How might the world raise the $100 billion or more per year that experts believe developing world countries will need to adapt to the effects of climate change?

Dan Smith, the secretary general of International Alert, an independent peace-building organisation, thinks a tax on financial transactions is just the thing.

Why? "Since unimaginably large sums of money are changing hands in currency speculation each hour, even a tiny fraction of the annual total is very big. A 0.05% tax on UK financial transactions would raise between £30 billion and £100 billion a year. The higher number is from (an) Austrian study and is the estimated revenue even if the overall value of transactions fell by two-thirds from pre-crunch levels," Smith notes.

Arguments for such a tax are persuasive, and not just because few people these days have much sympathy for bankers, Smith says in a new blog.

"With a barely noticeable effect on the level of activity in the financial marketplace, the revenue rolls in," he says.

"The more governments that do it the better. There is money to pay off the effects of the recession, invest in adaptation to climate change in developing countries, use on other good purposes, and some to lay aside for a future rainy day so the next time the banking sector does a crash and burn spectacular, the emergency rescue doesn't impose a heavy burden on national finances and tax-paying citizens," Smith adds.

UK Prime Minister Gordon Brown now supports such a tax, which was first proposed by James Tobin, an American economist who saw it as a way of curbing financial speculation.

EU WOULD CREATE CRITICAL MASS

But could the UK go it along, or does everyone need to sign on?

"I think not," Smith says. "Were the EU to agree to do it, that would probably be enough for a critical mass. Yes, some companies might shift operations out of the EU's jurisdiction, such as to Switzerland where some hedge funds are already re-locating some parts of their staffs previously based in London, or to the US or Asia."

"But the EU is so big in world trade that there would still be masses of money to be made," Smith says. Even a tiny tax, levied on every financial transaction passing through Europe, would produce big results. "Bankers would moan but governments outside the EU would soon be looking enviously at the revenues rolling in. They would be much more likely to follow suit than not," he says.

He thinks the EU as a whole might be persuaded to adopt the tax.

"France and Germany already back it as does Austria. Elsewhere support is not uniform but the UK could offer to allocate, say, 0.005% to the EU regional development funds as a sweetener and the other financial centres could follow suit."

Smith calls such a tax an ideal way of footing "the enormity of the bill for adaptation to climate change."

"One thing I have never understood in the debate about how to finance adaptation has been the emphasis on using carbon trading or other proposals such as a tax on airline and shipping fuels," he says.

"It's as if the climate question is a system and you want revenue and expenditure to be all within the system - like a road tax or toll charges that are only used to pay for upkeep of the roads. I see no reason to limit the sources of revenue in that way because I very much doubt that carbon trading will ever raise enough to meet the bills. The one visible attraction of keeping the financing mechanism within the climate system is that it is then cost neutral for taxpayers - but that's hardly a decisive argument if it doesn't produce enough money," Smith adds.

The advantage of a financial transaction tax, he says, is that it creates "no burden on the ordinary tax-payer and (is) able to raise more money, more transparently and more efficiently than carbon trading."

Reuters AlertNet is not responsible for the content of external websites.