WASHINGTON—One of the keys to sealing a global climate deal is a financial lifeline to help vulnerable countries adapt to climate change. The price tag is reckoned in tens, if not hundreds of billions of dollars. Just where will that astronomical amount of money come from?
One California Democrat thinks he has the answer. It comes in the shape of a minuscule tax — five one-thousandths of one percent — imposed on financial market transactions made by big time traders.
U.S. Rep Pete Stark, has introduced a bill that would levy the tiny tax on trades of stocks, bonds, foreign exchange, futures and options involving large-scale traders who make more than $10,000 in transactions per year.
“Every day, there are $4 trillion worth of currency transactions,” Stark, a senior member of the House Ways and Means Committee, said via a news release. “The vast majority of these are speculative – banks trying to make a buck by out-guessing the system. This speculation contributed to the last Wall Street crisis and makes our financial system less stable.”
Revenues from the tax would cover expenses for worldwide climate change mitigation. This includes daunting tasks such as moving homes away from coastlines, transforming agricultural practices and reconfiguring infrastructure.
Pursuing a global climate deal and making Wall Street pay for it might not be perceived as smart election-year politics. But Stark, the longest serving Congressman from California, is running for his 20th term this fall. He represents the East Bay region of the San Francisco area and faces token Republican opposition from Forest Baker on the Nov. 2 ballot.
In addition to climate change adaptation, the money raised also would fund investments in global health and an effort to make U.S. child care affordable. Friends of the Earth is among the advocacy organizations supporting what Stark is calling the Investing In Our Future Act. Other groups on board include ActionAid, Africa Action, RESULTS, Health GAP (Global Access Project) and the Sustainable Energy and Economy Network at the Institute for Policy Studies.
Janet Redman co-directs the Washington, D.C.-based Sustainable Energy and Economy Network.
“We want to make it clear that this bill is not designed to hit the average guy,” Redman told SolveClimate in a recent interview. “It’s not going after people going on vacation, those sending remittances back home or middle class or small investors. This is for big-time brokers, traders and investment bankers.”
One study that examined these types of transactions worldwide, predicted that a 0.005 percent tax on these transactions would raise up to $28 billion annually and reduce speculative currency trading by 14 percent. Number-crunchers are still calculating what the financial possibilities would be on U.S. transactions alone, Redman explained.
She pointed out that the U.S. Securities and Exchange Commission—a watchdog agency tasked with protecting investors and maintaining fair markets—is funded by a similar type of fee applied to transactions in publicly traded securities and exchange traded futures and options. At 0.0042 percent, that tax is even smaller than the one Stark is proposing.
The United Nations Department of Economic and Social Affairs has estimated that non-industrialized countries will need somewhere in the neighborhood of $500 billion annually to mitigate the long-term effects of global warming. That figure includes helping countries adjust to anticipated water and food shortages, invest in renewable energy sources and reconfigure other major pieces of infrastructure necessary to fulfill the needs of a low-carbon economy.
At the climate conference in Copenhagen last December, Secretary of State Hillary Clinton pledged that the United States would take the lead among developed nations by providing $30 billion to developing nations by 2012. That figure would ramp up to $100 billion a year by 2020.
Stark and supporters of his bill expect that the proposed financial transaction tax could meet a significant portion of those needs. Some 40 percent of the revenue collected from the tax would be designated for what’s known as the Global Climate Change and Mitigation Trust Fund. The rest would go toward the Child Care Assistance Trust Fund and the Multilateral Global Health Trust Fund.
“We see the tax as common sense,” Redman explained, adding that the worldwide recession has slashed budgets for safety nets that developing countries could once count on to mitigate the costs of crop failure and water scarcity. “The whole point is equity. Those being hit by the effects of climate change aren’t the ones causing the problem. So how you raise the money needs to be part of the equity conversation.”
The United States isn’t alone in considering a tax on financial transactions. Several European countries have enacted one and leaders in France, the United Kingdom, Japan and the European Union have explored the idea.
Stark’s bill, introduced in late July, hasn’t even emerged out of a House committee yet. If and when it does, Redman says her organization views the bill as a test indicating where politicians stand.
“How they vote will tell people where politicians are today,” she concluded. “Are they representing big bankers or the people?”
While Stark and the bill’s supporters see this legislation as vital, the measure has barely registered with two usually vocal outlets that would be ideologically opposed to it.
Neither the U.S. Chamber of Commerce nor Republican leadership at the House Ways and Means Committee was prepared to respond to the low- profile bill when contacted by SolveClimate News.
“I can try to get you a comment,” Ways and Means Republican press officer Sarah Swinehart said via telephone, “but I think this one has sort of slipped under the radar.”