Investments in climate change solutions can break the global logjam
One of the keys to breaking the current deadlock is to invest in green development for the developing world. Such investments can help bring on board the developing countries for future global climate deals — a key requirement for Congressional support. Like it or not, developing countries will not agree to help solve a problem they did not cause without significant investments from the major polluters. They need this financing in order to adapt to the effects of climate change, develop their renewable energy infrastructures, and reduce deforestation — all key elements of any successful global climate deal.
Conservative calculations estimate that the developing world will need at least $150 billion annually through 2020 in order to meet this challenge. Secretary of State Hillary Clinton, who urges us to address the energy security and climate change crises together, has pledged to help generate $100 billion annually through 2020 with both public and private investments. That would be an important start.
The private sector alone, however, is not up to the task. While there is talk in Congress of a small contribution to the “fast start” global commitment of $30 billion over the next two years, no new massive commitment of U.S. government funds is likely to emerge given our current deficit woes. Washington must, therefore, also look to innovative ideas to attract the private sector by sending price signals, enhancing competitiveness, and reducing risks. Several key environmental, business, faith-based and foreign assistance groups, led by the U.S. Climate Action Network, have come up with five smart, low-cost solutions that can produce substantial revenue.
First, set aside from any new emissions trading systems can generate new funds for climate finance that is connected directly to the cause of climate change. Whether Congress ultimately decides on a cap and trade system or a carbon tax, a portion of that system should fund climate change.
Second, the estimated $10 billion in U.S. government fossil fuel subsidies should be eliminated, as well as the additional estimated $4 billion in other subsidies channeled through the U.S. Export-Import Bank, the Overseas Private Investment Corporation, the World Bank, and the regional development banks. Instead, our tax dollars should be helping to build global markets for American clean energy technology. President Obama joined the G20 last year in pledging to eliminate fossil fuel subsidies over time. He must also pledge to re-direct them to climate change financing.
A third proposal would seek revenue from two of the heaviest users of fossil fuels, the aviation and shipping sectors, which to date have been neglected by international agreements. A variety of approaches could be used, including levies on these fuels or sectoral cap-and-trade mechanisms. Ultimately, this mechanism could contribute as much as $35 billion to climate financing by 2020.
Fourth, the use of Special Drawing Rights could generate significant revenue as well, perhaps $100 billion annually through 2020. These are reserve assets issued by the International Monetary Fund to member countries in proportion to quotas based on each member country’s relative weight in the global economy. Special Drawing Rights could be used to collateralize a Green Fund or be converted into cash that would be used for climate purposes. Prominent financiers are behind this proposal, and the Fund recently issued a favorable report on the idea.
Lastly, a Financial Transaction Tax could be placed on large, international financial transactions, possibly raising as much as $175 billion a year. This proposal would entail a “tiny” levy on international financial transactions, such as currency exchanges, stock and bond trades.
Each of these will take strong leadership from the White House and Congress. But support is beginning to build. Significant sections of the business, labor, faith-based, environmental and foreign assistance communities support these options. Congress is also focusing on the issue. Rep. Pete Stark (D-Calif.) has introduced legislation which calls for the institution of a currency transaction levy for financing climate change and global health solutions. The Chairman of the Subcommittee on Asia, the Pacific and the Global Environment, Congressman Eni F.H. Faleomavaega, held a hearing in late July during which the issue of climate finance was discussed. And last year, along with a comprehensive emissions trading system, the House of Representatives passed a cap on aviation and shipping fuel suppliers.
To meet the challenge of our dual energy and climate crises, the administration should build on this growing support and promote these innovative financing options at home and abroad. Further delay will only heighten our already daunting economic and foreign policy challenges.
Nancy E. Soderberg is president of The Connect U.S. Fund and a former Ambassador to the United Nations. She testified on July 27 on this issue before the House Committee on Foreign Affairs Subcommittee on Asia, the Pacific, and the Global Environment.