Tag: Jomo Kwame Sundaram

Enhancing Mining Revenue — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Sep 13 (IPS) – The commodity boom early this century was mainly driven by mineral prices. Yet, mining’s contribution to developing countries’ revenue has been modest, largely due to massive tax evasion and avoidance.

Less mining royalties

Decades of well-supervised mineral extraction prove resource extraction by accountable and effective states can accumulate more ‘resource rents’ to enhance sustainable development and social welfare.

Jomo Kwame Sundaram

Well-regulated, progressive resource rent taxation can greatly enhance such extractive industries’ fiscal contribution to public wellbeing and national development.

But mining royalty rates fell significantly at the end of the 20th century to a range up to 30 per cent. Mineral revenue rates must be increased if resource-rich developing countries are to progress.

Those responsible have justified lowering resource rents for host governments and economies. The World Bank’s Extractive Industries Transparency Initiative supposedly seeks to cut corruption associated with mining, and to attract more mining foreign direct investment.

From the late 20th century, Tanzania rapidly became the third largest gold producer in Africa – after South Africa and Ghana, once known as the Gold Coast.

But with negligible royalties and tax revenue, Tanzania – a least developed country – subsidizes the government-provided infrastructure built to attract primarily foreign gold mining investors.

Ten policy proposals

The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and the African Tax Administration Forum (ATAF) have proposed how developing countries can benefit more from their mineral resources.

Their book – The Future of Resource Taxation: 10 policy ideas to mobilize mining revenues – considers policy options available to governments, and offers lessons from how several have successfully implemented the proposed approaches.

Minimum Profit Share for Government

Many governments receive mineral resource rents via royalties and corporate income tax. A few insist on minimum government revenue even when prices fall below thresholds. The book assesses whether such ‘profit sharing’ – in Tanzania, the Philippines and Ecuador – improved on the status quo ante.

Production Sharing Contracts

Many governments get oil and gas revenues via production sharing contracts. Some have been considering whether such arrangements would work well for other minerals. A chapter considers issues arising from executing such contracts.

State Equity Participation

State equity participation enables governments to receive dividends and other benefits from their investments. The volume offers practical guidance in this regard.

Commercial State-Owned Enterprises

Nationalist desires for mineral resource ownership may involve fully state-owned mining enterprises to maximize economic benefits to the nation. One chapter recommends how such companies should be established, expanded and reformed to succeed.

Variable royalties

Variable royalty rates are easier to enforce than profit or cash-flow based taxes. The book offers pragmatic guidance from reviewing variable royalties in 15 countries.

Related-Party Sales

Resource-rich Latin American countries have been using commodity prices from a relevant exchange – such as the London Metals Exchange – to reduce tax dodging involving mineral transactions. Such reference prices are less vulnerable to related-party mineral sales’ tax dodging.

Carbon Pricing and Border Adjustment Mechanisms

The carbon border adjustment mechanism (CBAM) taxes imports from outside the European Union (EU) for presumed greenhouse gas emissions at rates equal to what EU-made products are charged by its Emissions Trading Scheme. The report considers CBAM’s likely impact on mineral-exporting developing countries, and whether they should emulate it.

Community Revenue from a Development Turnover Tax

Some mining tax instruments cater to specific demands from resource-rich countries. One chapter discusses a ‘development turnover tax’ requiring private mining companies to invest in shared public infrastructure. Alternatively, the national revenue authority can collect a development turnover tax for a government-run mining development fund to do likewise.

Competitive Bidding for Mining Rights

Under the correct conditions, competitive bidding can efficiently assign mineral resource extraction licences to private companies. The report describes how countries can increase revenue from allocating mining licences via competitive bidding.

Better Monitoring of Quarrying

In most resource-rich countries, regulatory oversight and mining revenue mobilization tend to focus on precious minerals, ignoring quarried industrial minerals. Remote monitoring can help tax authorities better assess quarried output volumes and sales.

Implementation matters

When mining companies use their power, money and influence to get mining rights, land, water and other resources, they invariably provoke resistance, often local. But better international, national and local regulation can reduce such adverse impacts and related conflicts.

Some proposals in the volume involve incremental changes, while others are more radical. But they all need careful government consideration to ascertain appropriateness. Of course, the likelihood of success also depends on various circumstances.

Governments require human and financial resources to implement the proposed reforms. They should avoid inefficient and ineffective tax incentives as well as enforcement powers undermining government policies and the law.

Effective implementation often needs support for resource-rich developing countries – from international organizations, bilateral and other development partners – to improve mineral resource rent collection.

Generally, mining revenue has fallen short of expectations – largely due to inappropriate laws, poor investment agreements, overly generous tax incentives, tax evasion and avoidance. Some countries also lack the needed expertise, information and means to effectively implement mining taxation, free of corruption.

Intensified competition for mineral resources is worsening rivalries. As demand grows, new alliances and rivalries are emerging, even as circumstances change.

With such uncertainties in a fast changing international situation, developing countries can better advance their national interests by cooperating and staying non-aligned, rather than competing with other mineral producing nations.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Finally, a Real Chance for International Tax Cooperation — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Sep 06 (IPS) – After decades of resistance by rich nations, African governments successfully pushed for the United Nations to lead on international tax cooperation. All developing countries and fair-minded governments must rally behind this initiative.

UN leadership
The official UN Secretary-General’s Report (SGR) was mandated by a UN General Assembly resolution, unusually adopted by consensus in late 2022.

All countries must now work to ensure progress on financing to achieve the Sustainable Development Goals (SDGs) and climate justice after major setbacks due to the pandemic, war and illegal sanctions.

Jomo Kwame SundaramRich countries had blocked an earlier tax cooperation initiative at the Addis Ababa Financing for Development (FfD) summit in mid-2015. With grossly inadequate funding, the SDGs were condemned to a still birth.

The SGR on options to strengthen international tax cooperation is, arguably, the most important recent proposal – remarkably, from a beleaguered and much ignored UN – to enhance FfD for SDG progress.

It proposes three options: a multilateral tax convention, an international tax cooperation framework convention, and an international tax cooperation framework. The first two would be legally binding, while the third would be voluntary in nature.

Eurodad proposal
In response, the European Network on Debt and Development (Eurodad) has made a proposal – supported by the Global Alliance for Tax Justice (GATJ) – noting: “It is time for governments to deliver … … cooperate internationally to put an end to tax havens and ensure that tax systems become fair and effective.

“International tax dodging is costing public budgets hundreds of billions of Euros in lost tax income every year, and we need an urgent, ambitious and truly international response to stop this devastating problem.

“We believe the right instrument for the job is a UN Framework Convention on International Tax Cooperation and we call on all governments to support this option…

“For the last half century, the OECD has been leading the international decision-making on international tax rules and the result is an international tax system that is deeply ineffective, complex and full of loopholes, as well as biased in the interest of richer countries and tax havens.

“Furthermore, the OECD process has never been international. Developing countries have not been able to participate on an equal footing, and the negotiations have been deeply opaque and closed to the public.

“We need international tax negotiations to be transparent, fair and lead by a body where all countries participate as equals. The UN is the only place that can deliver that.”

A big step forward?
Strengthening international tax cooperation is expected to be the major issue at the one-day UN High-level FfD Dialogue on 20 September 2023.

A UN resolution on international tax cooperation – for General Assembly debate after September 2023 – should plan a UN-led inter-governmental process. After all, developing such solutions is a key purpose of the multilateral UN.

The Africa Group at the UN had appealed for a Convention on Tax in 2019, to help curb illicit financial outflows. After all, such tax-related flows are international problems, requiring multilateral solutions.

International tax cooperation should be inclusive, effective and fair. The EURODAD-GATJ proposals deserve consideration by all Member States negotiating a UN tax convention. The outcome should include:
• Create an inclusive international tax body. The Convention should create international tax governance arrangements, using a Conference of Parties (CoP) approach, with all countries participating as equals. Currently, international tax rules are decided in various bodies where developing countries never participate as equals.
• Enable an incremental approach to achieve other intergovernmental agreements. The outcome should be a framework convention, with basic structures, commitments and agreements enabling further updating and improvements later.
• Incorporate developing countries’ interests, concerns and needs to achieve tax justice. The Convention should address developing countries’ interests, concerns and needs, replacing current tax standards and rules favouring wealthier nations.
• Enhance international coherence. The Convention should develop a coherent system for all nations, including developing countries. It should eventually replace the plethora of existing bilateral and plurilateral tax treaties and agreements with a coherent overall framework. This should improve effectiveness and cut tax dodging.
• Strengthen international efforts against illicit financial flows, especially involving tax avoidance and evasion, with simpler, more coherent and straightforward rules and standards to improve transparency and cooperation among governments.
• Eliminate transfer pricing. The Convention should eliminate transfer pricing by replacing existing rules enabling such abusive practices.
• Tax transnational corporations globally. Transnational corporations’ consolidated profits should be taxed on a global basis. Tax revenue should be distributed among governments with a minimum effective corporate income tax rate based on a fair and principled agreed formula recognizing developing countries’ contributions as producers.
• End coerced acceptance of biased dispute resolution processes. The Convention should not require countries to accept biased processes, such as binding arbitration, favouring those who can afford costly legal resources. Effective dispute prevention would reduce the need for dispute resolution. Alternative mechanisms for resolving disputes could also be negotiated – using inclusive and transparent decision-making processes – under the Convention.
• Enhance sustainable development and justice. The Convention should promote progressive taxation at national and international levels. It should ensure improved international tax governance supports government commitments and duties, especially relating to the UN Charter and Sustainable Development Goals.
• Improve government accountability. The Convention should ensure transparent and participatory tax decision-making, with governments held accountable to national publics.
• Ensure transparency. The Eurodad proposal emphasizes the ‘ABC of tax transparency’, i.e., Automatic Information Exchange, Beneficial Ownership Transparency, and Country-by-Country reporting.

Actual progress will not come easily, especially after the strong-arm tactics – used by the G-7 group of the biggest rich economies and the Organization for Economic Cooperation and Development (OECD) – to impose its tax proposals at the expense of developing countries.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

UN Financing Appeal Last Hope for SDGs and Climate? — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Aug 30 (IPS) – The United Nations Secretary-General’s Dialogue on Financing for Development on 20 September may well be the world’s last chance to save the Sustainable Development Goals (SDGs) and curb global warming in time.

The UN and international finance
Many features of the international financial system – including multilateral arrangements developed over many decades – have been overtaken by new developments, sometimes resulting in multidimensional crises.

Jomo Kwame SundaramThe month-long 1944 Bretton Woods gathering was convened as a UN conference to create conditions conducive to post-war recovery and post-colonial development. But the systemic concerns of John Maynard Keynes and others from developing countries were largely ignored.

The International Monetary Fund (IMF) was set up for post-war growth and stability following the pre-war ‘gold standard’ crisis. The International Bank for Reconstruction and Development – later, World Bank – would help with financing.

The Bretton Woods agreement set the gold price in US dollars, effectively making the greenback the world’s reserve currency. Thus, the US Federal Reserve Bank (Fed) has long financed Treasury bonds with newly minted dollars.

The French economy minister saw this giving the US an ‘exorbitant privilege’. As Europeans increasingly demanded gold for dollars abroad, President Richard Nixon unilaterally abandoned US Bretton Woods obligations in August 1971.

It thus repudiated its promise to deliver gold for the greenback upon demand by other central banks. Although the dollar has not been the world’s official reserve currency since, widespread acceptance has effectively extended the exorbitant privilege indefinitely.

UN potential?
The inadequate institutions and processes in place over the last half century have exacerbated risks. Meanwhile, financial crises inadvertently highlight previously obscure gaps, weaknesses and vulnerabilities.

Proposals to reform economic governance should start with better efforts to address these problems. This should involve progressive reform of the UN system, including the IMF and World Bank.

The UN is well suited to lead because of its record with difficult reforms due to its more inclusive and responsive governance. Securing legitimacy requires all parties to feel they have stakes in the broader reform agenda.

Despite poor regulation, many believe new financial markets and instruments have ushered in a new golden era. Threats posed by international macro-financial imbalances are seen as far less dangerous than those due to budgetary deficits. Worse, false purported solutions to such dangers have exacerbated complacency.

Financing development
Major financing for development (FfD) innovations have long been initiated by the UN. Special drawing rights (SDRs), ‘0.7 per cent of national income’ for official development assistance (ODA) and debt relief were all conceived in the UN around half a century ago.

The financialization of recent decades has undermined the mobilization and deployment of adequate financial resources to accelerate sustainable development and address global warming.

During the 1990s, the UN warned against new threats to economic stability. Some were due to volatile private capital flows and speculation, encouraged by deregulated financial markets, enabled by the IMF despite its Articles of Agreement.

By contrast, the UN has insisted on ensuring policy space for more effective development strategies by Member States. It has also urged macroeconomic policies to support long-term growth, technological progress and economic diversification.

The UN Secretariat has also promoted orderly sovereign debt relief. But Member States have long complained IFIs were shirking their mandates to provide financial stability and adequate long-term development finance.

UN pro-active on finance again?
The first UN FfD conference was held in Monterrey, Mexico, in 1992. It sought to ensure adequate development finance on reasonable terms after the 1980s’ debt crises, exacerbated by conditionalities imposed with emergency IFI credit.

Structural adjustment programmes ensured ‘lost decades’ for Sub-Saharan Africa and Latin America. The current situation may be even more dire. Government debt today is greater than ever, but also more diverse, and on much more commercial terms. This situation is even less conducive to debt restructuring, let alone relief.

For decades, the UN’s FfD Office has tried, largely in vain, to mobilize domestic and international resources for development and climate finance. But progress has been modest and grossly inadequate at best.

The SDGs were cursed at birth in September 2015 by rich nations blocking developing country efforts to improve international tax cooperation at the last FfD summit at Addis Ababa just months before.

The rich countries’ Organization for Economic Cooperation and Development (OECD) has since imposed its will on international corporate taxation. The OECD process largely consigned developing countries to observer status, offering paltry shares to reward compliance.

The UN has also highlighted links between financialization and food as well as energy crises, stressing justice and sustainability concerns. It has urged greater sensitivity to avoid, or at least alleviate ‘downside risks’ for the vulnerable.

Get real to progress
International tax cooperation has been blocked for decades by the rich nations’ OECD. The UN system, including the IMF, urgently needs a strong mandate to seek common solutions to increase tax revenue for all.

While private finance is needed for the SDGs, it is also part of the problem when not well regulated. Meanwhile, most developing countries still lack access to liquidity during financial crises except on onerous IMF terms.

Also, with the reversals of trade liberalization in recent decades, especially with new Cold War sanctions, UN resolutions need to be realistic in order to be broadly accepted and feasible.

The last decade has seen huge setbacks to progress on the SDGs, climate action and needed financing. Developing countries have received only a third of the IMF’s 2021 $650 billion SDR allocation.

Over the decades, ODA flows have declined as a share of commitments, with the loan-grant ratio falling, favouring financial globalization, particularly since the first Cold War ended.

This has constrained developing countries’ ability to respond to crises and meet long-term development financing and fast-growing climate adaptation requirements. Curbing illicit financial flows can also improve financing for needed ‘public goods’.

As most rich nations show little sign of meeting their ODA and climate finance obligations, annual issue of SDRs, within limits set by the US Congress, can quickly boost international liquidity ‘painlessly’.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

UN Must Reclaim Multilateral Governance from Pretenders — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Aug 24 (IPS) – International governance arrangements are in trouble. Condemned as ‘dysfunctional’ by some, multilateral agreements have been discarded or ignored by the powerful except when useful to protect their interests or provide legitimacy.

Economic multilateralism under siege
Undoubtedly, many multilateral arrangements have become less appropriate. At their heart is the United Nations (UN) system, conceived in the last year of US President Franklin Delano Roosevelt’s presidency and World War Two.

Jomo Kwame SundaramThe 1944 UN conference at Bretton Woods sought to build the foundations for the post-war economic order. The International Monetary Fund (IMF) would create conditions for lasting growth and stability, with the World Bank financing post-war reconstruction and post-colonial development.

The Bretton Woods agreement allowed the US Federal Reserve Bank (Fed) to issue dollars, as if backed by gold. In 1971, President Richard Nixon repudiated the US’s Bretton Woods obligations. With US military and ‘soft’ power, widespread acceptance of the dollar since has effectively extended the Fed’s ‘exorbitant privilege’.

This unilateral repudiation of US commitments has been a precursor of the fate of some other multilateral arrangements. Most were US-designed, some in consultation with allies. Most key privileges of the global North – especially the US – continue, while duties and obligations are ignored if deemed inconvenient.

The International Trade Organization (ITO) was to be the third leg of the post-war multilateral economic order, later reaffirmed by the 1948 Havana Charter. Despite post-war world hegemony, the ITO was rejected by the protectionist US Congress.

The General Agreement on Tariffs and Trade (GATT) became the compromise substitute. Recognizing the diversity of national economic capacities and capabilities, GATT did not impose a ‘one-size-fits-all’ requirement on all participants.

But lessons from such successful flexible precedents were ignored in creating the World Trade Organization (WTO) from 1995. The WTO has imposed onerous new obligations such as the all-or-nothing ‘single commitment’ requirement and the Agreement on Trade-related Intellectual Property Rights (TRIPS).

Overcoming marginalization
In September 2021, the UN Secretary-General (SG) issued Our Common Agenda, with new international governance proposals. Besides its new status quo bias, the proposals fall short of what is needed in terms of both scope and ambition.

Problematically, it legitimizes and seeks to consolidate already diffuse institutional responsibilities, further weakening UN inter-governmental leadership. This would legitimize international governance infiltration by multi-stakeholder partnerships run by private business interests.

The last six decades have seen often glacially slow changes to improve UN-led gradual – mainly due to the recalcitrance of the privileged and powerful. These have changed Member State and civil society participation, with mixed effects.

Fairer institutions and arrangements – agreed to after inclusive inter-governmental negotiations – have been replaced by multi-stakeholder processes. These are typically not accountable to Member States, let alone their publics.

Such biases and other problems of ostensibly multilateral processes and practices have eroded public trust and confidence in multilateralism, especially the UN system.

Multi-stakeholder processes – involving transnational corporate interests – may expedite decision-making, even implementation. But the most authoritative study so far found little evidence of net improvements, especially for the already marginalized.

New multi-stakeholder governance – without meaningful prior approval by relevant inter-governmental bodies – undoubtedly strengthens executive authority and autonomy. But such initiatives have also undermined legitimacy and public trust, with few net gains.

All too often, new multi-stakeholder arrangements with private parties have been made without Member State approval, even if retrospectively due to exigencies.
Unsurprisingly, many in developing countries have become alienated from and suspicious of those acting in the name of multilateral institutions and processes.

Hence, many in the global South have been disinclined to cooperate with the SG’s efforts to resuscitate, reinvent and repurpose undoubtedly defunct inter-governmental institutions and processes.

Way forward?
But the SG report has also made some important proposals deserving careful consideration. It is correct in recognizing the long overdue need to reform existing governance arrangements to adapt the multilateral system to current and future needs and requirements.

This reform opportunity is now at risk due to the lack of Member State support, participation and legitimacy. Inclusive consultative processes – involving state and non-state actors – must strive for broadly acceptable pragmatic solutions. These should be adopted and implemented via inter-governmental processes.

Undoubtedly, multilateralism and the UN system have experienced growing marginalization after the first Cold War ended. The UN has been slowly, but surely superseded by NATO and the Organization for Economic Cooperation and Development (OECD), led by the G7 group of the biggest rich economies.

The UN’s second SG, Dag Hammarskjold – who had worked for the OECD’s predecessor – warned the international community, especially developing countries, of the dangers posed by the rich nations’ club. This became evident when the rich blocked and pre-empted the UN from leading on international tax cooperation.

Seeking quick fixes, ‘clever’ advisers or consultants may have persuaded the SG to embrace corporate-dominated multi-stakeholder partnerships contravening UN norms. More recent SG initiatives may suggest his frustration with the failure of that approach.

After the problematic and controversial record of such processes and events in recent years, the SG can still rise to contemporary challenges and strengthen multilateralism by changing course. By restoring the effectiveness and legitimacy of multilateralism, the UN will not only be fit, but also essential for humanity’s future.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

World Bank Climate Finance Plan Little Help, Unfair — Global Issues

Khoo Wei Yang
  • Opinion by Jomo Kwame Sundaram, Khoo Wei Yang (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Aug 16 (IPS) – The World Bank plans to use public funds to subsidize private finance, ostensibly to mobilize much more capital to address the climate crisis. But the new plan is likely to be a distraction, not the solution it purports to be. Rich nations have contributed most to the current climate crisis. They are primarily responsible for the historical emissions and greenhouse gas (GHG) accumulation of the last two centuries.

Developing countries, especially in the tropics and sub-tropics, are the main victims of global warming today. Most need finance and other means to build resilience and to develop in the face of the climate crisis. But the rich have resisted major efforts to help developing nations better cope with the crisis.

Jomo Kwame SundaramClimate finance lacking
But recent international climate finance flows fall far short of developing countries’ needs, not only in the aggregate, but also due to their restrictive terms. Nonetheless, increasing demands have been made of the global South to stem the growing crisis.

Meanwhile, climate finance has become increasingly commercial, not concessional. After all, most international agreements tend to be poor compromises reflecting corporate and political power in the world. They fail to address the crisis, let alone advance climate justice.

Rich nations have fallen far behind on their $100 billion annual finance commitment for the 2009 Copenhagen climate conference. This modest commitment was supposed to increase significantly after 2020, but there have been no signs of progress, e.g., at French President Macron’s recent summit.

Instead of helping developing countries cope with more funds for adaptation, most available resources have been earmarked for mitigation. Finance for mitigation is over ten times more than the $56bn (8.4%) available for adaptation in 2020.

Meanwhile, official development assistance (ODA) has long fallen short of the promise of 0.7% of rich nations’ national incomes made over half a century ago. This fell further after the end of the first Cold War, over three decades ago, to barely 0.3%!

Khoo Wei YangMuch ODA has gone to climate finance, resulting in double counting. As concessional finance – especially its grant content – declines, developing countries have no choice but to turn to commercial loans as ‘debt-pushers’ gain influence the world over.

Meanwhile, the USA, the dominant World Bank (WB) shareholder, has blocked increasing WB capitalization, to avoid China gaining more influence with a greater capital share.

WB subsidizes private finance
The WB has revised its earlier failed ‘playbooks’ as global warming accelerates, with worsening consequences, especially for the global South. Its new plan – Evolving the World Bank Group’s Mission, Operations, and Resources – was issued in early 2023.

Eurodad warns, while it “seeks to incorporate climate considerations, the Roadmap does not address the continuing contradictions in its operations”. Most worryingly, ever more private commercial finance is being touted as development and/or climate finance.

Despite being among the world’s largest public lenders, the WB has been slow to provide climate finance, and is already years behind schedule. It is not even aligned with the non-binding 2015 Paris Agreement goals, with new operations only scheduled to become aligned from mid-2023!

Worse, WB subsidiaries – the International Finance Corporation and the Multilateral Investment Guarantee Agency – will only become aligned from mid-2025, a decade after Paris! Also, its climate finance definition, data and corporate strategy remain controversial and unhelpful.

Meanwhile, the WB has worsened the climate crisis, e.g., by providing $16 billion of project finance for fossil fuels since 2015. Its involvement in Clean Development Mechanism projects involves a ‘serious conflict of interests’, profiting from the climate crisis while worsening it!

The WB Group (WBG) intends to mobilize private capital with de-risking strategies, such as blended finance. Instead of using public finance to provide concessional terms to the deserving, public funds will thus make commercial finance more profitable.

Despite much cause for concern and caution, the WB’s problematic 2017 Maximizing Finance for Development promotes commercial finance as the main source of development and climate funding.

The WBG claims to want greater development and climate impacts from private commercial finance. This is undoubtedly in line with the WB creed that only the private sector can overcome the climate crisis despite being its major enabler, if not cause.

Such initiatives by former WB president Jim Kim and former Bank of England governor Mark Carney are considered ‘much ado about nothing’ by many in the global South. Enabling profit-seeking businesses to call the shots can hardly be the solution, and may instead worsen the problem.

Way forward?
Developing country leaders have long appealed for a new ‘international financial architecture’ to better address development and climate challenges, drawing support from civil society, especially in the global South.

Without any agreed multilateral definition of climate finance, governments and corporations are ‘greenwashing’ their financial abuses by labelling their financial operations as constituting climate and development finance.

As poor nations in the tropical zone suffer the worse consequences of accelerating global warming, only multilateral recognition of the need for financial reparations to address historical and contemporary losses and damages.

It is unlikely the needed climate financing will be voluntarily provided by those most responsible for the climate crisis. At the very least, rich nations should support regular issue of IMF Special Drawing Rights in the near term within the constraints imposed by likely US Congressional disapproval.

These should be urgently reallocated for concessional climate finance in the coming years prioritizing the adaptation needs of developing nations, prioritizing cumulative losses and damages due to the climate crisis.

Meanwhile, Eurodad urges penalizing “the private sector of the developed global north for failure to meet its carbon emission reduction” promises as it is responsible for over 90% of excess GHG emissions.

It has also called for “providing developmental space for developing countries” to progress, and re-orienting “the bank’s developmental model towards climate reparations”, especially for Africa, the least developed countries and small island developing states.

But the WB plan offers no major improvements, only more of the same. Instead, the WB should help the UN design and implement a comprehensive monitoring and reporting framework for all development and climate finance, including private finance.

By recognizing the international and intergenerational inequities of global warming, the WB can become far more equitable by ensuring all nations develop sustainably while addressing the climate crisis.

To do so, it will need to uphold ‘polluters pay’ and ‘common, but differentiated responsibilities’ principles, enshrined in international climate agreements.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Mining Revenues Undermined — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Aug 09 (IPS) – The primary commodity price boom early this century has often been attributed to a commodity ‘super-cycle’, i.e., a price upsurge greater than what might be expected in ‘normal’ booms. This was largely due to some minerals as most agricultural commodity price increases were more modest.

This minerals boom improved many developing country growth records, not least in Africa. With growing pressures to act urgently in response to accelerating global warming, mitigation efforts have been stepped up, promising energy transitions to reduce greenhouse gas emissions.

Jomo Kwame SundaramThese require major shifts from fossil fuel combustion to renewable energy and complementary (e.g., transport) technologies. This energy transition requires more of specific minerals like lithium, copper and cobalt. This increased demand for minerals offers resource-rich economies more opportunities for greater domestic resource mobilization for development.

The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and the African Tax Administration Forum (ATAF) report, The Future of Resource Taxation: 10 policy ideas to mobilize mining revenues, reviews major problems faced by African and other governments trying to greatly increase revenue from mining.

Great expectations, little taxation
Colonial and neo-colonial mining arrangements have rarely delivered the revenue needed by post-colonial governments. Weak governance, overly generous tax incentives, poor fiscal policies, bad contracts, as well as tax avoidance and evasion have all eroded mineral revenues for developing countries.

Resource-rich countries have been rethinking how to benefit more from mining in the face of the Covid-19 pandemic, worsening developing country debt crises, and increasingly uncertain government revenues and expenditures.

Mining royalties and taxation have remained largely unchanged for decades, while corporate income tax is hard to collect, vulnerable to profit shifting and often minimized with the aid of tax professionals and corrupt officials.

Improving taxation
Taxing transnational corporations has long posed major challenges. Poor laws and enforcement as well as limited funding and staff mean most developing countries are poorly equipped to apply complex international tax norms, such as the ‘arm’s-length principle’ and ‘double taxation treaties’.

Developing nations are especially vulnerable to tax base erosion and profit shifting (BEPS). International Monetary Fund staff estimate African countries have lost annual mining revenue up to $730 million annually due to BEPS.

Many developing countries identified ‘transfer pricing’ as the greatest challenge to taxing mining. The problem has been made worse by mining tax regimes and investment agreements favouring investors, especially from abroad.

Such agreements often contain fiscal incentives making mining revenue collection difficult. Worse, many governments believe generous tax incentives are necessary to attract mining investment. But these typically undermine effective tax administration, causing significant revenue losses.

Also, policy conditionalities typically ‘lock in’ poorly designed fiscal conditions and mining contracts, often required or recommended by the IMF or World Bank. These tend to benefit investors, potentially resulting in costly disputes for host governments.

Generating substantial government revenue from artisanal and small-scale mining (ASM) is difficult. As ASM induces more local spending, rather than extraction or export taxes, indirect taxes and wealth taxes are probably better for such incomes.

Governments of resource-rich developing countries require finance and reliable personnel for successful implementation, to ensure accountability and curb corruption. Sufficient financial and technical assistance can greatly improve mining revenue collection, ensuring companies pay all royalties and taxes due.

Effective implementation needs to be well supported by international agreements and organizations, development partners, and civil society. Tax incentives undermining government policy objectives and legal systems should be avoided.

Taxing better not easy
More access to information and expertise can greatly improve mining tax administration. Information, particularly from other jurisdictions, is critical for tax administrations to better collect taxes due. Sadly, progress has been painfully slow in many developing countries.

Instruments designed to improve information exchange include bilateral investment and tax treaties, tax information exchange agreements, the Organization for Economic Co-operation and Development (OECD) Convention on Mutual Administrative Assistance in Tax Matters, and the ATAF Multilateral Agreement on Assistance in Tax Matters.

Mining revenue collection needs to be able to verify the quantity and quality of mineral reserves and extracts. Key challenges include enhancing tax audit capacity and getting up-to-date knowledge of mining, including implications of changes in mining techniques.

Better inter-agency cooperation is often necessary for better regulation and to avoid an incoherent, fragmented approach. Many mining revenue BEPS problems are due to capacity constraints, e.g., whether governments can effectively verify the costs of goods and services and mineral prices.

Many transactions also require tax auditors to have detailed knowledge of the mining value chain. Many aspects of mining operations allow inflating actual costs to evade taxes. Valuing intangibles, such as intellectual property, is also difficult. Many countries also lack regulations to tax the sale of offshore indirect mining assets, often losing much revenue as a consequence.

Too little too late?
Mineral-rich developing countries hope for more ‘resource rents’ from mining to significantly enhance government revenue. They hope mining taxation will collect much more revenue, subject to other policy goals. However, in most cases, mining has failed to deliver the expected revenues.

Inappropriate laws and investment agreements, overly generous tax incentives, as well as tax evasion and avoidance have contributed to this failure. Some authorities lack the expertise, information and means to more effectively tax mining. Corruption and poor revenue management also remain challenges.

Thankfully, mining revenue collection has improved, albeit modestly. Many countries are improving their mining tax regulations and strengthening their tax audit capacity.

Better international cooperation can address many problems, including information asymmetries. All countries implementing the Extractives Industries Transparency Initiative (EITI) are now required to disclose mining, oil, and gas contracts. This can significantly improve transparency.

Although welcome, such improvements are still far from enough to meet the considerable domestic revenue mobilization needs of developing countries soon enough to adequately accelerate sustainable development after dismal progress for almost a decade.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Government Health Financing for All, Not Insurance — Global Issues

  • Opinion by Jomo Kwame Sundaram, Nazihah Noor (kuala lumpur and bern)
  • Inter Press Service

KUALA LUMPUR and BERN, Aug 02 (IPS) – To achieve universal health coverage, people need public healthcare systems providing fair access to decent health care. This should be an entitlement for all, regardless of means, requiring adequate, appropriate and sustainable financing over the long term.

Jomo Kwame Sundaram

Appropriate arrangements can help ensure a financially sustainable, effective and equitable healthcare system. However, insurance-based systems – both private and social – not only incur unnecessary costs, but also undermine ensuring health for all.

Private health insurance

Voluntary private health insurance (PHI) is not an acceptable option for both equity and efficiency reasons. Those with lower health risks are less likely to buy insurance. Paying the same rate will be seen as benefiting those deemed greater risks, especially the less healthy, often also those less well off.

Hence, PHI premiums are often ‘risk-rated’. This means those considered greater risks – e.g., the elderly or those with pre-existing conditions – face higher premiums. As these are often un-affordable, many cannot afford coverage.

This is clearly neither cost-effective nor equitable, but also socially risky, especially with communicable diseases. This typically means poorer health outcomes compared to spending. Also, various insurance premium rate arrangements have different distributional consequences.

‘Fee-for-service’ reimbursement encourages unnecessary investigations and over-treatment. This escalates costs, raising premiums, without correspondingly improving health. But limiting such ‘abuse’ requires monitoring, always costly.

Nazihah Noor

Unsurprisingly, many PHI companies use costly ‘managed healthcare’ services to try to limit rising costs due to such abuses. Thus, Americans spend much more on health than others, but with surprisingly modest, unequal and hardly cost-effective health outcomes.

With PHI, much public expenditure is needed to cover the poor and others who cannot afford the premiums, often also deemed to be at greater risk. Hence, achieving ‘health-for-all’ in such circumstances would require costly public subsidization of PHI.

Social health insurance

Unlike typically ‘voluntary’ PHI, social health insurance (SHI) is usually mandatory for entire national populations. Although often espoused with the best of intentions, SHI is invariably costlier due to its limitations and problems.

SHI incurs additional costs of health insurance administration to enrol, collect premiums, ascertain eligibility and benefits, make payments and minimize abuses. Revenue financed universal coverage need not incur such costs.

Compared to PHI, SHI seems like a step forward for countries with weak or non-existent public healthcare arrangements. But like PHI, SHI encourages over-treatment and cost escalation, as well as costly bureaucratic insurance administration.

Instead of such abuses inherent to insurance systems, a revenue financed health systems would incentivize prioritizing the health and wellbeing of those it is responsible for, thus emphasizing preventive health.

Such a health system contrasts with insurance systems’ emphasis on minimizing costs for the often unnecessary medical services it incentivizes, instead of improving the population’s health and wellbeing.

Government subsidies for health insurance, private or social, would inevitably go to the transnational giants which dominate health insurance internationally.

Financing SHI complications

Hence, SHI involves much more per capita health spending, raising it by 3-4%! But despite being much more costly than revenue-financed systems, there is no evidence health outcomes are improved by switching to SHI from government funding.

Germany’s SHI has been more cost-effective than the US with its PHI. But it is less cost effective than most other economies with revenue-financed healthcare. Nevertheless, healthcare financing consultants, continue to recommend versions of SHI, although it is clearly not cost-effective, appropriate, efficient or equitable.

SHI schemes remain in some rich countries for specific historical reasons, e.g., Germany’s evolved from its long history of union-provided health insurance. But more recently, even these economies rely increasingly on supplementary revenue financing. But again, such hybrid financing does not improve cost-effectiveness.

As SHI typically involves imposing a flat payroll tax, it discourages employers from providing proper employment contracts to staff. SHI is estimated to have reduced formal employment by 8-10% worldwide, and total employment in rich countries by 5-6%!

It is also difficult and costly to collect SHI premiums from the self-employed, or from casual, temporary and informal workers not on regular payrolls. Also, most working people in developing countries are not in formal employment, with far fewer unionized.

SHI schemes are always difficult to introduce as they would reduce take-home incomes. In most developing countries, most families cannot afford such pay-cuts. Hence, government revenue would still be needed to cover the uncovered to achieve health for all.

Many SHI proposals also recommend earmarking revenue from new ‘health’ taxes collected. Such earmarking creates likely conflicts of interest reminiscent of justifications for ‘sin taxes’ on addictive narcotics, smoking, alcohol consumption and gambling.

Will governments perpetuate unhealthy practices and behaviours to secure more tax revenue? Is there an optimum level of smoking or sugar consumption to be allowed, even encouraged, to get such earmarked funding?

Revenue financing

International evidence shows progressive revenue-funded public health financing to be much more equitable, cost-effective and beneficial than SHI. Hence, moving from revenue-financing to SHI would be a step backwards in terms of both equity and efficiency, or cost-effectiveness.

The late World Bank economist Adam Wagstaff and others have long advocated tax- or revenue-financed health provisioning due to the significant additional costs of managing health insurance systems, both private and social.

Revenue-financed public healthcare financing avoids the many insurance administration expenses incurred by both PHI and SHI. There will be no more need for such costly payments for unnecessary medical tests, procedures and treatments, and bureaucratic processes to manage insurance procedures and curb abuses, e.g., those associated with ‘moral hazard’.

Better financing and reorganization of preventive health efforts are needed. Public health programmes requiring mass participation, e.g., breast or cervical cancer screening, generally have much better outcomes with revenue-financing compared to SHI.

Better results can be achieved by improving tax-funded healthcare. More resources need to be deployed to improve preventive and primary healthcare. Strengthening public health services must include improving staff service conditions, morale and retention rates.

There is nothing inherently wrong with revenue-financed healthcare. Underfunding is largely due to political choices and fiscal constraints. These are typically due to externally imposed political limits.

Instead of dogmatically insisting on SHI, as is typical of health financing consultants, revenue financing of public healthcare should be reformed, strengthened and improved by:

  • increasing and improving budget allocations.
  • eliminating waste and corruption with competitive bidding, etc.
  • increasing government revenue with fairer taxation, including wealth, ‘windfall’ and deterrent ‘sin’ taxes, e.g., of tobacco and sugar consumption.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Exchange Rate Movements Due to Interest Rates, Speculation, Not Fundamentals — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Jul 26 (IPS) – Currency values and foreign exchange rates change for many reasons, largely following market perceptions, regardless of fundamentals. Market speculation has worsened volatility, instability and fragility in most economies, especially of small, open, developing countries.

US Fed pushing up interest rates
For no analytical rhyme or reason, US Federal Reserve Bank (Fed) chairman Jerome Powell insists on raising interest rates until inflation is brought under 2% yearly. Obliged to follow the US Fed, most central banks have raised interest rates, especially since early 2022.

Jomo Kwame SundaramThe US dollar or greenback’s strengthening has been largely due to aggressive Fed interest rate hikes. Undoubtedly, inflation has been rising, especially since last year. But there are different types of inflation, with different implications, which should be differentiated by nature and cause.

Typically, inflationary episodes are due to either demand pull or supply push. With rentier behaviour better recognized, there is now more attention to asset price and profit-driven inflation, e.g., ‘sellers inflation’ due to price-fixing in monopolistic and oligopolistic conditions.

Recent international price increases are widely seen as due to new Cold War measures since Obama, Trump presidency initiatives, COVID-19 pandemic responses, as well as Ukraine War economic sanctions.

These are all supply-side constraints, rather than demand-side or other causes of inflation.

The Fed chair’s pretext for raising interest rates is to get inflation down to 2%. But bringing inflation under 2% – the fetishized, but nonetheless arbitrary Fed and almost universal central bank inflation target – only reduces demand, without addressing supply-side inflation.

But there is no analytical – theoretical or empirical – justification for this completely arbitrary 2% inflation limit fetish. Thus, raising interest rates to address supply-side inflation is akin to prescribing and taking the wrong medicine for an ailment.

Fed driving world to stagnation
Thus, raising interest rates to suppress demand cannot be expected to address such supply-side driven inflation. Instead, tighter credit is likely to further depress economic growth and employment, worsening living conditions.

Increasing interest rates is expected to reduce expenditure for consumption or investment. Thus, raising the costs of funds is supposed to reduce demand as well as ensuing price increases.

Earlier research – e.g., by then World Bank chief economist Michael Bruno, with William Easterly, and by Stan Fischer and Rudiger Dornbusch of the Massachusetts Institute of Technology – found even low double-digit inflation to be growth-enhancing.

The Milton Friedman-inspired notion of a ‘non-accelerating inflation rate of unemployment’ (NAIRU) also implies Fed interest rate hikes inappropriate and unnecessarily contractionary when inflation is not accelerating. US consumer price increases have decelerated since mid-2022, meaning inflation has not been accelerating for over a year.

At least two conservative monetary economists with Nobel laureates have reminded the world how such Fed interventions triggered US contractions, abruptly ending economic recoveries. Although not discussed by them, the same Fed interventions also triggered international recessions.

Friedman showed how the Fed ended the US recovery from 1937 at the start of Franklin Delano Roosevelt’s second presidential term. Recent US Fed chair Ben Bernanke and his colleagues also showed how similar Fed policies caused stagflation after the 1970s’ oil price hikes.

De-dollarization?
However, the US dollar has not been strengthening much in recent months. The greenback has been slipping since mid-2023 despite continuing Fed interest rate hikes a full year after consumer price increases stopped accelerating in mid-2022.

Many blame recent greenback depreciation on ‘de-dollarization’, ironically accelerated by US sanctions against its rivals. Such illegal sanctions have disrupted financial payments, investment flows, dispute settlement mechanisms and other longstanding economic processes and arrangements authorized by the World Trade Organization, International Monetary Fund and UN charters.

Even the ‘rule of law’ – long favouring the US, other rich countries and transnational corporate interests – has been ‘suspended’ for ‘reasons of state’ due to economic warfare which continues to escalate. Unilateral asset and technology expropriation has been justified as necessary to ‘de-risk’ for ‘national security’ and other such considerations.

Horns of currency dilemma
For many monetary authorities, the choice is between a weak currency and higher interest rates. With growing financialization over recent decades, big finance has become much more influential, typically demanding higher interest income and stronger currencies.

Central bank independence – from the political executive and legislative processes – has enabled financial lobbies to influence policymaking even more. For example, Malaysia’s household debt share of national output rose from 47% in 2000 to over four-fifths before the COVID-19 pandemic, and 81% in 2022.

There is little reason to believe recent exchange rates have been due to ‘economic fundamentals’. Currencies of countries with persistent trade and current account deficits have strengthened, while others with sustained surpluses have declined. Instead, relative interest rate changes recently appear to explain more.

Thus, both the Japanese yen and Chinese renminbi depreciated by at least six per cent against the US dollar, at least before its recent tumble. By contrast, British pound sterling has appreciated against the greenback despite the dismal state of its real economy.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Improving Healthcare for All — Global Issues

Nazihah Noor
  • Opinion by Jomo Kwame Sundaram, Nazihah Noor (kuala lumpur and bern)
  • Inter Press Service

KUALA LUMPUR and BERN, Jul 19 (IPS) – In 2015, almost all heads of government in the world committed to the United Nations’ Sustainable Development Goals (SDGs), including universal health coverage (UHC). This was consistent with the World Health Organization’s commitment to Health for All.

The COVID-19 pandemic exposed most countries’ under-investment in public healthcare provisioning and other weaknesses. Clearly, health system reforms and appropriate financing are needed to improve populations’ wellbeing.

Jomo Kwame SundaramInstead of helping, more profit-seeking investments and market ‘solutions’ in recent decades have undermined UHC. Health markets the world over rarely provide healthcare for all well. Instead, they have increased costs and charges, limiting access. Worse, public funds are being diverted to support profits, rather than patients.

Health inequalities growing
Recent decades have seen healthcare in many developing countries trending towards a perceived two-tier system – a higher quality private sector, and lower quality public services. Many doctors, especially specialists, have been leaving public service for much more lucrative private practice.

This ‘brain drain’ has worsened already deteriorating public service quality, increasing waiting times. Hence, more of those with means have been turning to private facilities. As private medical charges are high in developing countries, many who can afford private health insurance, buy it.

If unchecked, the gap – in charges and quality – between private and public health services will grow, increasing disparities between haves and have-nots. Social solidarity implies cross-subsidization in health financing – with the healthy financing the ill, and the rich subsidizing the poor. Social solidarity also enables universal coverage and equitable access.

Better healthcare for all
Most governments need to strengthen public provisioning of comprehensive health protection with adequate financing. Meanwhile, healthcare costs have gone up due to more ill health, the rising costs of new medical technologies, privatization and less public procurement.

Everyone – nations as well as families – faces more unexpected health threats, worsened by rising catastrophic and other medical expenses, more economic vulnerability, greater income insecurity, declining public provisioning, and costlier coping strategies.

Nazihah Noor‘Premature’ death, disability and illness have meant losing billions of years of healthy life, largely due to preventable non-communicable diseases (NCDs). Although they cause many health losses, relatively little public health spending goes to NCD prevention.

Spending and outcomes
Most countries, including in the developing world, have seen rising healthcare spending. But there is no direct relationship between health expenditure and wellbeing. Hence, more spending does not ensure better outcomes, whereas appropriate public healthcare provisioning does.

Although health spending has been rising in many developing countries, it has generally remained low in relation to income. Government health services were already facing fiscal constraints before the pandemic. To cope with COVID-19, public health expenditure in many middle-income countries spiked.

Chronic underinvestment in public services has undermined healthcare overall. Many underfunded systems have nonetheless improved health conditions, reducing morbidity and mortality. Decent health outcomes, despite relatively low health spending, imply greater public expenditure ‘cost-effectiveness’ or efficiency.

Nonetheless, much more could be achieved with better policies, increased spending and more appropriate priorities. Thus, reducing child and maternal mortality, besides improving sanitation and water supplies, have significantly raised life expectancy in developing countries.

Improving policy
To enhance wellbeing, health systems must better protect people from current and future threats and challenges. Better public healthcare financing – with absolutely and relatively more, but also more appropriate funding – seems most important.

Developing country governments are often fed oft-repeated, but doubtful claims that current government healthcare spending is too high, and health insurance is necessary to fill the funding gap. Instead, official revenue should mainly fund health budgets to ensure efficiency and equity.

Health promotion should involve more preventive efforts. By mainly focusing on curative interventions, most government spending and policy priorities neglect determinants of wellbeing, including inequities. Some WHO recommended policies deemed most cost-effective target tobacco products, harmful alcohol use and unhealthy diets.

Policy coherence
To better address overall wellbeing, a more comprehensive and integrated approach should integrate health with related public policies. Affordable healthier food options, physical exercise and healthier lifestyles deserve far greater emphases.

For example, a cheap, but nutritious, safe and healthy daily school feeding programme in Japan – introduced a century ago, when it was still quite poor – has ensured life expectancy in the archipelagic nation has been the world’s highest for decades.

An ‘all-of-government’ approach should ensure meals planned by dieticians, mindful not only of good nutrition, but also of local food cultures, costs, safety and micronutrient deficiencies. With a ‘whole-of-society’ approach, involved parents can ensure schoolchildren are fed safe food from farmers not using toxic pesticides.

This can be ensured with the food or agriculture ministry’s participation. Farmer organizations can be contracted to supply needed foodstuff with initial support from government agricultural extension services, not corporate salesmen. This, in turn, improves the safety of all farm produce, ensuring healthy food for all.

Health reform recommendations should prioritize governments’ major commitments – to the people and the international community – of ‘universal health coverage’ to ensure ‘health for all’.
Nazihah Noor is a public health policy researcher. She led two reports on health system issues in Malaysia, Social Inequalities and Health in Malaysia and Health and Social Protection: Continuing Universal Health Coverage. She is currently pursuing a PhD in public health in Switzerland.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Can Carbon Trading Stop Global Heating? — Global Issues

Sarah Razak
  • Opinion by Jomo Kwame Sundaram, Sarah Razak (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Jul 12 (IPS) – As our planet continues to heat up at an alarming rate, carbon credits, markets and trading have been promoted as effective measures to combat global warming. While there is an urgent need to curb planetary heating, growing reliance on this innovation is problematic, to say the least.

Global warming occurs when heat from the sun is absorbed by greenhouse gases (GHGs) such as carbon dioxide (CO2) and methane. Like a blanket, GHGs trap heat, preventing it from escaping our atmosphere. This raises temperatures on Earth, accelerating climate change and triggering extreme weather events such as droughts, cyclones and floods.

Sarah RazakHistorically, human activities – including deforestation and fossil fuel burning – have released CO2 into the atmosphere, increasing the already huge accumulation of emissions. Continuing GHG emissions are now making this problem worse.

Market solution?
Carbon trading has been touted by some economists as the best, fairest and most efficient solution to mitigate global warming. The basically simple market-based idea behind carbon trading is appealing – companies will stop emitting as they must pay to release GHGs by buying ‘carbon credits’.

With carbon trading, companies are rewarded for releasing less GHGs. Such companies can sell their extra carbon credits to other companies exceeding their credits, who must thus pay to release more GHGs.

Correctly pricing such credits is thus crucial for the efficacy of the mechanism. But carbon trading promoters tend to under-price credits for carbon trading to gain more acceptance and support.

Thus, this approach treats the Earth’s capacity to absorb CO2 as a service to be bought and sold while ignoring its other all too real implications. Worse, quotas are often arbitrarily set, without rewarding low emitters of the past and present.

Dubious equivalence
There are many GHGs – including methane, nitrous oxide, and others – of which the most important is CO2. The notion of carbon equivalence had to be created to create a market for GHGs’ estimated carbon equivalents (CO2e), ostensibly measured by their global warming potential relative to CO2.

Jomo Kwame SundaramThus, CO2e has become the ‘universal’ measurement unit for carbon trading, functioning like a common currency. However, the CO2e yardstick for GHG trading is problematic as such measures rely heavily on assumptions and estimates.

Carbon markets and trading – based on such equivalence – have, in turn, led to misleading estimates and interpretation. The resulting poor policy analysis, formulation and efficacy undermine efforts to address global warming more effectively.

Due to the complex and changing properties of gases, CO2e estimates have been subject to many revisions. In 1996, the Intergovernmental Panel on Climate Change (IPCC) declared one unit of hydrofluorocarbon (HFC-23) gas had a global warming potential equivalent to 11,700 units of carbon dioxide (CO2e) over a 100-year period.

In 2007, HFC-23’s CO2 equivalence was revised upwards to 14,800 CO2e. But the IPCC noted even this huge revision upwards remained subject to a huge margin of error of plus or minus 5000 CO2e units.

CO2e is also complex to navigate as different GHGs have different properties. For example, HFC-23 has a stronger warming effect than CO2 in the short-term. Thus, using a common yardstick for these two very different gases – as is commonly done – is not only scientifically moot, but also analytically misleading.

Carbon markets delay action
Unsurprisingly, carbon trading’s premises remain controversial. After all, carbon trading does not actually reduce GHGs, but merely discourages increasing emissions by imposing the costs of buying credits. Thus, instead of cutting GHG emissions, companies can buy carbon credits, fostering an illusion of progress.

Those buying carbon credits may believe they are thus reducing GHG emissions. But in fact, emissions do not decline much. Worse, companies may believe they are fully compensating for all the negative consequences (‘externalities’) of emitting GHGs by buying carbon credits. But this is an illusion.

High GHG emitters do not actually have to make much effort to cut emissions. Buying carbon credits, ostensibly to compensate for their GHG emissions, has thus become a low-cost, low-effort alternative to investing in less GHG-emitting technologies.

Unsurprisingly, most major emitters prefer the cheaper option of carbon trading over such transformative investments. Real investments in better technologies typically require significant upfront costs, while the financial returns to such investments are almost never immediate.

Companies have every incentive to indefinitely postpone major efforts to cut GHG emissions by participating in carbon trading. Thus, carbon trading effectively delays – rather than accelerates – needed transitions to renewable energy technologies.

‘Carbon offsets’ offset action
Companies can earn carbon credits for doing ‘climate friendly’ projects – such as reforestation – to offset the harm done by GHG emissions. These projects are supposed to compensate for the harm caused by GHG emissions, ostensibly offsetting companies’ adverse environmental impacts.

While planting trees can absorb CO2, it does not immediately eliminate accumulated CO2. A significant time lag occurs as growing trees need time to increase their capacity to absorb CO2, and thus reduce atmospheric CO2 levels.

The rate of CO2 emissions release into the atmosphere exceeds the rate at which CO2 is naturally absorbed by natural sinks like forests, including offset projects. This imbalance has contributed to an accelerating increase in long-term GHG accumulation levels in the atmosphere.

Although carbon trading may help reduce growing emissions at the margin, it has not significantly reduced accumulated CO2 in the atmosphere. The time lags involved further diminish its net contribution, and certainly do not offer the urgent solutions needed.

By purchasing carbon credits from such projects, many think they are thus offsetting their GHG emissions. But there is no empirical evidence that such offset projects actually reduce GHG emissions, i.e., carbon trading is not even ‘net-zero’.

Holistic approach needed
Unsurprisingly, carbon credits, markets and trading have fostered a false sense of progress. Most problematically, it has delayed the urgent need for an accelerated transition, especially to far more renewable energy generation and use.

To more effectively address the challenges of global warming, we need to move beyond carbon trading to a more comprehensive approach prioritizing more urgent, effective and impactful adaptation and mitigation efforts, including renewable energy generation and use.

Sarah Razak and Jomo Kwame Sundaram work at the Khazanah Research Institute in Kuala Lumpur.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Exit mobile version