So far, only two small countries have offered to offer funds for loss and damage. (AP)

As the European Union made a dramatic intervention to agree to key demands made by the developing world regarding financial assistance for poor countries, a breakthrough appeared possible in the stalled international climate talks on Friday.

At the COP27 UN climate summit in Egypt early on Friday, Frans Timmermans, vice president of the European Commission, put forth a proposal on behalf of the EU that would have it accept the creation of a loss and damage fund.

Rich nations had been resisting this important demand, claiming that it would take time to determine whether such a fund was necessary and how it would function. Timmermans claimed on Friday morning that the EU had paid attention to the G77 group of developing nations, whose main demand for this summit is the creation of a fund.

Loss and damage refer to the financial resources required for rescue and reconstruction following climate-related disasters, as well as the havoc that extreme weather can wreak on the physical and social infrastructure of developing nations.

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.”

He added that “clear conditions” would be attached to any fund. It would be geared toward supporting the most vulnerable, with a broad financial donor base contributing.

The fund would function as one piece of a mosaic of solutions, such as the reform of multilateral development banks, rather than independently.

In addition, the EU wants stronger regulations on updated national plans for emissions reductions in line with the Paris Agreement's 1.5-degree target and peaking of global emissions by 2025. “This would have to be a package deal,” Timmermans said.

The proposal is being considered by developing nations. The Caribbean Community Secretary General, Carla Barnett, provided a conflicted 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 their original negotiating position by making it sound like a compromise when they know very well that it is not. It is completely disingenuous.”

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.