Climate negotiators are mulling a late-night European Union proposal to resolve an impasse over financing for nations hit by climate-fuelled disasters and pushing this year's UN climate summit in Egypt closer to a final deal.
The EU proposal would be to set up a special fund for covering loss and damage in the most vulnerable countries - but funded from a "broad donor base".
That suggests high-emitting emerging economies like China would have to contribute, rather than having the fund be financed only by rich nations that have historically contributed the most to warming.
"What we would propose is to establish a loss and damage response fund for the most vulnerable countries," EU climate policy chief Frans Timmermans told the COP27 summit on Friday.
The loss and damage issue has dominated this year's summit, with more than 130 developing countries demanding that the meeting deliver a deal on a new fund to help them cope with the irreparable damage of floods, drought and other climate-fuelled impacts.
The United States and EU had previously resisted the idea, fearing it could open the door to establishing legal liability.
The EU's latest proposal offered a middle ground - but Timmermans stipulated that it should be met by countries agreeing to step up their ambition to slow climate change.
The conditions attached to the offer included that countries must agree to phase down all fossil fuels, and phase down unabated coal-fuelled power generation as soon as possible - with countries submitting progress reports to make sure this gets done.
The Alliance of Small Island States and the G77 club of 134 developing countries, who have both pushed for a new fund at COP27, were consulting on their response to the EU proposal.
Pakistan's ambassador to South Korea, Nabeel Munir, said Timmermans' proposal was "positive news" but that some divisions remained.
"A lot of divergent views are still there. For us, the success of COP27 depends on what we get on loss and damage."
The EU offer is at odds with a proposal by developing countries and China that called for all developing countries to have access to the fund. That proposal used a UN definition that would have allowed China to receive, not contribute, money.
Timmermans' offer goes further than the United States has so far indicated it would be willing to go on loss and damage funding. Deals at COP27 must be made with support from all of the nearly 200 countries present at the talks.
"The US seems cornered," one observer in the negotiations said.
UN chief Antonio Guterres earlier told the summit that negotiators must overcome a "breakdown in trust" between rich and poor nations to deliver a deal to save the world from the worst of global warming.
"We are at crunch time in the negotiations," he said on Thursday, as Friday's deadline loomed for a deal to emerge from the two-week conference. "The world is watching and has a simple message: stand and deliver."
"Global emissions are at their highest level in history - and rising. Climate impacts are decimating economies and societies - and growing. We know what we need to do - and we have the tools and resources to get it done."
Guterres said he hopes to see negotiators bridge their differences on loss and damage in a way that reflects the "urgency, scale and enormity of the challenge faced by developing countries."
"No one can deny the scale of loss and damage we see around the globe," he said. "The world is burning and drowning before our eyes."