What can you do but shake your head in wonderment at the debacle over the UK government’s £800m Environmental Transformation Fund? As John Vidal reported in the Guardian on Saturday, the initial idea seemed such a good one:

The UK environmental transformation fund was announced by the prime minister to international acclaim in November 2007, 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 now, a small detail has emerge: the Fund’s cash is in fact loans rather than aid - so they’ll have to be repaid with interest by developing countries. Odd, then, that Gordon Brown forgot to say so when trumpeting the Fund in his climate speech last year, and that International Development Secretary Douglas Alexander also overlooked it when he came to CIC to speak on climate change last month.

As the Guardian reports, it seems the problem lies not with DFID or Defra, but with the Treasury, which overruled both departments. This makes it astonishing that Chancellor of the Exchequer Alistair Darling should have co-authored an FT comment piece on the Fund with US Treasury Secretary Hank Paulson back in February - which said nothing whatsoever about loans, instead giving a clear impression that the money would be given as grant aid.

All this comes on top of already deep misgivings about the Fund’s governance structure among NGOs. 20 of them - including Oxfam, Christian Aid, WWF and Friends of the Earth - wrote to Douglas Alexander in March to express concern that the finance would be overseen by donor countries, with potentially minimal voice for developing countries, and worry that the instrument effectively bypassed multilateral climate negotiations.

And as the Bretton Woods Project report , a recent report on DFID and the World Bank by the UK parliament’s International Development Committee concluded that “we are sceptical that creating a new frust fund in addition to the dozen or so that already exist within the Bank for such work is the best way forward for this money”, and argued that “DFID conduct an audit of the current bilateral and multilateral funds available for international climate change work… before final decisions are taken.”

Still, these earlier dimensions pale in comparison with the fact that in one step, we’ve moved from an argument over whether or not the UK’s climate financing should be additional to the 0.7 aid target, to finding out that it’s not even aid in the first place. Seriously unhelpful in buttressing the UK’s bona fides on climate with developing countries as negotiations on future commitments supposedly gather pace. Another entry in the ‘how not to do public diplomacy’ file…

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