How the Global Migration Crackdown Affects Climate Finance

All across the North Atlantic region, rich countries are putting up barriers to keep foreigners out. Some are physical, like the wall separating San Diego from Tijuana, which U.S. troops are fortifying with barbed wire at the order of President Donald Trump, or the new fence meant to stop people crossing from Belarus into Poland. Others are only visible on paper, like the Joe Biden administration restricting asylum or the EU agreeing internally to speed up deportations and externally to pay Tunisia to keep migrants from crossing the Mediterranean Sea.

The most important impacts of these policies fall on the migrants or would-be migrants themselves: Restricting the ability of vulnerable individuals to seek asylum is likely to cause suffering. And there are economic and social consequences for receiving societies that deport more people and keep out potential workers: Wisconsin dairy farmers are already warning that “if there’s no immigrant labor, we’ll all have to go vegan.”

But it is also worth paying attention to the economic impact such migration policies could have on migrants’ countries of origin. Migrants who come to rich North Atlantic countries often come from countries that are generally not only poorer but also more vulnerable to climate impacts; for example, poorer tropical nations have seen the most damage from extreme heat. When people from such climate-vulnerable places cannot work in richer countries and cannot send remittances home, there are repercussions for climate adaptation and climate finance.

The Most Important Money Transfers

Remittances—the transfer of funds or goods from migrants back to their communities of origin—are the largest flows of money from rich countries to poorer ones (see figure 1). Even in 2023, before the recent cuts to the aid budgets of major donors like the United States and United Kingdom, remittances were more than twice as large as all official development assistance (ODA), the term for grants from individual countries or multilateral organizations like the World Bank. Official channels recorded an estimated $656 billion of remittance flows, likely a conservative estimate due to the difficulties accounting for transfers that occur through unofficial channels or in-kind transactions.¹ This sum was nearly twice as high as foreign direct investment. Remittances are in fact the largest source of external financing for all low- and middle-income countries (LMICs) except for China.

Remittances are a major source of finance and have a development impact. In 2023, remittances accounted for at least 3 percent of GDP in more than sixty countries, and significantly more for some: From 2014 to 2024 in Central America, remittances averaged 12.7 percent of GDP, reaching 27.3 percent of GDP in Honduras. Small Island Developing States (SIDS), which are among the countries most exposed to climate impacts, are among the top recipient countries of remittances by GDP share (see figure 2), but they have struggled to access global climate financing for climate adaptation.

Total remittances far outnumber both the $300 billion that developed countries committed for climate finance in developing countries at COP29 in 2024 and the even smaller amount of $28 billion that was provided for climate adaptation in 2022. Unlike climate finance—of which over 70 percent is in loans—remittances are transferred directly on a household level and do not require repayment. Remittances are not directly funneled to climate-related development projects, as ODA sometimes is—see for instance the EU’s $10 million grant to a new solar power plant in the Ivory Coast or the now-frozen USAID project Servir that has helped developing countries predict extreme weather. However, remittances do make families and societies richer, helping them invest in clean energy and adaptation projects. This money can be especially important for adaptation projects that do not earn money and thus are unlikely to be funded by private investors, because remittances increase tax revenues and support government spending.

Remittances could become even more important as other modes of money transfer to LMICs stagnate. ODA has grown moderately in recent years, from 0.3 percent of Development Assistance Committee donors’ gross national income in 2013 to 0.37 percent in 2023, but with the United States (the world’s largest donor) freezing and reviewing its foreign aid programs and reneging on climate finance commitments, major growth in the near term is unlikely. Important European donors face budgetary concerns as well, and the UK is cutting its development budget to reinvest in its military. The starkest evidence for the financial crisis in the developing world, and of the importance of grants, is that global net financial transfers to developing countries are now negative. In other words, debt service repayments to official and private lenders have surpassed external inflows to governments.

The Checks That Do Not Come

The U.S. crackdown on migrants is already shrinking the pool of people who can legally earn and send money to their countries of origin. The Trump administration has revoked Temporary Protected Status (TPS) for hundreds of thousands of Venezuelans, and categorical parole programs for migrants from Cuba, Haiti, Nicaragua, and Venezuela (the CHNV program) have also ended. Granting TPS for Central American countries allowed migrants to access the labor market legally, increasing their wages and subsequent remittances to countries of origin. When TPS was designated, annual remittances to El Salvador and Honduras increased—an estimated difference per capita of $250 in El Salvador—and border apprehensions decreased as economic conditions in countries of origin improved. In Venezuela, 94 percent of households receiving remittances used the money for their food needs, and 58 percent for healthcare, raising concerns that this critical lifeline would be affected by the changing migration outlook.

Even those migrants who can keep sending money from the United States may have to worry about new restrictions on remittances. In the 118th Congress (2023–2024), then senator and current Vice President JD Vance introduced a bill to impose a 10 percent fee on outbound remittances for non-U.S. citizens, with the amount collected going toward funding border enforcement—including constructing detention facilities and employing agents from U.S. Border Patrol and Immigration and Customs Enforcement. This was not the first time that such a bill was introduced—in the 115th Congress (2017–2018), a similar bill was introduced, albeit with a lower tax rate of 2 percent. Vance’s proposal may have been inspired by an Oklahoma law, passed in 2017, that withholds $7.50 on wire transfers under $500 and 1.5 percent on amounts in excess of that. If Trump does follow through on his plan to create a so-called External Revenue Service, it is conceivable that fees on remittances could top off the revenue from tariffs. With a 10 percent fee on remittances from the country that is their largest source, there would be a noticeable reduction in outward flows, with knock-on effects for immigration policy, international development, and climate finance alike.

Then there is the climate angle. During periods of disaster—whether natural or economic—remittances serve as a form of insurance and help people recover from negative shocks, like floods or fires. Crucially, remittances are a counter-cyclical form of financial flow, increasing both during periods of economic turmoil when private capital flows decrease and after a natural disaster. Indeed, remittances are highly responsive to disasters. A 2018 study of LMICs found that countries that faced a natural disaster in the current or previous year received 33 percent more in remittances than countries unaffected by natural shocks. Up to three years after a disaster, remittance transfers were still 31 percent higher than for non-affected countries, all other things being equal. Remittances not only served as a stabilizing financial flow after a disaster but also played an ex-ante role as a form of informal insurance and a risk preparedness mechanism in communities prone to natural disasters. The study found that people sending remittances into countries particularly prone to natural disasters were likely to consider the additional risk faced by their communities and the potential of future damages when sending money back home. Transfers increased with the number of disasters a country faced, with an additional shock raising remittances by roughly 14 percent. 

There are examples from around the world of remittances helping people rebuild after climate-related disasters. After the deadly 2022 floods in Pakistan, Pakistani diaspora members in the United States alone contributed $42 million to flood relief and recovery efforts. Almost half of remittance recipients surveyed from Fiji, Tonga, and Vanuatu received funds to rebuild their homes after tropical storms and cyclones. In the Philippines, during periods of rainfall shock, remittances from overseas migrants offset as much as 60 percent of household losses. Similarly, in Ghana, remittances from the Ewe diaspora allowed for the reconstruction of houses destroyed by coastal erosion. As an immediate financial flow that directly targets hard-to-reach communities on a per-household basis, remittances play a key role in building community resilience, especially during moments of crisis. Without the mitigating effects of remittances, sudden-onset climate disasters become even more debilitating and can spur sudden cross-border migration by people who no longer see a future in their home country.

Policy Coherence for Climate Adaptation

While remittances mainly serve to help people recover from climate shocks and increase the resources available to the governments and people of the most climate-vulnerable countries, there are also efforts to proactively direct remittance funds to climate adaptation and mitigation. From 2002 to 2019 Mexico had a program to channel remittances to local adaptation projects: Programa 3x1 Para Migrantes was a fund-matching program, administered by the Mexican Secretariat of Social Development (SEDESOL), that allowed Mexican migrants living abroad to direct their remittances to improve their home community’s economic well-being, not just send funds directly to the wallet of a mother or son.  For each peso that a migrant channeled to support social development projects in their community, the federal, state, and local governments each contributed one peso to finance the project, generating a total of four pesos directed toward the project. Through this, collective remittance was used to finance local development projects that included electrification, improving housing infrastructure, developing educational services, and building out social infrastructure. In 2008, $1.7 billion was generated through this remittance fund-matching scheme, and more than two-thirds of the projects funded were public works investments. This program was one of the first to actively incorporate diaspora remittances in funding government-supported development projects.

While Programa 3x1 was fundamentally conceived as a social welfare program with some climate benefits, rather than a climate adaptation program, there have been a number of smaller programs with a sharper focus on the climate crisis. Projects have focused remittances to address energy poverty in a sustainable manner: RemitEnergy tapped into remittances, allowing Haitian diaspora members living in Miami to purchase solar energy products for installation in Haiti. In its first four years of operation, over 410,000 household members—many of whom lacked reliable energy access before—benefited from the purchase of 82,000 clean energy products that reduced their energy costs by 30 percent and avoided over 7,000 tons of greenhouse gas emissions. The Basel Agency for Sustainable Energy (BASE) operates a similar model using remittances from migrant workers in Spain to fund solar water heaters in Bolivia, and the Nigerian energy company Arnegy’s Diaspora Initiative allows Nigerians abroad to purchase off-grid solar panels and energy storage systems for households and businesses across Nigeria. And another adaptation-focused program is in development: BASE is working with Oxfam to create a remittance-based financing mechanism that will build sustainable microinfrastructure and climate adaptation in the Pacific Islands, with the goal of mobilizing $35 million for climate-resilient solutions.

To truly fund adaptation projects, climate-vulnerable countries that receive large inflows of remittances should consider Mexico’s Programa 3x1 as a possible model for funding necessary public works projects. Individual remittances transferred on a household level are often too small to be used for both pressing needs and longer-term priorities for resilience. Pooling remittances and utilizing fund-matching programs would allow for remittances to become a targeted tool for enhancing resilience in climate-vulnerable regions.

High-income countries also have a role to play in helping remittances reach the most climate-vulnerable countries. An October 2024 paper from the Center for Global Development argues high-income countries should create labor migration programs, such as temporary agriculture work visas, that specifically target climate-vulnerable countries of origin. The remittances generated from such labor visa programs—after meeting narrow criteria for participant selection and deducting migrants’ participation and opportunity costs—could then be classified as mobilized private climate finance for adaptation. Such programs could mobilize significant sums that support climate adaptation in some of the most vulnerable communities at a direct, local level. Classifying the generated remittances as mobilized private climate finance could help high-income countries to meet their climate finance commitments without burdening government budgets, incentivizing these rich countries to support the creation of labor migration pathways while also helping climate-vulnerable countries to receive added remittances to finance their development and climate adaptation needs. In some countries, there may even be political upsides to choosing foreign workers to fill certain important jobs and allow them to finance climate action at home with their earnings, rather than spending on foreign aid from the national budget.

Rich countries could also do more to ensure that remittance money reaches vulnerable people and is not lost to transaction fees. While Sustainable Development Goal 10 aims to reduce transaction costs of migrant remittances to less than 3 percent, global costs are trending in the opposite direction, reaching 6.65 percent in June 2024. Nevertheless, there are successful case studies of Pacific states working to keep remittance transaction fees low. New Zealand’s Recognized Seasonal Employer Limited Visa for seasonal workers in horticulture and viticulture was paired with a remittance service to allow workers to have remittances deducted from their paychecks and transferred directly into a bank account in their country of origin. This Seasonal Worker Superannuation Administration Service and helped to aggregate individual transactions, minimize bank and transaction fees, and allow more favorable foreign exchange rates to be set, reducing the overall cost of remittance-sending to 2.9 percent.

The near-term outlook on climate finance is bleak, and funding adaptation is going to become not only more costly but also more necessary in the coming years. With that, decisionmakers need to be creative about financial flows that may not come in a green package. It is time to take a closer look at the hidden potential of remittances as a form of climate finance. Both destination and origin countries can take steps to increase remittance flows and direct them to societally important investments.

Conclusion

The reality of the current international climate finance landscape is stark. Current promises of financial aid—such as the COP29 climate finance goal of $300 billion for developing countries by 2035—fall far short of the $1.1 trillion annually that UN Trade and Development estimates developing countries would require starting in 2025 to fund necessary adaptation and mitigation efforts. And of course, there are real doubts about whether wealthy countries will make good on their commitments.

With ODA falling as the climate crisis deepens, it is time to be pragmatic about what funds are flowing into low- and middle-income countries and where these funds are originating from. Remittances will not be a panacea for climate financing and will never be able to replace the role of institutional funding. However, it is undeniable that they are flowing at an ever-increasing rate, presenting a unique opportunity to leverage this financing flow for funding much-needed climate action. To encourage remittances from the migrant diaspora and ensure policy coherence for the deployment of funds is not only sound development policy, but it is also smart immigration policy that builds climate resilience.