Index

The need to invest heavily against climate change

Ian Greenwood

The need to invest heavily against climate change is accepted (Stern Report 2006). It is proposed in this short paper that the opportunity exists

A new ‘VAT style’ tax could be placed on sales of imported products and the funds invested in projects mitigating against climate change and adapting to its effects. Uniquely, the proposal is to return an equal share of the funds direct to these projects in the producer nations which would otherwise be unable to afford them. Thus the tax proposed, the Environmental Tax on Imports (ETI) could realise in excess of $500 billion per annum if it were adopted worldwide and be a major stability fund. This could be an opportunity to stabilise oil and gas prices and to reduce the frequency of disasters.

Shared wealth & knowledge has the potential to develop quality of life in the world. However the dangers to civilisation of consumerism & climate change, the latter highlighted by disasters in Southern Asia and the USA, are becoming increasingly clear. Apart from the loss of lives, rising sea levels and extreme climatic conditions are a threat to sea level or near-sea level regions, many of which provide some of the most fertile and productive agricultural land, and the location for many important business and industrial centres. The Global Commons Institute and leading experts such as UK’s Chief Scientific Adviser agree that action must be taken fast to counter further climate change. The unwillingness of the US government to commit to international treaties and objectives towards more sustainable environmental policy indicates that Europe must lead the way in this area. The 2006 Stern Report has proposed 1% global GDP level of investment, but underestimates sea level rise, so this paper suggests a way of increasing this substantially and fairly.

A mechanism could be developed that would free existing financial resources to fund strategic actions in the area of environmental sustainability. Such a mechanism could use some of the great profits from the more highly polluting activities. One concept that provides scope to source these funds is the Currency Advantage (or Import Advantage) that wealthy countries automatically have when they spend their valuable currencies in ‘poor’ countries. (A similar ratio has been used in past studies to allow for the reduced comparative cost of living in poorer countries in dollar or sterling terms, that is: the purchasing power of the stronger currencies). The traders who benefit most from the Currency Exchange Rate Advantage are frequently the same ones who cause enormous pollution and resource depletion by transporting goods between poor countries of production and rich countries that provide the market for the goods, for example by air. [Although these activities contribute to economic growth, the current trade system tends to avoid contributing to the cost of pollution caused and little allowance is built in to allow for resource depletion or the research needed to avoid such depletion, develop alternatives or defend against sea level rise. Therefore only wealthy countries can do this research or benefit from clean technology and clean transport etc.].

Using the Advantage as a guide (recognising differing labour rates, costs of living and production), the difference between the cost of comparable goods and the value released when re-sold in the importing country, companies and traders operating in this way would be subject to a levy, which might be named the Environmental Tax on Imports (ETI see chart below). The revenues from ETI would be split equally between the country of production and country of destination of the product.

The body responsible for the collection and use of this levy would then allocate it direct to projects promoting long-term environmental sustainability, such as renewable energy and sustainable transportation improvements, etc. With the ETI in place some of the inherent imbalances between poor and rich countries in terms of investment against natural disasters and in technology could be reduced. By reducing the imbalances using a stable system of allocation in these areas an actual boost in healthy trade and investment should occur therefore increasing advantage to poorer counties and tending to reduce borrowings for essential infrastructure. The funding allocated towards such things as organic sea barriers which might eventually be needed as land ice melts and sea levels rise could be of great interest to governments and to the insurance and re-insurance industries.

Existing production would be relatively unaffected, so the proposed solution is an ideal way to ensure that resource users pay a fairer contribution. As an addition to such measures as carbon taxes, ETI (operating like VAT) could be used to stimulate renewable energy and conservation in both producer and consumer regions of the global economy introducing a more stable funding regime independent of the vagaries of consumer or financial markets. The UK or EU treasuries has the potential to understand how such an adjustment to international trade could return some of traders’ profits in a more managed way and in the process reduce economic shocks, the problems of climate change and unsustainable loss of industry in ‘developed’ regions. It could also reduce dependence on the rather ‘blunt instrument’ of interest rate rises as the main controlling mechanism of monetary policy and reduce otherwise inevitable property price inflation.

Conclusion

The proposal outlined in this paper touches briefly on a number of topical issues including the subject of economic/energy rationalisation and proposes a practical way of implementing what would effectively be a Global ‘Marshal Plan’ (which has been suggested by a German organisation of that name that has received wide support). To conclude with a quote from the Earth Policy Institute which has issued the encouraging statement below, this is an appeal to people to do their bit to get behind ETI as a practical proposal by lobbying MEPS and other action. "All of the world would get all of the benefit from all of the ETI" via economic stability.

"STEER sounds like a sensible policy option for helping to make the market tell the ecological & social truth and thus move toward a more environmentally sustainable economy"

Earth Policy Institute 2004

Ian Greenwood is a structural engineer without a vested interest in stimulating the market for major projects and has been saving energy for 30 years at a practical level. After a broad career, areas of investment and overland travels, he researched the STEER idea for sustainability in trade and resources and founded STEERglobal.org

Support is being gathered from government, other organisations and the public.

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