Live Mint, November 30, 2022
By Pradeep S. Mehta
We require an imaginative approach to raise funds without burdening any government, and not by robbing the rich to pay the poor
The CoP-27 outcome was a second-best solution. It failed to address critical aspects of capping the Earth’s temperature rise at 1.5° Celsius above its pre-industrial level. While the Global North has agreed to pay the South for losses and damages due to climate change, it should know that this is not charity. Its disproportionate consumption of the planet’s resources has created a historical, moral and legal obligation to pay for it. We require an imaginative approach to raise funds without burdening any government, and not by robbing the rich to pay the poor.
The past record of broken promises gives me little hope. If one looks at the history of financial commitments, they have never been met, despite large sums being spent on organizing futile talk shops. Take, for instance, the historic Earth Summit held in Rio in June 1992. I participated in that, and in the three review meetings afterwards, hardly saw any substantial progress. Over 104 heads of state and governments came to the 1992 meeting, which resulted in Agenda 21 to deal with a wide range of environmental issues. It adopted inter alia the Climate Change Convention. Agenda 21 recognized that its objectives would require large flows of new and additional financial resources.
Rio also reminded us of what sustainable development means. Norwegian leader Gro Harlem Bruntland gave us a good definition of sustainable development, making us realize that we have only borrowed resources from our future generations. CoP-27, on the other hand, with no real plan forged for building up its Loss and Damage Fund, seemed to say that future generations could go to hell or jump in the deep sea.
So what can we do in the meantime? How do we plug this ever-widening gulf between words and deeds? I reckon that the time is ripe to marshal the political will for implementing some unconventional modes for raising finance, at the very least.
There is also the hope that it could be used for abatement as well. An assessment of recent developments tells us that the prospect of reforming international economic frameworks is becoming more tangible. Multiple global crises, alarmingly high levels of fiscal deficits and unmet needs for finance mean that this is the best time to push new frontiers in the international arena.
In 1972, Nobel laureate James Tobin had suggested what came to be known as the Tobin tax. In essence, it would be an obligation on financial institutions to pay a cess on their currency transactions, but not investment flows. The ultimate aim would be to raise money for development and climate finance and make a sustainable economic recovery more feasible.
Here are some facts for consideration. The daily global currency trade is worth $6 trillion approximately. In this context, a Tobin tax that would be levied on spot currency transactions appears very desirable. Even at a nominal rate of 0.25%, the tax could annually raise $4.5 trillion globally. This significant amount can fund sustainable development goals (SDGs) and easily enable climate adaptation and mitigation for developing countries. Such capital will also be more resilient, given that recessionary conditions do not gravely affect foreign exchange markets, at least in comparison with global stock and bond markets.
In this regard, India can galvanize much needed support for a global Tobin tax by making it a part of its G20 agenda. A consensus at the G20 will in turn lead to greater acceptance by the international community at large, and remove problems that could arise from a unilateral or limited imposition of this tax. Specifically, India with a daily foreign exchange turnover of almost $33 billion, should provide the primary impetus to this proposition. Further, given India’s interest in finding international coherence around the regulation of crypto assets, a global Tobin tax applicable to such digital assets could be a great starting point.
Introducing a Tobin tax will not only help in raising resources, but also help financial regulators track global currency flows. This is analogous to the desire for greater transparency and equity that led to sweeping reforms in the global tax architecture through the G20-led global minimum corporate tax. It also tells us that the G20 would be the best forum to drive momentum on this issue.
In April 2011, at a previous G20 summit, over 1,000 economists urged the group to accept a Tobin tax (also known as a ‘Robin Hood tax’) to address global poverty. The signatories to that plea included Jeffrey Sachs, Dani Rodrik and Ha Joon Chang (bit.ly/3AP90QD). In a letter addressed to G20 governments, they urged them to levy such a tax in the greater common interest. “The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken,” the letter said. “It is time to fix this link and for the financial sector to give something back to society.” Nobel laureates Joseph Stiglitz and Paul Krugman also joined them. A similar appeal was issued in 2021 to deal with the covid pandemic.
Renewed expressions of support for this tax are required from governments, non-governmental organizations and also civil society. A modern and resilient international financial architecture that is responsive to the needs of the hour can ensure environmentally sound and equitable development for future generations.
Sneha Singh of CUTS contributed to this article.
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