Australia may seek to improve the chances of an international deal on climate aid from developed to developing countries by proposing a strong “mutual obligation” framework that will impose rigorous conditions on the provision of assistance to developing countries and help ensure companies from developed countries benefit.

Crikey understands that the government is considering extending the Howard government’s “mutual obligation” approach to the provision of foreign aid to assistance provided to developing countries for emissions abatement and adaptation.

Australia’s provision of foreign aid has a history of tracking domestic political trends. In the 1980s and 1990s, Australian aid was explicitly linked to commercial opportunities for Australian companies overseas. After 2001, the Howard government redirected large amounts of aid toward security-related programs such as counter-terrorism initiatives or law and order interventions in the Pacific “arc of instability”, such as RAMSI. The redirection of aid toward climate change would represent another reprioritisation of aid away from its traditional developmental and humanitarian purposes.

The Howard government announced its new “mutual obligation” approach to aid in a White Paper in April 2006. While it didn’t use the phrase “mutual obligation” — John Howard preferred “reciprocal responsibility” — the parallel with its approach to welfare was clear: foreign aid recipients, instead of becoming “aid-dependent”, should comply with policy requirements imposed by donors to improve governance, political structures and economic policies, including in areas such as business regulation. The Rudd government has continued the policy, expanding what it calls “performance-linked aid” to nearly $100 million last year.

This goes well beyond traditional requirements for accountability and transparency of aid spending, which are critical for monitoring aid effectiveness and underpinning domestic support for foreign aid. It echoed the failed economic reform conditionality imposed by the World Bank and IMF on recipient countries in the 1990s, and ignored that a simple correlation between individual welfare recipients and nation-state donor recipients was absurd — apart from anything else, few recipient countries received enough aid to ever be classified as “aid-dependent” (the best dissection of the policy is by Uniya’s Minh Nguyen).

While the Howard government formally, and commendably, decoupled the provision of aid from provision of opportunities for Australian companies, much of Australian aid is still channelled to and through Australian companies. “Reciprocal responsibility” requirements in business regulation, such as contestability of government contracts and outsourcing, further strengthen the hand of Australian companies in accessing aid dollars within recipient countries themselves.

More than 40% of AusAid’s budget is available for tender locally and more than 90% of that is awarded to Australian companies. As recently as July, Jose Ramos Horta criticised Australia and other donors to East Timor for the lack of actual funding that was making it onto the ground in his country.

PNG officials christened Australian aid “boomerang aid” for the way tens of millions of dollars flow back to Australian companies such as Coffey International and GRM International, which are often run by former Austrade officials.

Climate aid will offer considerable incentives for countries such as Australia to expand what can accurately be called their aid industries in new directions. Once of the most significant targets for climate aid will be renewable energy technologies, which will create a massive developing-country market for renewables and energy efficiency technologies as we require of developing countries the sort of shift to a low-carbon economy we seem unwilling to make ourselves.

Part of Australia’s assistance is already being targeted specifically at programs that will develop “genuine” carbon trading regimes, so that developed countries can gain access to foreign-sourced carbon permits. Australia and other large polluters will rely heavily on buying foreign-sourced permits to enable them to “meet” their carbon reduction targets. In a speech this week to the Asia Society in New York, Penny Wong made much of Australia’s investment in programs in PNG and Indonesia designed to “develop the necessary policy, technical and financial pre-requisites for participation in future international forest carbon markets. We are helping these countries in our region to build their own capacity in carbon measurement, accounting and reporting systems that will be designed by locally, for local benefit.”

As the climate aid issue grows in profile in the lead-up to Copenhagen, watch for countries such as Australia to unveil big-dollar commitments to developing countries. But the fine print is likely to show that, as has been the case for decades, the real benefits may end up a lot closer to home.