Rich Nations Are Profiting Billions From Climate Aid
Far from those responsible for climate change trying to fix their mess, they're robbing those most affected blind.
Way back in 2009, COP15 was held in Copenhagen, and the climate summit ended with a milestone agreement. Developed countries committed to providing $100 billion annually in climate finance by 2020 to help developing countries respond to and mitigate the effects of climate change. Well, I have some good and bad news about this pledge. The good news is that we have provided these developing countries with these desperately needed funds. The bad news is that our governments are profiting billions of dollars off this scheme by ladening these countries with unnecessary debt at high-interest rates or only releasing funds if the countries agree to ludicrous conditions. As such, these developed countries aren’t actually paying to repair the damage their rampant pollution has caused but, instead, channelling all these funds back into their economies at the expense of those already suffering.
This revelation came from an investigation by Reuters. For years, headlines only covered and celebrated how much money was being transferred from developed countries to developing countries to help them fight climate change, not what conditions these funds were being transferred under. Most of these funds weren’t in the form of grants, which don’t have to be paid back, and instead were loans. What’s worse, many of these loans had market-rate or above-market-rate interest or lock-in contracts, which meant these developing countries could only hire services or buy materials from the country providing the loan. These practices are incredibly hypocritical of the original agreement, which states that rich countries should compensate poorer ones for their long-term pollution, not profiteer off it.
There are two big issues here: the loan problem and the contract problem. Both have heinous impacts but are entirely different. So let’s break it down.
Let’s start with the loan problem. Reuter found that more than two-thirds of financing received by middle-income countries between 2015 and 2020 was through loans, despite the fact the vast majority of these countries already face staggering and crippling debt and huge economic risks due to climate change. To add insult to injury, at least $18 billion of these loans had market-rate interest or above-market-rate interest. As pointed out by Reuters, this is far from normal, as climate aid loans tend to have no or very little interest. These loans funnel the funds back to the lending country’s economy quickly. For example, 90% of France’s $28.1 billion funding to this scheme was in the form of loans, and these loans are set to generate billions of dollars worth of interest over the next decade or so.
Let’s not gloss over the fact that these funds are meant to repair or mitigate damage that these loaning countries have caused, so the fact that not all the funds are in the form of grants is enough to be outraged by. These developing countries should not have to pay for our climate crimes. What’s more, the interest on these loans is better spent reinvested in these projects. Yes, some of the projects funded by this scheme are profit-making, such as renewable energy projects, but these countries’ economies are not buoyant enough to consistently support them. As such, lowering the costs by not having to pay interest makes them a far more viable solution.
Moreover, many of these middle-income countries have developed from low-income countries over the past few decades through loans from the developed world. As such, they are already laden with economy-ruining levels of debt. Increasing this debt without seriously increasing GDP is asking for a financial crisis. As such, these climate loans might do more damage than good.
Luckily, loans only made up 9% of the funds to low-income nations, with the rest being grants. However, developed countries found a way to ensure these funds returned to their economy.
This brings me to the second issue, the contract problem. A vast amount of these grants and loans would only be transferred if the recipient country signed a contract to hire companies and contractors or buy materials solely from the lending country. Not only does this ensure these funds come back to the lending countries’ economies, but it also ensures that these developing countries will depend on the lender for decades to come, as these funds haven’t been used to develop local expertise or industry. This is highly hypocritical of the climate funds’ initial goals, which were to explicitly enable these countries to repair and mitigate the impacts of climate change by themselves! For example, funds with such conditions can’t be used to grow a developing country’s native renewable energy industry, as all the parts, expertise, and skilled workers entirely come from the lending country. This, in turn, also keeps the developed nation’s economy suppressed as it cuts off a route for their economy to expand, potentially ensuring the developed nation’s economy isn’t impacted in that specific sector.
These developed countries have tried to justify using these loans and grant conditions, but their justifications fall flat. Germany’s Federal Ministry for Economic Cooperation and Development said, “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.” Sadly, Reuters data shows that many countries that desperately need funding don’t get “better-than-market rate loan conditions”, and as we have covered, this funding shouldn’t be in the form of loans! For example, 10 debt-distressed developing nations that absolutely should not have any more debt as it poses a significant risk to their delicate economies took on a combined $11.5 billion in debt from climate finance from 2015 to 2020. These loans are also far from low interest. One of France’s loans to one of these debt-distressed nations had an interest rate of 5.88%, and France is projected to make $76 million over the 20-year repayment period. If you add up the interest that will be paid from all the loans given through this scheme, it will amount to billions upon billions of dollars.
As such, this scheme feels less like developed nations creating a level playing field and more like the wealthy robbing the already suffering blind for billions of dollars. What’s more, this problem only seems likely to worsen, as these countries are likely to need more and more as climate change gets more horrific. As such, this precedent has to change, otherwise the misery, suffering and blood of billions of people will be on the developed world’s hands.
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