Global talks on combating climate change this year might progress best by focusing on Mexico's proposal for a world climate change fund, one of the European Union's top negotiators said.

The talks in Copenhagen to find a successor to the U.N.'s Kyoto protocol from 2012 are seen as the world's last chance to avert catastrophic climate change and the drought, famine and huge migrations of people it is expected to cause.

Jos Delbeke, number two in the European Commission's environment directorate, told Reuters the Mexican approach might offer the flexibility needed to unlock a deal.

It's not a question of what we like, but of what may work, and the Mexican proposal gives flexibility that may be appreciated by the United States, Japan and by other donors, he told Reuters on the sidelines of a climate conference.

The proposal sees every country in the world contributing to a central pot, with the size of contributions based on a formula that takes account of each country's population, gross domestic product and level of greenhouse gas emissions.

That central pot would then be divided among all countries according to their needs for cutting emissions, building green technologies and adapting to the impacts of climate change -- with investments such as flood barriers or drought resistant crops.

PERSONAL BUDGETS

The European Union's plans for a global deal have so far centered around linking up its Emissions Trading System (ETS) with the cap and trade systems of other countries such as the United States and Australia. The EU envisions an OECD-wide cap and trade system by 2015.

But the two approaches are not mutually exclusive, as linked carbon markets could sit within the Mexican proposal as a source of funding, Delbeke said.

In the EU, revenues from under the ETS could be a very important source, he added.

But he rejected criticisms that recent EU moves to exempt many manufacturing sectors from paying for permits to pollute under the ETS had eroded its ability to contribute.

Of all the allowances, more than half will be auctioned, he said. For manufacturing, a significant part will be for free, but that's not for everybody, and it's not totally free allocation.

The European Commission is also looking closely at a Norwegian proposal based on trading carbon allowances between countries, but does not favor models based on personal carbon budgets, he said.

Aubrey Meyer, a climate expert at the Britain-based Global Commons Institute, is credited with bringing into common currency the notion of per capita quotas in 1995, and it has since been championed by some Chinese academics and German Chancellor Angela Merkel.

It's an extreme interpretation of fairness, Delbeke told the Adaptation and Mitigation Strategies conference.

It means tremendous transfer of resources -- billions and billions a year from the West -- and I'm not sure that's on the cards in the current economic climate.

(Additional reporting by Alister Doyle, Writing by Pete Harrison; editing by Sue Thomas)

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