Wealthy countries are earning billions of dollars on funds they send to low-income countries like Nigeria to help those nations combat climate change.
Japan, France, Germany, and the United States and other rich nations have sent climate funding to the developing world in recent years. But they attach interest rates or conditions that benefit the lending nations, Reuters reported, drawing from data from the United Nations and Organisation for Economic Cooperation and Development.
Why This Matters
Analysts argue that wealthy countries push nations like Nigeria into climate finance-related debt by redirecting funds from the programme back into their own economies.
They also contend that rich countries overstate their contributions to the UN $100 billion climate financing pledge, as a portion of these funds returns home through loan repayments, interest, and work contracts.
Additionally, by channelling money back into their own economies, wealthy nations contradict the notion that they should compensate poorer countries for the historical pollution that has driven climate change.
“From a justice perspective, that’s just deeply reprehensible,” said Liane Schalatek, associate director of the Washington branch of the Heinrich-Boll Foundation, a German think tank that promotes environmental policies.
Worst climate impacts
Africa will be $2.5 trillion short of the necessary funding to cope with climate change by 2030, according to the United Nations. Despite contributing the least to greenhouse gas emissions, the continent is facing some of the worst climate impacts.
Developed countries pledged to send $100 billion annually to poorer nations to help them reduce emissions and manage extreme weather, a commitment first made in 2009 and reaffirmed in the 2015 Paris Agreement.
From 2015 to 2020, roughly $353 billion was paid, including $189 billion in direct payments from wealthy nations, which were the focus of the Reuters analysis.
Over half of this direct funding (about 54%) came as loans rather than grants, with at least $18 billion loaned at market-rate interest. Japan, France, Germany, and the United States were major lenders, contributing $10.2 billion, $3.6 billion, $1.9 billion, and $1.5 billion respectively.
Additionally, about $11 billion in loans, mostly from Japan, required recipient nations to hire or purchase from companies in the lending countries. At least $10.6 billion in grants from 24 countries and the European Union also had similar conditions, typically benefiting companies, nonprofits, or public agencies from the donor nations.
More loans than grant for Nigeria
Between 2015 and 2020, Nigeria and nine other debt-distressed nations collectively took on $11.5 billion in climate finance loans. Nigeria received $707.6 million in loans and $492.1 million in aid during this period. Egypt, at the top of the list, obtained $2.1 billion in loans and $556.2 million in aid. The interest rates for these loans were not specified.
Analysts argue that grants with conditions requiring recipients to hire suppliers from wealthy countries are less harmful than loans with similar conditions, as grants do not require repayment. In some cases, such arrangements are necessary when recipient countries lack the expertise to provide certain services.
However, these conditions can also benefit donor economies at the expense of developing nations. This dynamic undermines the goal of helping vulnerable countries develop the resilience and technology needed to cope with climate change, according to climate and finance experts.
“Climate finance provision should not be a business opportunity,” Schalatek said. It should “serve the needs and priorities of recipient developing countries.”
Rich nations respond
Japan, Germany, France, and the United States say they consider a country’s debt load when deciding between loans or grants, prioritizing grants for the poorest nations.
A Reuters review found that 83% of climate funding for the lowest-income countries was in the form of grants. However, these countries received, on average, less than half the climate funding compared to higher-income nations, which primarily received loans.
“A mix of loans and grants ensures that public donor funding can be directed to countries that need it most, while economically stronger countries can benefit from better-than-market rate loan conditions,” said Heike Henn, director for climate, energy and environment at Germany’s Federal Ministry for Economic Cooperation and Development.
Germany has contributed $45 billion in climate funding, 52% of it loaned.
The French Development Agency (AFD) offers developing nations low interest rates that would normally be available only to the richest countries on the open market, said Atika Ben Maid, deputy head of the AFD’s Climate and Nature Division.
About 90% of France’s $28 billion contribution came in the form of loans – the highest share of any nation.
A U.S. State Department spokesperson said loans are “appropriate and cost-effective” for revenue-producing projects. Grants typically go to other types of projects in “low-income and climate-vulnerable communities.”
The United States provided $9.5 billion in climate funding, 31% of it loaned.
“It should also be emphasized that the climate finance provisions of the Paris Agreement are not based on ‘making amends’ for harm caused by historic emissions,” the spokesperson said.
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