would also have to include new countries from developing countries. The EU’s statement also made clear that the possibility of such a fund at this time would be conditional on how mitigation ambition is scaled up moving forward. Mitigation ambition towards meeting the Paris Agreement’s lower limit of 1.5°C warming and accelerating the peaking of greenhouse gas emissions would have to be pursued by developing countries, too, and not just developed countries, on whom the onus of limiting warming has thus far been on. 

These demands can be seen in direct contravention of the principles of the UN convention on climate change and the Paris Agreement, which guarantee equity, common but differentiated responsibilities (CBDR) and the right to pursue development for those who have not benefited from historic emissions. These emissions have come from rich developed countries which are primarily responsible for pushing global temperatures higher and the devastating implications that have come with it. Several developed countries, including Switzerland, Australia, UK and Norway, expressed their support for the deal forwarded by the EU. 

The proposal

The proposal for the L&D fund referred to by the EU during the plenary was submitted to the UNFCCC on November 15, the day on which two other proposals from developing country bloc G77 and Environment Integrity Group (EIG) were also sent to the facilitating body. The proposal seeks to expedite the process of setting up a funding mechanism to deal with L&D, starting immediately. The first year, up to COP28, would be spent identifying the existing needs and gaps in the current mechanisms to address loss and damage. This “gap analysis” would explore loss and damage according to themes, impacts, specific vulnerabilities of nations and communities due to socio-economic situations and geographic locations.

For the second year, starting from COP28, the focus would be on what to make of the information gathered over the first year—how exactly to address the gaps that have been identified. What kind of mechanisms and arrangements would be needed would be subject to decisions made through consultations between parties.

In terms of finance, however, the EU proposal is clear that responsibility would not only lie with developed countries. Money for the fund would have to come through an “expanded donor base” and a “mosaic of innovative financing solutions” that includes mechanisms outside the ambit of the UNFCCC and tools such as debt relief, debt swaps and reforms to multilateral development banks such as the IMF and the World Bank, which make it easier for vulnerable countries to access funds quickly.

The condition on expanding the donor base immediately raised red flags among developing countries, several of which claimed that the clause is an attempt to renegotiate the principles of equity and CBDR enshrined in the UNFCCC framework as well as any agreements that have been reached under it, including the Paris Agreement. These principles have been pivotal, thus far, in shielding developing countries that have a low share in historic emissions from any financial or emission reduction obligations that are not purely voluntary. 

“Developed countries always have ambitious goals and the largest contributions to financial resources; they always talk a lot but deliver very little. Developed countries are also pushing very hard the big lie of reaching 1.5°C in the context of achieving net-zero by 2050. This is not under the principles of the Paris Agreement, the narrative is not under equity, CBDR and climate justice. They are trying to shift the burden of common but differentiated responsibilities to common but shared responsibilities. We want to work on mitigation, and enhance ambition, but always under the principles of equity…This week, we saw an effort by developed countries in all the rooms across all agenda items to dilute principles of the convention and the Paris Agreement,” said Diego Pacheco, lead negotiator of Bolivia and the spokesperson for the Like-Minded Developing Countries (LMDC) group.

The fear among many now is that while developed countries have woefully under-delivered on past financial commitments, the burden of funding the future of climate action will be inauspiciously passed on to developing countries, the private sector and non-party financial entities such as MDBs.

Where mitigation fits in

Finance for the L&D fund is not the only forum where the cardinal line on equity was crossed in the EU’s proposed deal. In a stroke of masterful (and devious) negotiation strategy, the EU linked the fate of the fund to mitigation ambition, and put developing countries on the ropes. Going by the principles of the convention, the move could be read as unfair and damaging to the prospects of equitable development guaranteed to developing countries under the UNFCCC convention and the Paris Agreement. 

With support from several developed countries, the EU’s deal includes lines on limiting warming to 1.5°C and the reduction of global GHG emissions by 2030. The issue of peaking global emissions by 2025 has been raised by others, such as the US, Japan, Switzerland and Norway, at multiple negotiation tracks, including during talks on the COP27 cover decision text. The implications are veiled but clear. With emissions already having peaked in most developed countries, the onus of peaking global emissions by 2025 will now rest on early peaking of emissions in several developing countries. Switzerland, during the stocktaking plenary last night, explicitly called for this burden to be shared by all, including large developing economies. 

For many, like India, which on paper is a large emitter in absolute terms, but has per capita emissions and incomes that are a fraction of per capita emissions and incomes in the developed world, such requirements instantly raise red flags.

End of the line for G77+China?

For anyone paying attention to the politics of climate action, the attempt to renege on principles agreed in the past should not come as a surprise. This year at COP27, however, the effort to dilute established principles of the convention reached new heights. A concerted and coordinated effort has been clearly visible across negotiation tracks, including those pertaining to mitigation ambition, finance, agriculture and the second periodic review. While the consensus mechanism that the UNFCCC operates under might make it inconvenient for developed parties to accomplish this dilution across the board over a single year, the danger that this strategy holds goes beyond single nations or any single year. The chance of EU’s Thursday night “deal” gaining consensus this year is infinitesimally small, but it offers a glimpse at a return to the tried and tested strategy of divide and rule. 

By offering the fund to an as yet undefined group of “particularly vulnerable” countries, the bloc along with its allies has with one fell swoop managed to create fractures, while also succeeding in creating easy villains of those blocking the move. The G77+China, a negotiating group that includes several highly vulnerable and poor nations, could see displeasure among members who would’ve possibly made the cut to being “particularly vulnerable” for a deal that was rejected at the behest of the larger economies within it. Such fractures stretch across negotiation tracks, and it would hardly be a surprise if in the years to come they lead to an ultimate splinter in the group that has often been the strongest and loudest voice in defence of the right to pursue equitable development.