Tag: FTT

Linking an FTT to scaled up climate action

Where is the Finance (WTF) to fill the gap? Here’s one of many answers to that question, the Financial Transaction Tax (FTT).

In early 2013, 11 EU Member States agreed to introduce an FTT that could generate revenues of €37bn a year or more, depending on its scope. While the FTT is still in in the design phase, ECO wonders whether France,  Germany and the other nine European supporters could not only finalise discussions on the scope of the FTT (on which scale of revenue will depend) but make a bold move: by allocating a big portion of the revenues to climate finance. This is a marvellous plan, as it would allow the EU – perhaps in time for the Ban Ki-moon summit in late 2014 – to assign a substantial amount to the very empty Green Climate Fund. 

It’s not a totally mad idea, It’s said France already is earmarking 10% of its FTT revenues to climate action. And we hear that Belgium supports the idea of  using part of the FTT revenues for development and climate action.

But what about the others, for instance Germany – where a new government is being formed even as the ministerial proceeds? One coalition partner had joined a grand campaign to allocate 33% of FTT revenues to climate action. Well, that was before the elections. Let’s see if they stay true to that promise.

Now it’s in the court of the EU-11 to bridge the gap with a bold FTT.  

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The $100 Billion+ Question

Cancun delivered the Green Fund, now Durban must deliver the sources of finance to fill it. Where the money will come from is the $100 billion+ question governments will need to answer at the African COP.

Financial flows for climate action must be scaled up to the tune of several hundred billion dollars a year. While much of this can come from the private sector, principally for mitigation, it won’t flow without public funding to invest in capacity-building, technology R&D, creating policy and regulatory frameworks, and to leverage the private sector investments into areas where they are not now flowing.

Meanwhile REDD requires public finance investments over the next decade in the tens of billions of dollars, and adaptation requires even greater sums of public finance. It’s clear to ECO that the annual $100b figure must be almost entirely public finance to make a significant contribution to the amount of financing needed.

ECO recognizes that there are many issues on the finance agenda in Bonn – from learning the lessons of the fast-start finance (2010-2012), establishing new institutions, and deciding the scale of finance requirements. The finance issue that parties should focus most of their efforts on here in Bonn, and between now and Durban, is how to generate the public finance required.

Part of this must be from developed country budgets. But how much and from which governments must be spelled out. Durban is only one year away from the end of the fast start funding period, and there are as of yet no concrete commitments at all for the 2013 to 2019 period.

But even if we assume optimistically that governments will scale up from the fast-start levels, the problem remains. Developed countries have a tendency to provide funding that is not new and additional, but rather often comes at the expense of other existing commitments to development finance. Supplementary sources alongside government budgets will be absolutely necessary if we are to reach the levels of predictable, new and additional public finance required.

What is needed is a clearly defined and structured process to analyze, negotiate and reach conclusions on the sources of long-term finance between now and Durban. This process should involve workshops, submissions, informal Ministerials, receipt of and responses to input from past processes like the AGF and ongoing processes like those in the IMO and G20. By Durban this process should reach key conclusions on several concrete sources of finance and set out a pathway forward to operationalize them and identify further sources needed. This should include the establishment of an effort sharing approach for developed country governments’ budget contributions, and also explore a range of new and innovative sources, including international transport (bunkers), financial transaction taxes (FTTs), and Special Drawing Rights (SDRs). 

A breakthrough agreement in Durban on the basic parameters of a mechanism to address emissions from international transport, that can generate finance for climate action in developing countries, would demonstrate conclusively that the multilateral process is alive and well and breaking new ground. If Durban can also get resolution on a second commitment period on the Kyoto Protocol that sends a strong signal and provides certainty to private sector investors, Durban could well be remembered as a turning point on the road to a fair, ambitious and binding global regime.

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