Solving Climate Change: We Need a Tax on Currency Transactions

A tax of just 0.075 percent on only currency transactions in dealer markets would yield the $500 billion needed to rebuild our systems

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We don't, but let's say that we all get it: The climate is unstable and the consequences are self-evident. What now? What can we do to stabilize the global climate system?

There are two parts to this discussion. The first involves the technical solutions needed to safely solve our energy needs. The second is how to pay for them.

The Green Report

How do we make the best decisions -- and avoid unintended consequences? This report (PDF) from The Center for Health and the Global Environment at Harvard Medical School uses the health lens to examine the life cycle impacts of oil, coal, natural gas, and nuclear energy with hindsight cast on the history of long tails: the negative health consequences from lead in gasoline, asbestos for insulation, and chlorofluorohydrocarbons (CFCs) for air conditioning and refrigeration.

These unfortunate, unforeseen health problems have reverberated throughout society and the public health community -- and the insurance sector. We need to avoid choices that are uninsurable, and therefore unsustainable.

Meanwhile, a complementary set of healthy solutions is available today. They include electric vehicles of all types plugged into a cleanly-powered smart grid and cities with green buildings, rooftop gardens and white roofs, biking lanes, walking paths, permeable surfaces, smart growth, and rational public transit all connected by light-rail.

Smart, computerized grids form the foundation. They will decrease use and demand while enabling renewables like solar and wind energy. While we are devising new methods of generating and storing energy, we can begin laying the backbone for the future energy system with smart grids and healthy cities programs.

And just how do we pay for these programs?

Let's not kid ourselves: The clean energy transformation is going to take a lot of money. But, while all nations have not contributed equally to global warming, all can be a part of the solution -- given adequate funds to trade and manufacture clean technologies. For the 1987 Montreal Protocol, a successful international collaboration to phase out stratospheric ozone-depleting chemicals (the CFCs), to be universally accepted, funds were pivotal.

The global economy needs a new engine -- and it has to be a clean one. Indeed, the clean energy transformation is the only sustainable engine possible. Just banking on continued demand for high energy using products, and endless consumption and generation of wastes will not lead us onto a sustainable path.

So, new funds? Nations are strapped -- facing deficits, debts, and, for many, impending default. We need a "denationalized" method for generating global funds that does not come from national coffers.

Some have suggested taxes on carbon, airline traffic, and the Internet. Another proposal is a tax on currency transactions known as the Tobin Tax. The Tobin Tax is named after a Nobel-prize winning Yale economist who proposed the levy in 1972 to "throw sand in the gears" of the speculation and pure betting on the fluctuating currency values. Tobin presciently foresaw that rapid flows of money in and out of nations -- not long-term investments for bricks and mortar -- would destabilize nations. It did in the late '90s and continues to do so today.

Systems that are unstable can restabilize -- but only if we back off on burning fossil fuels and felling forests.

Before 1971, currencies were relatively fixed, set in 1944 at the Bretton Woods Conference and steered by the able and visible hand of economist John Maynard Keynes. Nixon abandoned the rules in '71 and currencies began to float, unleashing decades of inflation, speculation, and bubbles. In the 1970s, gold prices jumped 20-fold, while oil -- the basis for all other costs -- rose 10-fold, sending nations hat-in-hand to the World Bank for loans to run their economies.

Since then, deregulation, privatization, and liberalization (of financial flows) -- the mantra of "The Washington Consensus" -- have brought us to the economically-unstable place many nations find themselves today. We need to re-introduce constraints on capital flows (not on free trade in goods). Adam Smith wrote that liberal flows of capital across borders would negate healthy competition and comparative advantages among nations. Thus, a levy on currency exchanges would generate significant funds and help stabilize finances.

Presented by

Paul Epstein

Paul R. Epstein, M.D., M.P.H., is associate director of the Center for Health and the Global Environment at Harvard Medical School and is a medical doctor trained in tropical public health. He co-authored the book Changing Planet, Changing Health.

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