With just hours to go before the scheduled close of the COP27 climate conference negotiations are stuck on both the leading themes of this conference – whether the world should agree on phasing down all fossil fuels or only coal, and what kind of a funding arrangement should there be for ‘loss and damage’, for helping countries hit by a climate event to get back on its feet.

While India’s proposal for doing away with all fossil fuels (gradually, of course) got a tactical support from the EU, many other countries such as Saudi Arabia are not lending their shoulders for the proposal.

As for ‘loss and damage’, the question is whether to set up a new fund (as developing countries want), or should the existing instruments of funding be used. Developed countries’ refrain is that if the existing instruments of finance are used for ‘loss and damage’ fund flows, then money would start flowing immediately, but if a new fund is to be set up, then it would take years to get it up and running.

But this seemingly large-hearted stand is viewed with suspicion by the developing world which fears that rich countries might hoodwink the poor countries by just labeling regular fund flows as ‘loss and damage’ finance. The existing financial architecture, with multiple players who also lend and borrow among themselves, is so labyrinthine, raising fears that the developed world could wriggle itself out of its commitments.

Against this, backdrop the EU on Friday morning, suddenly reversed its stand and said it reluctantly agreed to set up a new fund for ‘loss and damage’. EU’s lead negotiator, Frans Timmermans, said that he did not like the idea of a new fund because “we could move faster with the existing instruments”, but he agreed to a fund in deference to the demand of G-77 countries, a grouping of developing nations.

However, the EU has said that ‘loss and damage’ fund flows should be linked to mitigation efforts on a 1.5 degrees C pathway. In simpler words, EU says “we will give you money to re-build yourselves after hit by a storm or floods, but that is linked to everybody working towards cutting greenhouse gas emissions, by the way, including methane.

Such conditions look to some as unfair. Sandeep Chachra, Executive Director, ActionAid India, a climate activist body, says the global North is using ‘loss and damage’ as “a stick to whip developing countries”. He says, “this burden will fall on the shoulders of most vulnerable and poor in the global south, who are already bearing the larger part of cost of climate change.”

Observers say that a fund of sorts is likely to be set up, even if as a fig leaf for the COP, but many seemingly intractable issues would need to be solved in the coming years. For instance, the text that might be agreed upon says the funds would go to “most vulnerable” countries, which begs the question, who are vulnerable. If the ‘vulnerable countries’ are small island nations and least developed countries, then you have a deal-breaker. It would end up in funny situations—like Pakistan being ineligible for loss and damage funding, whereas Bangladesh, a better economy, would be in.

And then there is this question of who should pay. EU says that China — the world’s 2 nd largest emitter and the 2 nd largest economy — should pay. (China has unofficially said ‘no way’). Some observers believe that EU’s gambit is to split the solidarity between China and India — indeed, it has been said that the global south is standing solidly together this time. Some others, however, feel that a mention of China is also an unspoken mention of India.

Thus, even if there is some sort of an agreement at Sharm el Sheikh, there is a lot of hard work ahead even as global warming continues to ravage the world.

Importance of a ‘loss and damage’ fund
On the sidelines of COP27, Harjeet Singh, Climate Advisor, CAN International talks about the importance of a ‘loss and damage’ fund.Video Credit: M Ramesh

Harjeet Singh, Climate Advisor, CAN International, a climate activist body headquartered in Germany, says it is extremely important that we have a ‘loss and damage’ fund.”

Singh told businessline that the EU agreeing to set up a fund has a number of problems — EU talks about conditions, but not equity. He said that the definition of ‘vulnerable countries’ would run into problems because countries that “were not vulnerable once are now becoming vulnerable to climate change — such as Pakistan, Peru, Columbia and even India.”