Britain’s £800 million (US$1.56 million) international project to help the poorest countries in the world adapt to climate change was under fire on Friday after it emerged that almost all the money offered by British Prime Minister Gordon Brown will have to be repaid with interest.
The UK Environmental Transformation Fund was announced by Brown to international acclaim last November, and was widely expected to be made in direct grants to countries experiencing extreme droughts, storms and sea level rise associated with climate change.
But the Guardian has learned that the money is not additional British aid and will be administered by the World Bank mainly in the form of concessionary loans which poor countries will have to pay back to Britain with interest.
A letter signed by two government ministers 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 British Environment Minister Phil Woolas and his 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 said in the letter.
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 UK Treasury.
Several countries have 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,” a spokesman for the Bangladesh High Commission in London said on Friday. “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,” the envoy said.
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 canceling debt and then inviting poor countries to take on new debt,” he said.