Climate aid must be loans, says EU

Climate aid must be loans, says EU: "

Cancún climate change summit campaigners say negotiations are a 'complete mess'

• Caroline Spelman: Cancún climate talks are vital to the UK

Europe was accused of taking unfair advantage of poor countries last night when senior officials said that it was better to make them pay for loans to reduce climate emissions rather than give them grants.

Aid campaigners and developing nations have also condemned as a 'complete mess' the differences between rich countries in how they account for aid pledges. They say donors are double-counting climate aid and using 'creative accounting' to make climate pledges look more impressive.

Artur Runge-Metzger, the EU's chief climate negotiator, made the case for loans rather than grants at the lunch of an EU climate finance progress report at the UN climate summit in Cancún. 'It's a win-win situation,' he said.

'When it comes to mitigation actions you find that … consumers can repay loans, in other words, finance can be used like a revolving fund. In that way funds can be repaid and used by others. You don't need grants. It would be a waste of money because the individual pays for itself. You have to make best use of peoples' money.'

But developing countries and aid agencies countered that loans were not acceptable on principle. 'Climate money for developing countries must come from grants, not loans – [loans] will simply shackle developing countries with more debt,' said Asad Rehman, Friends of the Earth's International climate campaigner.

The row surfaced as countries began to negotiate a new Green Fund to help channel climate finance to developing countries after 2012.

Until now, rich countries have pledged $30bn of 'fast-start' climate cash to the poor between 2010-2012 to meet their short-term needs. Of this, the EU has committed €7.2bn ($9.4bn at current rates), the US $1.7bn and Japan more than half, with $15.4bn.

But analysis of the money, which is supposed to be 'new and additional' to existing aid money, shows that most has been in the form of loans, and large amounts have been raided from existing aid budgets or has been recycled.

According to an analysis by the G77 group of developing nations, some countries have double-counted pledges and recycled money offered previously.

This has left developing countries angry and confused and led to deep distrust between rich and poor countries, said Tim Gore, Oxfam's senior climate change policy adviser. In bitter exchanges, China has accused the US of double-counting its climate money, Britain has been charged with counting money put aside for other climate funds, and France has counted money that accumulates from green investments.

'All 27 EU members states use different ways to account for their climate pledges. It's a complete mess,' said one negotiator of a developing country who asked not to be named.

'Countries are definitely using creative accounting to cover up for their shortfalls,' said Gore. So far only 30% of the EU's funds has been directed at adapting to climate change as opposed to reducing emissions, despite a commitment in the Copenhagen accord that funds must be balanced between adaptation and mitigation.

Developing countries believe that rich countries are deliberately confusing the situation to avoid their commitments. They are pressing at the talks for a common set of accountancy rules. Unless countries agree to new ways of counting pledges, there is likely to be massive confusion and corruption when climate cash to poor countries is scaled up to $100bn a year from many different sources by 2020.

'Standard rules are needed urgently. We need common accountancy standards and baselines,' said Gore. In addition, concern is growing that the bulk of climate money pledged by rich nations has been directed at mitigation of the effects of climate change rather than helping communities adapt and reduce their emissions.

China, India, Brazil and other powerful, developing countries have cornered the vast amount of the UN's clean development mechanism cash, with Africa and least-developed countries attracting very little. While this has been addressed in principle, very little climate money has been made available to the poorest and there is consensus that the system be reformed.

• This article was amended on 1 December 2010. The original gave $7.2bn as the EU's promised Sure Start contribution. This has been corrected."