Innovative Financing for Environment: Its Options and a Possibility of Realization

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1 Innovative Financing for Environment: Its Options and a Possibility of Realization Presentation at Informal Event on Innovative Sources of Development Finance Takehiko Uemura Associate Professor Yokohama City University Secretariat The Japanese Commission for the Promotion of International Solidarity Levies New York, 3 June 2010

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3 Lack of Finance 1. Tackling climate change (adaptation & mitigation): $150 billion/year 2. Millennium Development Goals: ODA + $50 billion/year 3. Food crisis in South: $15-25 billion/year etc. =>Needs $ billion/year =>Volume of ODA has been stagnant =>unlikely to obtain sufficient amount of finance =>Required to develop innovative sources of finance

4 Innovative Finance for Environment 1. Tax/Levy based approach - Global CO2 Levy (Swiss) - Transportation (fuel) Tax: International aviation (Maldives etc.) and maritime (Norway, Denmark) - Currency Transaction Environment Levy (European Parliament, Madagascar, Costa Rica) etc. 2. Other approaches - Auctioning Assigned Amount Units (Norway) - Raising share of proceeds of CER by CDM (Pakistan, Bangladesh etc.) - Establishing Multilateral Climate Change Fund (Mexico) etc.

5 Why Tax/levy approach? 1. Generating big, predictable, stable and sustainable finance 2. Giving positive effects: internalisation of external costs and benefits ( double dividend ) =>Reducing tax on Goods, while imposing heavy tax on Bads facilitating goods for environment through tax reduction, tax exemption and subsidies suppressing bads for environment through heavy tax and surcharge Example: Ecological Tax Reform in Europe

6 Innovative Finance for Environment 1. Tax/Levy based approach - Global CO2 Levy (Swiss) - Transportation (fuel) Tax: International aviation (Maldives etc.) and maritime (Norway, Denmark) - Currency Transaction Environment Levy (European Parliament, Madagascar, Costa Rica) etc. 2. Other approaches - Auctioning Assigned Amount Units (Norway) - Raising share of proceeds of CER by CDM (Pakistan, Bangladesh etc.) - Establishing Multilateral Climate Change Fund (Mexico) etc.

7 Global CO2 Levy by Swiss - Proposed since Purpose: to address challenges of financing climate change, especially for adaptation in vulnerable developing countries -Principle: Common but differentiated responsibilities (CBDR) - A uniform global levy on carbon of $2 /t CO2 on all fossil fuel emissions - A basic tax exemption of 1.5t CO2-eq per capita (i.e. most least developing countries)

8 Revenue and Governance - Estimated total revenue: $48.5 billion - Governance: Two Funds are to be established (1) Multilateral Adaptation Fund (MAF): support adaptation for low-middle income countries (2) National Climate Change Funds (NCCF): support to tackle climate change within each nation - High income countries (more than $20,000): 60% of revenue ($14 bil) to MAF 40%($9.4 bil) to NCCF - Middle income countries ($15,000-$20,000): 30% of revenue to MAF 70% to NCCF - Low income countries (less than $15,000 more

9 Global CO2 Levy by Swiss Annual income/c Annual CO2 emissions/c Revenue Contribution to MAF Total sum from NCCF and MAF High income countries More than $20,000 $23.4 billion $14 billion $9.4 billion (from NCCF only) Middle income countries Low income countries $15,000~ $20,000 Less than $15,000 More than1.5t $25.1 billion $4.4 billion $39.1 billion (Sum of NCCF & MAF) Low income countries Less than $15,000 Less than 1.5t Tax Exemption Zero (Source:Author based on the Government of Swiss: Table S- 1)

10 Currency Transaction Tax (CTT) - Tobin tax: Imposing a tax on all transactions in foreign exchange market - Reformulated by Paul Spahn - Imposes a low tax rate on normal transactions, while implementing a high tax rate on the transactions that exceed the band set beforehand in order to suppress the volatility often caused by speculation - Revenue: $100 billion/year

11 Taskforce on International Financial Transaction for Development - Established in October Created Expert Committee -Purposes: 1.to explore options of financial transaction taxes 2.to research feasibility of these options =>to conduct consultations (in Brussels, Oslo, New York, Washington, Paris) =>will publish a report in this month

12 New Versions of a CTT 1. Currency Transaction Development Levy (CTDL, or a single-currency transaction tax) - levies unilaterally on all FX transactions in a particular currency. - No need that all countries implement it at once. 2. Global Currency Transaction Levy ( Global Solidarity Levy ) - levies centrally on all FX transactions through CLS

13 Evaluation and Revenue - Technically feasible - No distortion of market owing to its low tax rate (0.005%) - Revenue: Yen transaction only: $5.59 billion/year Major currencies: $33.41 billion/year - Global CTL: Global Tax to address Global Solidarity Dilenma => Global Solidarity Levy

14 Currency Transaction Environment Levy (CTEL) 1. Using revenue for tackling climate change proposed by Development Committee of European Parliament, Madagascar, Costa Rica 2. A part of revenue to be used for climate change proposed by: - The Japanese Commission for the Promotion of International Solidarity Levies (Terashima Commission) - Experts Group of the Taskforce on International Financial Transactions for Development in Leading Group on Innovative Financing for Development

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16 Establishment of Japanese Commission for the Promotion of International Solidarity Levies (Terashima Commission) -MPs: Japanese Parliamentary Group on International Solidarity Levy - Government: Study Group on Global Environmental Tax - Civil Society: Association of Citizens for International Solidarity Taxes (ACIST) - MPs, Scholars, Civil Society, Business sector, Government & International Organizations: Japanese Commission for the Promotion of International Solidarity Levies ( Terashima Commission )

17 Mission of Terashima Commission - Discussing a realistic plan to realize international solidarity levies (ISL), especially a Currency Transaction Levy (CTL) - Examining technical difficulties of CTL, concrete use of revenue, and its governance - Based on these examinations, striving for lawmaking for ISL - Finalized the interim report, and submitted to Minister of Finance and Minister of Foreign Affairs

18 Highlights of the Report (1) - Proposes government to introduce CTL as soon as possible - Asks government to persuade other major countries so as to introduce it concurrently - If and when unsuccessful, suggests government to implement CTL on Yen in close collaboration with euro - Revenue is to be used for achieving MDGs, especially poverty reduction and climate change

19 Highlights of the Report (2) - Asks government to have close collaboration with the Taskforce on International Financial Transaction for Development - Requests government to upgrade Terashima Commission to the Taskforce directly under Prime Minister - Proposes government to organize the Plenary Meeting of the Leading Group in Japan late this year - Requests government to legislate ISL - will propose to introduce Air-Ticket Solidarity Levy as a first step

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21 Members of Tarashima Commission <Chair> Jitsuro Terashima (President, Mitsui Global Strategic Studies Institute, The Japan Research Institute, and Tama University) - Kazuhiro Ueta(Professor, Kyoto University) -Fumio Kaneko(Professor, Yokohama City University) - Yoshikazu Miki(Professor, Aoyamagakuin University) -Toru Morotomi(Professor, Kyoto University) - Takehiko Uemura(Associate Professor, Yokohama City University) - Mie Asaoka(President, Climate Change Network) - Masako Konishi(Climate Change Officer, WWF Japan) - Tetsuji Tanaka(Executive Director, Altermonde) - Masanori Inaba (Director for International Health Programme, Africa- Japan Committee) - Noriko Shirasu(Executive Director, Results Japan) - Tadashi Inuzuka(MP, Executive Director for Japanese Parliamentary Group on International Solidarity Levy) - Harunobu Yamada(Ex. Vice CEO of Japan, HSBC) - Katsuhiko Sato (International Secretary, All-Japan Prefectural and Municipal Workers Union) + Ministry of Foreign Affairs, Finance, Environment and WB