A tax of just 0.075 percent on only currency transactions in dealer markets would yield the $500 billion needed to rebuild our systems
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.
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.
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.
In 1972, financial currency exchanges, gambling on the differences in currency values, amounted to some $16 billion each trading day. Today, FX's amount to $4 trillion each trading day. The North-South Institute estimates that a levy of 0.075 percent on only currency transactions in dealer markets would yield approximately $500 billion annually, assuming a 14.5 percent drop in trading.
In April of 2011 over 1,000 economists, including Jeff Sachs of Columbia's Earth Institute, called for a Tobin Tax (aka, a "Robin Hood tax") to address world poverty and disease. And in June 2011, Jose Manuel Barroso, president of the European Commission called for a Tobin Tax to address the imploding economies of Europe. A recent Oxfam poll showed that 51 percent of Britons support a Tobin Tax.
The need for economic stimuli is becoming clear. Larry Summers, former U.S. Treasury Secretary, and an architect of deregulation, recently argued in the Financial Times for a new stimulus package and higher payroll taxes. The U.S. Chamber of commerce, alarmed by the current dismantling of state structures (known as structural adjustment programs or SAPs), affirmed the need for governments to support infrastructure, including ports, railroads, and bridges. The need for stimulus rather than weakening the public sector has never been greater.
A small Tobin Tax would make possible a global Keynesian stimulus package for clean development that could address our needs for climate adaptation and stabilization, disease control, ecological restoration, and sound economic development. Will world financial leaders ever agree to such a thing?
A precedent: In the late 1980s interest rates were skyrocketing. Money was flowing from other nations into the Bank of England in search of high returns, but the British economy remained stalled. To address the mismatch, the U.K. government and the financial sector lowered interest rates, leading to a flow of investments into the productive sector.
Project finance, credit, and loans occupy the role of the brain or the central nervous system of the global economy, while industry and farming are the body, which responds to the financial signals and rules of economic engagement. Given the dire situation we're in today, there is a critical opportunity to revamp the global institutional architecture and ensure that there are the funds to propel the transformation to sustainability. Though there is little sign that financial sector will act in a self-enlightened manor -- without a lot of pressure from all levels of society -- such a transfer of funds from finance to industry would constitute a healthy and intelligent investment into our common future.
* * *
No past generation has had to plan for the subsequent 100 years. However, systems that are unstable can restabilize -- but only if we back off on burning fossil fuels and felling forests. Addressing the potential economic collapse simultaneously there is a hope for recovery based on clean energy, energy efficiency, and green technologies.
A global fund for clean development is essential to the needed transformation. It must be substantial and sustained over several decades for all nations to eagerly buy into the process. And, for so many reasons, nations cannot afford to fill the bill; the source can only come from those holding and (mis)handling the money.
Ultimately, the transformation will require constructing a new economic order with a resilient regulatory, institutional, and financial framework. But unlike in 1944, when governments carved out new rules at Bretton Woods, governments, corporations, scientists, nongovernmental organizations, and civil society must be part of today's deliberations. A new international financial architecture with a global fund is needed to drive, constrain, and sustain healthy, ecologically-sound, and equitable development and the preservation of Earth's life-support systems.
Image: REUTERS/Beawiharta Beawiharta.
We want to hear what you think about this article. Submit a letter to the editor or write to letters@theatlantic.com.