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close this bookEco-restructuring: Implications for sustainable development (UNU, 1998, 417 pages)
close this folderPart II: Restructuring sectors and the sectoral balance of the economy
close this folder12 National and international policy instruments and institutions for eco-restructuring
View the document(introductory text...)
View the documentIntroduction
View the documentBuilding on small agreements
View the documentEconomic policy instruments and mechanisms
View the documentInternational distributional implications
View the documentA precondition for social breakthroughs in the context of developing societies
View the documentIssues of science and technology for development
View the documentA future united nations system
View the documentReferences

International distributional implications

In the North-South context, both equity and efficiency criteria would demand greater heed to the problem of judicial blending of private and public initiatives. In fact the twin issues of the transfer of financial and technological resources have long hovered high above the muddled hierarchy of issues connected with Agenda 21. The bargaining over these issues has served as a natural front for the South in both the pre- and the post-UNCED processes of multilateral negotiation. At first sight the issues may sound purely distributive. Yet there remains much scope for exploring further improved instruments of international management and incentives.

Leaving aside domestic transfer issues, the question of who collects the tax bears critically upon international finance issues. There are conceivably three alternative ways of administering taxation. First, if a production tax were collected from the producers of fossil fuels, the oil exporters (or multinational oil companies) would see an opportunity for earning substantially more per unit of fuel, while all other countries would be worse off. If the extra rents accruing to the oil exporters could be easily taxed away, this scheme would arguably be the most efficient administratively, because the number of producing entities is comparatively small.

Secondly, if the tax were collected by individual consuming countries in the form of a national consumption tax, the oil exporters would be worse off. They would thus be likely to stand as a blocking coalition against a carbon tax protocol. The consuming countries would have to tackle a number of vexing domestic distributional issues (which would prompt the automotive and energy service industries to join the blocking coalition). The consuming countries might as a whole enjoy a positive terms-of-trade effect (a decrease in the import price of oil relative to their export prices). But such a benefit would tend to be only thinly distributed over the general public, who might resist, if not the carbon tax protocol as such, a reallocation of the tax revenues for international compensatory purposes.

The third option is a global tax, to be collected directly by a supranational authority. In this case the international community would have a new opportunity for international income redistribution. The revenue could be recycled according to different criteria, e.g. on an equal per capita basis, or on some more complex formula reflecting an individual country's historical fuel use ("natural debt") combined with its ability to pay (e.g. per capita GNP). Certainly low-income countries would favour such a global Keynesian proposition. In reality, however, owing to Northerners' persistent rearguard action, the global tax notion has been safely obscured by piggybacking it onto the familiar agenda of the target ratio between official development assistance (ODA) and GNP (now 0.7 per cent for OECD donors).

The scale of income transfer from high-income countries to low income countries could easily become several times larger than the current total ODA were an eco-tax conceived in a globally administered scheme. For example, Whalley and Wigle (1989) provide a sense of how (a) high-income, (b) low income, and (c) oil-exporting country groups would be affected by different schemes of tax collection. In order to reduce global CO2 emissions by 50 per cent in 2005 (or 20 per cent below the 1988 level), a national consumption tax would result in the three groups paying (a) US$67 billion, (b) US$121 billion, and (c) US$108 billion per year, respectively. If low-income countries were given a moratorium, high-income countries would have to pay a much higher share (the US$121 billion is equivalent to 1.15 per cent of the high-income countries' GNP). If, instead, a global tax were collected and redistributed on an equal per capita basis, the net payment of the high-income countries would amount to US$253 billion (2.4 per cent of their GNP) whereas low-income countries would have a net revenue of US$94 billion.

Table 12.1 A scenario of the world CO2 emission permits market, 2000

Domestic surcharge(US$/tC)

CO2 balance (million tC)

Net payment (-)/ receipt (+)(US$ billion)

Deficit regions

North America




Russia, Eastern Europe




OECD Pacific




OECD Europe




Middle East




Surplus regions

South-East Asia








Latin America







+0 7

Note: Total between-region transactions amount to 1.3 billion tC. The world emission permits market is cleared at US$215/tC in the simulation.

A simultaneous equilibrium solution for nine regions has been derived, assuming a combination of energy taxes and global tradable emission permits to stabilize global CO2 emissions at 5 billion metric tons of carbon (tC) by the year 2000 (Yamaji et al. 1991). This exercise gave rise to the order of international resource transfer as shown in table 12.1.

The negotiations on global climate change, unlike those on local and regional environmental agreements, are concerned essentially with how to allocate "sacrifices" without corresponding immediately tangible economic benefits. The scenario in table 12.1 is not meant to be prescriptive but, rather, demonstrates how intractably difficult the equity issue can be in the allocation of responsibilities for planetary governance. The sharp asymmetry between the deficit and the surplus regions would foretell the difficulty of aiming for anything like a universal code of conduct and action plan. Those who find themselves legitimately in a position to put a higher priority on economic development than on environmental sustainability may enhance their bargaining power just by a threat of inaction or "free-riding."

The so-called "Group of 77" (the traditional coalition of all the developing countries in multilateral negotiation forums) is no longer united. It is suffering increased internal economic polarization, and new coalition blocs are emerging in global environmental negotiations that cut across the traditional divide between the North and the

South: there is a group dependent on coal-fired energy; another group with a relatively high commitment to nuclear energy; a third group of island and low-lying countries vulnerable to sealevel rises; a group dependent on forestry resources, partially overlapping with a group dependent on eco-tourism; a group whose economic subsistence is already threatened by desertification and recurrent natural disasters; and so forth.

Poor countries in the Sahel, for instance, would be preoccupied with getting greater international assistance for sustainable agriculture and even for an unprecedented kind and scale of innovations in the application of science and technology (which will be discussed later). The countries with established eco-tourist industries and large animals (mostly in Africa) see an opportunity for securing conservation compensation. Those urged to preserve rain forests for carbon sinks and biodiversity wish to be assured of a fair share in international transfers to cover their forgone economic benefits from logging and land-clearing.

Economists argue, albeit mainly on account of cost-effectiveness, that the incentives to protect existing forests and to reforest, for instance, might be easily financed from the proceeds from other protocols such as a small carbon tax scheme. So the easiest way to win international agreement at this stage might be a small carbon tax scheme (even of experimental significance) combined with a credit scheme for carbon sinks. Such a combination could have the dual effect of stimulating energy efficiency and forestry preservation (Barrett 1990).

In spite of the diversity of developing country interests, the issue of financial resources, combined with considerations of international equity, has generated a relatively common front for the South. Thus the broad pledge to the "Earth Charter" at the UNCED in Rio is only the beginning of a possibly decades-long, decathlon-like procession of international negotiations over diverse specific protocols. As mentioned above, the bargaining is purely distributive in nature at least for the time being. (This could change several decades hence if Southerners' continued inaction resulted in eventual catastrophe becoming more obvious).

It appears that Northerners' skilful resistance to financial sacrifice has so far been successful in guarding their neo-liberalist tradition by housing the Global Environmental Facility (GEF) in the World Bank (with joint administration by UNEP and the United Nations Development Programme, UNDP). So far their concession has been an only marginal increase in its funding scale, even though faster than expected progress has been achieved toward a democratization of its political governance mechanism through the newly instituted Participants' Assembly.

The GEF administration has pioneered the so-called principle of "incremental cost financing" for joint implementation. This principle was endorsed in the recent formulation of the International Convention on Biological Diversity (ICBD). It implies that developed country signatories have an obligation to provide new and additional financial resources to those developing countries that are willing to implement globally beneficial conservation of natural capital, over and above the national benefits of doing so.

The thrust of this principle is that developing countries will not undertake additional conservation on behalf of the global community unless developed countries offer financial compensation for them to do so. This principle may be applicable to various other treaties and protocols concerned with protecting the stratospheric ozone layer, reducing GHG emissions, reducing acid precipitation, minimizing the risk of radioactive fallout, preventing waterways pollution, preventing the spread of pests and disease, and even preserving the world cultural heritage. The concept of incremental cost is itself a difficult one, especially when linked to incremental global environmental benefits. The analysis is difficult at best, with numerical results often being unreliable. Moreover, although the analytical issues are clearly separate from financing strategy issues, a strategy may be implicit in the way incremental cost is calculated (King 1993).

"Debt-for-nature swaps" represent another collective arrangement for transferring development rights from indebted developing countries to international environmental NGOs. Such swap deals are ad hoc, and subject to rather high transaction costs. Besides, an important discrepancy tends to arise between the values of the transferred development rights (linked to the conservation of ecological resources) and the actual costs of forgone development opportunities (which rise with a higher rate of discount in the secondary markets for debts).

A serious investigation of the issues and policy options for a sustainable trade regime is, as yet, in its infancy. Barbier and Rauscher (1994) examine, with their theoretical model, the effect of timber trade interventions on the incentives for timber exporters to conserve their forests. Trade interventions, through import bans, taxes, and quantity restrictions, could lead to reductions in the long-run equilibrium of the forest stock and thus be counter-productive if such interventions worsened timber exporters' terms of trade. (This would be the case if importers had an elasticity of marginal utility larger than unity with respect to imported natural goods.) This readily reconfirms that international market regulations ought not just to penalize resource use indiscriminately but to provide at the same time appropriate incentives for improved investment in eco-conservation. Barbier et al. (1994) also demonstrate that an important incentive to further investment in sustainable resource management would be to open international markets for the products of sustainable management rather than to restrict access to those markets.

Natural capital consists of multi-layered common-pool resources. Its loss generates externalities at local, national, and international levels. A pool of diverse genetic materials is able to generate new medicines, crops, and chemicals and also new biotechnologies and technologies for gene transfers. Diverse ecosystems such as forests, oceans, wetlands, migratory animals and fish, coastal environments, etc., along with the impacts of climate change, are interdependent. When they are disturbed, the consequences can have multiplier effects across regions and across different ecosystems. Developing countries are generally more important than industrial countries in terms of approaches to the incentive problem. They are, after all, the custodians of much of the world's remaining biodiversity and natural environments that are globally important common-pool resources.

A good case may be made for establishing an international system of legal rights over the genetic information content of natural biotic resources. The Instituto Nacional de Biodiversidad in Costa Rica attempts to collect, codify, and market genetic information from domestically available big-samples in order to generate financial resources that will support conservation efforts (Aylward et al. 1993). Although this experiment has been commercially geared from the outset, it presents a good case for extending the regime of Trade Related Intellectual Property Rights to address the issue of property rights associated with the potentially useful genetic information contained in biodiversity.

Developed country delegates have recently come to express a preference for a flexible, and somewhat noncommittal, notion of a "coalition of resources" rather than the creation of any more new special funds for multilateral cooperation. But, as more and more new conventions and protocols enter serious multilateral and minilateral negotiations in the coming years, it is likely that opportunities for cross-sectoral issue linkage will become broader and more tangible. A coalition of resources, if meant just as a facade now, may sooner or later have to evolve into something more real than just a Pandora's box.