Working Paper I 7 July 2000 Financing Protection of the Global Commons The Case for a Green Planet Contribution Raymond Clemen~on sGEF Financing Protection of the Global Commons The Case for a Green Planet Contribution Raymond Clemenc;on Working Paper 17 July 2000 About the Author Raymond Clemenc;;on is a consultant on international environmental policy issues. Until 1994, he was Section Head at the Swiss environment agency and the Swiss representative to the GEF Participants' Meetings and the GEF restructuring and replenishment negotiations. He holds a Ph.D. in international relations from the University of Ziirich, a Masters Degree in political science from the University of California, Santa Barbara, and has done research in development economics at the Stanford Food Research Institute and worked on trade and environment at the University of California's Institute on Conflict and Cooperation in San Diego. In 1997, he was a core team member of the GEF Overall Performance Study. He can be contacted via e-mail at rclemencon@ucsd.edu. Dedicated to Nico, Elena, and Natasha Published 2000 Global Environment Facility This working paper may be reproduced in whole or in part and in any form for educational or nonprofit uses, without special permission, provided acknowledgment of the source is made. The Global Environ- ment Secretariat would appreciate receiving a copy of any publication that uses this publication as a source. Copies may be sent to GEF Secretariat, G 6-148, 1818 H Street NW, Washington, DC 20433. No use of this publication may be made for resale or other commercial purpose without prior written consent of the Global Environment Facility Secretariat. The designations of geographical entities in this document, and the presentation of materials, do not imply the expression of any opinion whatsoever on the part of the GEF concerning the legal status of any country, territory, or area, or its authorities, or concerning the delimitation of its frontiers or boundaries. The views expressed in this paper are not necessarily those of the GEF or its associated agencies. ISBN 1-884122-90-6 ISSN 1020-0894 Contents Executive Summary 1 Scope and Objective 3 Historical Background 5 Resource Flows and Funding Needs 7 Weaknesses of the Current Fund-Raising Mechanism 11 Why a New Approach Could Help 13 Lessons from National Environmental Policy Experience 15 Some Examples for a New Fund-Raising Mechanism 17 Using CO/Energy Tax Revenues for Global Environmental Protection 17 Surcharge on Car Registration 20 Taxing International Air Transportation 21 Charges on International Tourism 22 Per Capita Flat Global Environment Contribution 22 Fund-Raising Linked to Carbon Emission Trading, Il and CDM 22 Trust Fund for Global Environmental Protection 23 Voluntary Contributions 24 Other Options 24 Reference Table: Key Characteristics of Fund-Raising Alternatives 26 Conclusion: Identifying the Most Promising Option 27 Chances for Emergence of a New Fund Raising Mechanism 28 Clues from Public Opinion Polls 28 Steps Towards a New Mechanism 30 Implications of a New Fund-Raising Mechanism 31 Conclusion 33 Bibliography 35 Annex: ODA Net Flows, 1990 - 1997 and Average Annual GEF contributions 39 iii Acknowledgements This contribution builds on work commissioned by the GEF secretariat in 1995 on new fund-raising mecha- nisms. I am grateful to have had opportunities over the last several years to discuss ideas and arguments developed here with individuals representing many different backgrounds. I wish to acknowledge, in particular: Alexander Averchenkov, Christian Avernus, Gerhard Berz, Stephen Bill, Peter Bohm, Marco Calvori, Richard Carson, Maria Charles, Wilfredo Cruz, Przemyslaw Czajkowski, Jos Delbeke, Wolfhart Diirrschmitt, Eberhard Eckhart, Mohamed El-Ashry, Michael G~ubb, Nick Harteley, Jean-Charles Hourcade, Rolf Iten, Ian Johnson, Ken King, Monika Kohlhaw, Jeremy Leggert, Thomas Loster, Hans-Jochen Luhmann, Arthur Mohr, Waafas Ofosu-Amaah, Andreas Pastowski, Michael Philips, Gareth Porter, Michel Potier, Cornelia Quennet-Thiele, Ismail Razali, Jan Scherp, Hans-Peter Schipulle, Andreas Schraft, Stefan Schwager, Helen Sjoberg, Gunnar Sjostedt, Peter Unwin, Frederik Van Bolhuis, and Johann Wackerbauer. I also thank four anonymous reviewers for valuable comments on an earlier draft. Errors or omissions are solely the responsibility of the author. Raymond Clemens;on June 2000 iv Executive Summary Developing countries hold the key to the conserva- An annual "green planet contribution" of US$2 lev- tion of much of the earth's biodiversity. They are ied on some polluting activity and paid by applicable quickly becoming the largest emitters of greenhouse individual citizens of developed countries would gases, which are suspected of contributing to climate raise about twice the amount of resources currently change. Yet their capacity to pursue global environ- available from both multilateral and bilateral sources mental policy measures is limited as long as such for global environmental measures in developing measures do not address their immediate short-term countries. The following analysis discusses why such development needs. Rich industrialized countries a fund-raising approach for protecting global com- have recognized this, as well as their own historic mons in developing countries would be superior to responsibility for global environmental problems. the existing mechanism and why it holds the promise Accordingly, they cooperated in establishing the of securing adequate and predictable resource flows Global Environment Facility (GEF) to provide finan- in the coming decades. cial support to developing countries for global envi- ronmental measures. But resources made available by The present analysis builds on recent experience with the international community for such measures in new market-based approaches to domestic environ- . developing countries are small compared to estimated mental policy-making in OECD countries. Many needs. Multilateral resource flows for the GEF, fur- countries now use an array of environmentally moti- thermore, have not kept pace aspressure on the global vated charges and taxes, which are based on the pol- environment has continued to increase. luter-pays principle. Ecotaxes have in many countries become valuable fiscal instruments for generating This paper argues that new, more automatic fund- resources to fund domestic environmental clean-up, raising approaches promise to be more effective than pollution prevention, and nature conservation efforts. the traditional approach in raising adequate and pre- dictable resources to help developing countries re- A direct polluter or consumer-pays principle has yet spond to global environmental challenges. The to be implemented on the international level. Linking traditional approach depends on securing allocations fund-raising for global environmental protection in national budgets and on the outcome of periodic measures directly to individual-level activities con- burden-sharing negotiations among countries. But tributing to global environmental problems has sev- both national and international-level efforts are im- eral advantages. A main advantage would be peded by structural factors, particularly institutional increased transparency (i.e., payers of the fee would and political constraints that favor cost-avoidance know the specific purpose of their contribution). Re- rather than problem-solving, and work against in- cent opinion surveys show that a significant majority creasing international financial transfers for global of citizens in developed countries are concerned environmental protection. about global environmental problems and believe that 1 too little is being done to fight them. There may be rently available, while requiring from individuals a considerable public support for some "green planet very small annual contribution. contribution" at the low levels discussed here. A sec- ond advantage of the proposed approach is that it The paper discusses various options for levying a might help de-politicize international burden-sharing global environmental charge or user fee with respect negotiations. More cooperative, solution-oriented to such factors as ease of implementation, political outcomes might result from negotiations that focused acceptability, and fund-raising potential. It concludes on coordination of small per capita contributions, that a personal "green planet contribution" levied rather than on burden-sharing based on aggregate annually with car registration renewal may be the economic indicators and contributions expressed in most promising, albeit not the only, option worth nominal million-dollar figures. Finally, alternative considering. The contribution further considers the mechanisms discussed here could provide predictable factors that impede serious consideration of alterna- and significantly larger resource flows than are cur- tive fund-raising approaches, and suggests steps for overcoming these. 2 Scope and Objective This paper focuses exclusively on fund-raising to leverage funds for this type of activities regard- mechanisms. It is therefore built on a number of less of their global benefits. But global environmen- assumptions which are paramount to the argument tal protection requires many measures that do not presented here but which are beyond the scope of the provide immediate economic and developmental current paper: benefits to particular countries. Significant inter- national funding will be critical for financing such 1. The key assumption is that global environmental efforts in developing countries. 2 problems are a serious threat to the world's ecosys- tem and have the potential of undermining the live- 3. Existing multilateral mechanisms for disbursing lihood of present and future generations and also funds for global environmental benefits can point of destabilizing countries and the international sys- to a respectable track record with regard to using tem.1 Great uncertainties exist about the exact glo- resources effectively. 3 The Global Environment bal consequences of ecosystem destruction, Facility has gathered comprehensive experience biodiversity loss, and global climate change. But with a wide spectrum of conceptual and project precautionary measures could prevent significant implementation issues related to global environmen- consequences for a fraction of costs arising out of tal protection. To various extents, bilateral donors having to cope with and adapt to negative and non-governmental organizations (NGOs) have consequences. also developed capacities to manage and disburse, and recipient countries to absorb such funds for 2. Many global environmental measures also have sig- global environmental protection. Institutional struc- nificant local economic and environmental benefits. tures and implementation support networks are thus Developing countries therefore have many reasons in place. If strengthened, they could effectively ab- 1 Although the extent of the threat remains subject to debate due to scientific uncertainties and lack of systematic data, by negotiating a number of international environmental agreements, the international community has acknowledged that urgent action is needed to halt global environmental degradation. For information on the state of the global environment, see WRI (1995, forthcoming), UNEP (1997). On biodiversity, see in particular IUCN/World Conservation Monitoring Center (1996, 1997). For information on climate change, see various reports by the Intergovernmental Panel on Climate Change, IPCC, and on cost estimates, see OECD (l 995a). 2 The GEF experience indicates that private sector mobilization for global environmental protection is quite challenging. Equally, "mainstreaming the global environment" into both GEF Implementing Agency operations and into economic policies of developing countries has not progressed to the extent envisaged by GEF donors and may pose intractable methodological and practical problems. See GEF Performance Study (1998). 3 GEF Performance Study (1998) and annual GEF Project Implementation Reviews. 3 sorb larger financial flows than are currently irrelevant through which multilateral or bilateral available. channels or through which implementing agencies global environmental benefits in developing coun- The Global Environment Facility is the existing insti- tries are realized. Institutional structures as well as tutional entity obviously well positioned to manage conceptual and practical issues relating to program increased resource flows from alternative fund- development and project implementation in develop- raising mechanisms discussed here. However, for the ing countries are not the subject of this contribution. purpose of the present discussion, it is ultimately 4 Historical Background At the 1992 United Nations Conference for Environ- problems and that their per capita consumption of ment and Development in Rio de Janeiro global envi- natural resources continues to be well above that of ronmental issues were for the first time given developing countries. The international community international attention at the highest political level. also recognized the great development needs of de- By adopting the Rio Declaration and Agenda 21, veloping countries and the different abilities of coun- heads of state recognized that the quest for economic tries to pay for measures benefiting global development and prosperity for all nations may be commons. 5 threatened by environmental problems of increas- ingly global significance, and that all countries need As early as 1990, the acknowledgement of these com- to take steps towards sustainable development. Two mon but differentiated responsibilities for addressing groundbreaking international environmental agree- global environmental problems led a number of do- ments were furthermore put up for signature in Rio, nor countries, at the initiative of the French and Ger- the United Nations Framework Convention on Cli- man governments, to establish the pilot phase of the mate Change and the Convention on Biological Di- Global Environment Facility with voluntary contri- versity. A cornerstone of both these conventions was butions. The motivation for establishing the GEF the understanding that developed countries would grew out of a desire to respond with a single financing provide financial assistance to developing countries mechanism to the demand for additional funds for for measures they undertake that primarily benefit the global environmental protection, and to support the global environment. 4 The rationale for this commit- negotiations that led to the signing of the Convention ment was that developed countries historically bear on Biological Diversity and the United Nations the brunt of responsibility for global environmental Framework Convention on Climate Change. 6 4 The GEF funds incremental costs for global environmental benefits (i.e., the additional costs that result from making a regular development project realize global environmental benefits). See the Instrument for the Establishment of the Restructured GEF (1994). 5 The Preamble of the Convention on Biological Diversity recognizes that "economic and social development and poverty eradication are the first and overriding priorities of developing countries." UNEP/CBD (1994). The Preamble of the Framework Convention on Climate Change among other things notes that "the largest share of historical and current global emissions of greenhouse gases has originated in developed countries, that per capita emissions in developing countries are still relatively low and that the share of global emissions originating in developing countries will grow to meet their social and development needs." UNEP/WMO (1994), p. 2. 6 Personal experience. For a history of the GEF, see Helen Sjoberg (1994, 1999). 5 6 Resource Flows and Funding Needs It is important to recognize the inherently political for example regarding GDP growth rates, rates of nature of defining funding needs for global environ- technological change, pricing regimes, discount mental protection. There is substantial literature on rates, and reduction targets. 8 environmental cost valuation and the problems asso- ciated with assigning monetary values to environ- Environmental evaluation is an essential tool for in-. mental benefits. 7 Methodological problems for creasing understanding of problems' magnitudes, but arriving at meaningful figures are compounded when it can ultimately only inform, not replace, political global environmental objectives are the target. How decisions as to how much should be invested into can we measure the value of keeping a particular prevention and conservation efforts. It is, accord- species from becoming extinct or a pristine ecosys- ingly, not possible to exactly define the funding needs tem from being destroyed? How much biodiversity for "adequate" protection of global commons. The should the world conserve and how much of the pragmatic approach is to estimate funding needs for remaining primary forest stands are worth protecting, reasonably well defined intervention opportunities and at what costs? How shall we account for and to attempt to match this with the citizens' willing- intergenerational trade-offs between today's national ness to pay for global environmental protection. development interests and long-term global con- cerns? Costs and benefits of protecting international Existing best estimates suggest that available re- waters are equally difficult to estimate. Many studies sources for global environmental efforts are very have attempted to quantify impacts of climate change small compared to today's investment needs. For ex- and costs of greenhouse gas emission reductions, but . ample, the cost of conserving critical biodiversity has modeling exercises have produced wide-ranging re- been estimated at around $20 billion per year, while sults depending on the baseline assumptions adopted, total national expenditures in 1992 only covered ap- 7 For a policy-oriented overview of environmental valuation methods, see, for example, OECD (1998a), for a recent collection of review articles related to the subject, see Terry Barker and Jonathan Kohler, eds. (1998). Stale Navrud and Gerald Pruckner (1997) find that environmental valuation methods influence policy decisions much more in the United States than in Europe. This probably relates to culturally different approaches to environmental policy making. In many European countries, the precautionary principle allows more easily for environmental policy measures that do not have specific quantitatively defined targets, while in the United States environmental regulations generally target a specific quantified environmental or health policy objective, such as avoidance of a certain number of cancer death per 100,000 people. 8 The OECD has done considerable work on the overall economic effects of carbon taxes or emission quota allocations to different OECD countries. OECD (1995). For a discussion of different modeling approaches, see, for example, Floren tin Krause et al. (1995). 7 proximately $6 billion. 9 With regard to climate not consistently reported allocations for global envi- change, estimates of the costs of carbon emissions ronmental purposes to the DAC, adhering to the abatement have varied widely. What is clear is that original idea that such resources would not be there is a great potential for measures that would counted towards countries' development cooperation result in short-term cost savings as well as in carbon expenditures. An interpretation of DAC figures in emission reductions. But it. is also evident that imple- light of some more detailed data reported by indi- mentation of such win-win opportunities alone will vidual states to the GEF Performance Study Team not realize enough carbon-emission abatement to sig- suggests that financial resources dedicated to global nificantly slow emissions growth in emerging econo- environmental protection by sources other than the mies . 1° Furthermore, even though win-win GEF have probably amounted to little more than opportunities could theoretically produce consider- those available through the GEF. 11 able savings down the road, and could sometimes offset costs, various political and institutional barriers The difficulties involved in providing resources for prevent large-scale investment in such activities. global environmental measures contrasts with the im- portance that countries purportedly assign global en- The 1994 replenishment of the Global Environment vironmental protection and sustainable development. Facility (GEFI) with two billion dollars-after the It is important to look at the factors that explain this completion of a GEF pilot phase-was in itself an discrepancy. important accomplishment by the international com- munity, particularly in view of the serious budget Funding levels for global environmental protection crisis in many countries. But it fell short of expecta- measures in developing countries are affected by na- tions. Funds made available to the GEF amount to, on tional and international factors. On the national level, the average, only about 60 cents annually for every funding depends on political decisions to allocate OECD citizen. The most recent GEF replenishment, budgetary resources in a context of scarce budget concluded in Spring 1998, amounts at best to a freeze resources and great domestic competition. On the of donor-country commitments to the level of GEFl. international level, major donors negotiate burden- sharing arrangements based on countries' overall ca- Bilateral resource flows for global environmental pacity to pay in relation to other donors. The GEF was measures in developing countries appear to have in- funded in much the same way as other multilateral creased since the Rio conference, albeit from very funds after World War II. Although this helps ensure low levels. Figures compiled by the OECD Develop- that all donor countries support the multilateral coop- ment Assistance Committee (DAC) are very unreli- eration objective, it also ties the overall size of the able in this regard, due to considerable differences in multilateral fund to the smallest contribution of key reporting among OECD countries. Some countries donor countries, which is ultimately determined by include in their totals resource flows for projects that the smallest common political denominator on the have mainly development benefits. On the other national level. 12 hand, some European· countries have until recently 9 Figures are based on a study funded by the European Commission and conducted by the World Conservation Monitoring Centre (WCMC), which extrapolated from estimates provided in country studies commissioned by UNEP. Cited from BirdLife International (1996). For political and methodological reasons, the CBD has so far made no effort to estimate funding needs for biodiversity conservation. But the provision of financial resources remains high on the agenda of every Conference of Parties to the CBD. See note by CBD secretariat, UNEP/CBD/COP/5/14, 15 November 1999. See also national reports to the CBD, some of which contain estimates of funding needs for national measures. 10 For example, investment needs in India for an emissions mitigation option that would not hurt the economy have been estimated to be $135 billion for all economic sectors, Asian Development Bank (1994), p. 119. 11 Personal estimate based on experience with the GEF Performance Study (1998). The GEF Performance Study, however, concluded that the quality of available statistical data was insufficient to draw conclusions concerning the amount of resources made available through bilateral channels for exclusively global environmental purposes. 12 It appears that major European donor countries would have carried a GEFl replenishment at three billion instead of two billion dollars. The two billion dollar level fell in place, once it was clear what the United States was willing to contribute (personal observation, first replenishment of GEF, December 1993). 8 .. . ...~- The current fund-raising mechanism has the advan- Association) and the GEF take place in a setting tage that it has been tested in many contexts and has defined by a general aid fatigue, increased expecta- up to recently produced predictable results in terms of tions for private sector activism, and the fact that funding levels. But strains are becoming clearly vis- some important donors are in arrears even on pay- ible, as replenishment negotiations for multilateral ments to cover commitments made for previous fi- funds such as the IDA (International Development nancing periods. 9 JO Weaknesses of the Current Fund-Raising Mechanism The current system of raising funds for global envi- DAC countries, however, is very uneven (See Annex ronmental protection has characteristics that must be 1). Fourteen countries in fact show increases in their considered weaknesses in terms of facilitating the ODA budgets. But this is offset by steep declines in provision of adequate resources. A key weakness is some large DAC countries, notably the United States, the GEF's close association with traditional develop- where the ODA figure for 1997 dropped by 28 per- ment cooperation. In practice, the perception is often cent (but has increased slightly again in 1998). that the GEF is simply another multilateral fund for development cooperation. In the case of many do- To the extent that allocation of funds for global envi- nors, funding for global environmental protection ronmental protection measures is linked institution- measures in developing countries comes out of a ally and politically to the provision of funds for budget line for multilateral and bilateral development development cooperation, the allocation of such re- cooperation. 13 In some countries, the provision of sources faces similar constraints. And although there GEF funds therefore has to compete with funding for is evidence that in most countries GEF contributions traditional development cooperation programs, even have been better protected from budget cuts than though international environmental agreements de- those for development cooperation, they have not fine GEF funds as compensatory funding for global been unaffected. environmental benefits and not as funding for the national development benefits of the recipient country. The close association of fund-raising for global envi- ronmental protection measures with fund-raising for Development assistance flows have declined signifi- development cooperation is likely to work against cantly in recent years. Overall ODA disbursements to increases in funding for the former. The role of devel- developing countries and multilateral organizations opment cooperation in the new world economy is were $48 billion in 1997, a significant decline of 12.8 changing quickly. Many developing countries are percent from the 1996 level, which was in turn down emerging as future economic powers and foreign di- 4 percent from 1995 (at constant prices and exchange rect investment flows are the main source of foreign rates). Current levels are well below the $61 billion financing for them. 14 Donor countries have increas- reached in 1992, the year of the UN Conference on ingly reduced or phased out aid programs to higher Environment and Development. The picture among income developing countries. Lumping resource allo- 13 Personal communication with Frederik Van Bolhuis, GEF Secretariat. 14 Private flows at market terms from OECD countries to developing countries had dropped to $22 billion in 1986-87, but increased to $128 billion by 1997. OECD (1999c). A World Bank study put total net private capital flows into developing countries at $240 billion in 1996. However, only 12 developing countries accounted for 80 percent of these flows. World Bank (1997). 11 cation for global environmental protection with de- One can respond to the above observation with the velopment cooperation will automatically lock re- argument that governments will find adequate re- source allocation for this particular purpose into the sources if they consider these to be necessary. Or in overall budgetary framework for development other words, once the political system has processed cooperation. available information and developed a consensus on the scale of the problem, governments will allocate Even where political support for global environmen- sufficient funds to solve it. This, however, assumes tal protection appears to be stronger than for general that objective decisions concerning allocation of pub- development cooperation, existing institutional struc- lic resources are made, based on absolute, not rela- tures may prevent commensurate attention to this tive, priority rankings among policy concerns. It also issue. Development aid or treasury ministries are re- assumes that policy makers are fully informed and sponsible for many multilateral funds and bilateral unaffected by reelection desires and related local programs and work within a given budget framework. policy priorities, which color legislative agendas and There is little incentive to push for larger allocations budget battles in practically all countries. The above for global environmental protection measures if this argument also neglects the difficulties associated must reduce resources allocated to other ministry ob- with developing long-term public policy in situations jectives. Similarly, across-the-board budget cuts where short-term considerations and commercial in- mandated by the legislature will affect all budget terests interfere with such objectives. 16 lines of the ministry, and make increases in a single budget line difficult. 15 An obvious conceptual weakness of the current fund- raising system for global environmental protection is National priorities also work against resource alloca- that no direct link exists between fund-raising and the tion for addressing global environmental concerns. economic activities that cause global environmental Budgetary appropriations are biased towards domes- problems. This is at odds with the polluter-pays prin- tic programs, and a great many domestic programs ciple, which OECD countries adopted in 1972 and compete for limited resources. Experience over the which has provided the basis for increased use of last few years shows how vulnerable to shifts in do- environmental charges and taxes on the national mestic political agendas the budgets of some multilat- level. eral funding mechanisms can be. Furthermore, long-term programs with global objectives typically lack strong political constituencies. 15 Personal knowledge about budgetary processes in some important GEF donor countries during the period 1990 to 1994. 16 For more in-depth discussion of this, see, e.g., Clemen1