UK demands repayment of climate aid to poor nations

Developing countries attack plan to offer warming help as loans instead of grants
The fund is designed to help nations like Tuvalu which face extreme effects of warming
The fund is designed to help nations like Tuvalu which face extreme effects of warming. Photograph: Matthieu Paley/Corbis

Britain's £800m international project to help the poorest countries in the world adapt to climate change was under fire last night after it emerged that almost all the money offered by Gordon Brown will have to be repaid with interest.

The UK environmental transformation fund was announced by the prime minister to international acclaim in November 2007, and was widely expected to be made in direct grants to countries experiencing extreme droughts, storms and sea level rise associated with climate change.


A letter signed by two government ministers and seen by the Guardian shows that Britain has been pressing other G8 countries to also give money to the new fund, which will be launched in July in Japan at the G8's annual meeting.

"UK contributions from the environmental transformation fund ... will need to be primarily concessional loans. We will also talk to other donor countries about the possibility of grants," the letter, signed by environment minister Phil Woolas and international aid counterpart Gareth Thomas, said.

The letter shows that the US has resisted the idea of loans, preferring to give developing countries grants. "We understand that grants would be the US preferred approach," the British ministers say. Both their departments are understood to have argued strongly that the money should be in direct grant form on principle, but were overruled by the Treasury.

Last night several countries joined environment and development groups to condemn the loans. "We need urgently to prepare for climate change, but we are not in a position to pay back loans," said a spokesman for the Bangladesh high commission in London.

"The climate situation has not been created by us. The money should come spontaneously from rich countries and not be a loan." Bangladesh expects up to 80 million people to be displaced by climate change within 50 years.

A senior Brazilian diplomat was "indignant" that poor countries should have to borrow the money to prepare their populations for climate change. "It is not nearly enough money to tackle the problem, but I am not surprised. Increasing the debt of countries is not a good idea."

Development groups said they were dismayed that climate adaptation funds would be funded by any sort of loan. "The money should be additional to aid," said Toby Quantrill, head of international government at WWF.

"It should be grants and not loans, otherwise developing countries will have to pay twice, once for the emissions that caused the problems and then again to clean up the mess," said Tom Sharman, a policy adviser with ActionAid in London. "This is not money that is additional to Britain's aid budget. It seems strange to be cancelling debt and then inviting poor countries to take on new debt."

The fund will be promoted as the G8's showpiece contribution to developing countries at the next meeting of the organisation, in Japan in July. The US and Japan are understood to have agreed to contribute but figures have not yet been decided. Britain hopes that the fund will attract more than £1.5bn.
The principle of a major fund to help poor countries adapt has been widely welcomed because the international community has so far contributed very little. The World Bank administers 10 climate funds but the majority have little money available.

Concerns were also expressed that the World Bank, to which Britain is now the largest contributor, is now becoming the main disburser of international money for climate change as well as a major funder of climate change emissions.

"Between 2005 and 2007 the Bank financed greenhouse gas-emitting fossil fuel projects from coal, oil and gas to the tune of $1.5bn (£767m). At the same time the Bank acts as trustee to 10 greenhouse gas-reducing funds, pocketing an average 13% 'overhead' in the process", said Janet Redman, an analyst with Washington thinktank Foreign Policy in Focus.

According to the government, the £800m will be spent over the next three years, focusing on projects that support development through environmental protection and which help poor countries to tackle climate change. Of the money, £50m has been earmarked for helping 10 countries in central Africa to tackle deforestation in the Congo basin.

In a statement placed on the Department for International Development (Dfid) website, a government spokeswoman said: "A number of details are still under discussion, including the structure of the funds, how they are governed, which countries are prioritised for funding, and how much money different donors will commit.

"The World Bank is currently consulting widely on the proposals. Dfid, Defra [the environment department] and other Whitehall departments will continue to participate in further consultation discussions with the World Bank, other multilateral and bilateral donors, developing countries, the UN system and civil society with the aim of launching the funds at the G8 summit in July.

"Funding should support country-owned action plans and must be consistent with wider poverty reduction activities at a country level."