Reuters news agency, in collaboration with the Big Local News journalism program at Stanford University, has discovered that wealthy countries such as the United States, Japan, France, and Germany are reaping billions of dollars in economic benefits from climate change aid given to the poorest nations on the planet.
Based on an in-depth analysis of figures published by the United Nations and the Organization for Economic Cooperation and Development (OECD), the Reuters report revealed that loans given to developing nations framed as climate change assistance have siphoned off billions of dollars from poorer countries.
In 2009, at the 15th Conference of Parties (COP15), wealthy nations committed to a collective goal of “mobilizing” $100 billion a year for use in combating climate change in poorer nations.
While this annual target was only first fully met in 2022, the COP15 commitment has spurred wealthy nations to loan at least $18 billion at market-rate interest levels to poor countries in the name of combating climate change, including $10.2 billion from Japan, $3.6 billion from France, $1.9 billion from Germany, and $1.5 billion from the United States.
Another $11 billion in climate change loans, most of which came from Japan, specifically required that recipients must spend that money on materials and companies from the issuer nation. Reuters has also discovered at least $10.6 billion in the form of grants that also obliged recipient nations to hire companies and buy materials from specific nations, usually the donor. This combined $20.6 billion in “aid”, in effect, serves to funnel a large part of the money straight back to the issuing nations’ economies.
“This practice of issuing climate loans at market rates or putting conditions on funding that benefit the donor is just deeply reprehensible,” said Liane Schalataek, the associate director of the Heinrich-Boll Foundation. “Combating climate change should not be a business opportunity. It should be about serving the needs of developing countries.”
Donor nations defend the practice
According to Reuters, wealthy countries provided $189 billion from 2015 to 2020 in direct country-to-country assistance, with 54% of that amount in the form of loans. As a result, many of the world’s poorest countries have been saddled with crippling debt, making it even more difficult for them to combat climate change. A 2022 report from the United Nations revealed that more than half of the most severely indebted poor countries are also ranked as being the most vulnerable to climate change.
“The benefits that donor countries receive is completely disproportional and overshadows the primary objective of combating climate change in developing countries,” said Ritu Bharadwaj, a climate governance and finance researcher for the International Institute for Environment and Development, a UK policy think tank.
When reached for comment by Reuters, representatives of the four countries (Japan, Germany, France, and the U.S.) that have profited the most from climate change aid to poorer countries defended their policies, saying that they carefully consider the amount of debt a recipient nation already has before offering them loans or conditional grants.
“A mix of loans and grants ensures that funding gets to the countries that need it most,” said Heike Henn, director for climate, energy and environment at Germany’s Federal Ministry for Economic Cooperation and Development (BMZ), noting that Germany has provided $45 billion in climate funding to developing countries, more than half of which was in the form of loans.
Atika Ben Maid, deputy head of France’s Development Agency (AFD), stated that it offers concessional loans to developing countries at interest rates that would normally only be available to wealthy countries with a good credit rating. Approximately 90% of France’s $28 billion in climate funding has been in the form of loans.
A spokesperson for the U.S. State Department, who preferred to remain anonymous, told Reuters that loans to developing countries are “appropriate and cost-effective” for some projects and that grants “typically” go to low-income and climate-vulnerable communities. The United States has given $9.5 billion in climate funding since 2015, a third of which was in the form of loans. The spokesperson also emphasized that providing climate financing for developing nations was not to “make amends” for harm caused by “historic emissions.”
“It’s like setting a building on fire and then selling fire extinguishers outside,” said Andres Mogro, the former climate negotiator for Ecuador, concerning the practice.
Sometimes questionable but always profitable
According to Reuters, at least $3 billion in funding described as combating climate change has gone to projects that either did nothing or exacerbated conditions. For instance, one investigation revealed that “climate change” funding was going to projects such as building a coal plant, a hotel, and chocolate shops, all of which have no connection whatsoever to climate change.
In another case investigated by Reuters, France gave Ecuador a $118 million loan at market interest rates (5.88%) to build an aerial tramway in Guayaquil, to reduce carbon emissions from commuters. The tramway was built by a French company and nearly all of its components were manufactured in France. Furthermore, the French company operates the tramway and receives 100% of the fares from commuters. That single $118 million loan will earn the French government $76 million in interest, while the tramway has failed to attract riders and thus reduce emissions.
A spokesperson from the AFD said that the agency assessed the risk of financial stress before approving the loan and that it stands by the Guayaquil tramway project. In the AFD’s annual report in 2022, it stated that 71% of its projects benefit “at least one” French actor and that they result in more than 2 billion euros in direct economic benefits for France.
Similarly, at least one-third of climate loans from Japan stipulate that borrowers use at least some of the money to hire Japanese companies, which has funneled at least $10.8 billion back to the Japanese economy. For instance, a project to build an electrified railway and subway in the Philippines earned Japanese railcar manufacturers more than $1.3 billion, while a rail expansion project earned Japanese contractors more than $1 billion.
When contacted by Reuters, Kiyofumi Takashima, a spokesperson for JICA (Japan International Cooperation Agency) said that loans such as these are on “very favorable terms for borrowers and usually involve local consultants, contractors, and workers”. Takashima also added that Japanese contractors “make full efforts” to transfer technology and skills to recipient nations.
“Aid that comes with hiring conditions robs local companies of business opportunities and climates the chances for developing countries to build expertise,” said Erika Lennon, a senior attorney at the Center for International Environmental Law.
According to Reuters, at least 18% of all climate-related grants between 2015 and 2020 had hiring and contracting requirements for part or all of the grants. Furthermore, the European Union has issued at least $4 billion in grants that require recipients to hire companies or agencies from specific countries. Likewise, the United States has issued at least $3 billion in grants, and Germany $2.7 billion in grants with similar strings attached.
