TWN Info Service on Climate Change (Oct08/04)
13 October 2008
Third World Network

Dear colleagues

The vital debate continues as to whether the cap and tax system or the cap and trade system is better in the fight against climate change.

The global financial crisis has generated much skepticism about financial markets.  The economist Jeffrey Sachs, who is also an advisor to the UN Secretary general, has recently advocated the tax approach, whle criticising the diversion of human personnel and resources to "financial engineering" that is involved in the cap and trade and the CDM system.

Below is an article by Reuters news agency with details of Sach's presentation at a forum at which the UNFCCC secretariat head Yvo de Boer was also a speaker.

Best wishes
Martin Khor

Carbon tax seen as best way to slow global warming
(An article of the Reuters agency, Thursday October 9  2008).
By Timothy Gardner

NEW YORK, Oct 9 (Reuters) - Climate taxes, not cap and trade markets  alone, will lead to the vast technological changes the world's energy  system needs to fight global warming, a top U.S. economist said on  Thursday.

 Cap and trade has emerged as the dominant attempt to slow global  warming. Global deals in permits to emit greenhouse gas emissions have  hit nearly $65 billion a year. The European Union, under the Kyoto  Protocol, has embraced cap and trade since 2005 and voluntary markets  have developed in the United States, the developed world's top carbon  polluter.

 But a straight carbon tax on energy production -- at an oil wellhead or  refinery for instance -- would be simpler and cheaper than putting a cap  on tens of thousands of polluters, Jeffrey Sachs, a special advisor to  the U.N. secretary general and director of the Earth Institute at  Columbia University told a panel on Thursday.

 As the world prepares to form a successor agreement to the Kyoto  Protocol by the end of next year, focus is sharpening on how well cap  and trade markets are fighting emissions.

 Carbon taxes would quickly cut emissions across all sectors of the  economy, including vehicles and manufacturing, said Sachs. It could also  be more efficient than spreading the trade of permits across the  financial system.

"Having a lot of people engineer financial instruments for carbon when  there are much more direct ways to do this strikes me as not really a  great investment," Sachs said.

"I'm also not so keen on sending our best and brightest off to do more  financial engineering," he said. "I think the kind of (financial)  meltdown we have right is a little bit of an example of how we've taken  a generation of young people and put them in tasks that don't really  solve social problems."

Yvo de Boer, the U.N. climate chief, told the panel he doubted voters in  the United States and other countries would accept new taxes.

Sachs admitted that the United States is "neurotic" about new taxes, but  said they would be the best way to fund research and development and  subsidies for big low-carbon energy projects such as nuclear plants and  transmission systems to bring solar power from the Southwest and wind  power from the Great Plains states to cities on the coasts.

Sachs criticized one of the mainstays of climate trade that has  developed in the European Union. Under the Kyoto Protocol the Clean  Development Mechanism allows rich countries to offset their carbon  footprints by investing in clean energy projects like small wind farms  or hydroelectric dams in developing countries.

"Things like the CDM are just unfortunately very marginal small tools  that aren't going to change the broad framework of how energy is  produced and how technology is developed and distributed," said Sachs.  De Boer said the CDM has met its goals but that a range of tools could  be developed to improve it. Investments could be widened, for instance,  to improve whole sectors of developing countries, such as mass transit  systems in large cities.

(Reporting by Timothy Gardner, editing by  Marguerita Choy)