Mobilizing Domestic Resources for the Agenda 2030 via Carbon Pricing

Mobilizing Domestic Resources for the Agenda 2030 via Carbon Pricing

Nature Sustainability Community Blog

Behind the Paper

Max Franks


Mobilizing Domestic Resources for the Agenda 2030 via Carbon Pricing

The paper in Nature Sustainability is here

Putting a price on CO2 emissions not only mitigates climate change. Taking a more holistic view on climate policies, we show that carbon pricing also generates revenues that could finance the Sustainable Development Goals (SDGs). This, however, can only succeed in countries with sufficient capacity to tax. Development policy should therefore focus on capacity building – and governments must find ways to overcome the gaps between their classical departmental structures to tackle the great challenges of the 21st century.

The key to sustainable development is to strengthen the national capacity to tax

In 2015, I presented my first scientific paper at the conference of the Green Growth Knowledge Platform (“Why finance ministers favor carbon taxes, even if they do not take climate change into account”). During the Q&A, a high ranking official of the Nigerian finance ministry stood up, and asked me a question that I could not answer. If – as I had suggested in my paper – a carbon tax were implemented simply out of fiscal reasons, who or what would guarantee that the revenues are spent efficiently?

I recall the Nigerian official’s question because I believe that the main message of our Perspective shows the importance of his concern: The key to sustainable development is to strengthen the national capacity to tax. In our paper, we take a holistic view on climate policy and policies for sustainable development. We calculate the potential national public revenues of a carbon tax that would be consistent with the 2°C target. Then, we compare the revenues with the national financing needs for the SDGs. Our data show that there are indeed many countries in which carbon pricing alone could contribute significantly to reaching the SDGs. However, such policy requires good institutions – in particular an efficient tax administration. Helping to improve national tax administrations now seems to me to be the most valuable form of development aid.

Tackling the complex and global problems of the 21st century requires cooperation across the board

As our research was financed by the German Federal Enterprise for International Cooperation (GIZ) and the German Federal Ministry for Economic Cooperation and Development, we had the opportunity to present our preliminary results at an expert workshop in Bonn in 2016, hosted by the Federal Ministry. We explained our holistic approach, but the experts from the ministry and GIZ soon admitted that implementing our policy proposal would require cooperation between several of their departments and would be quite challenging from an organizational point of view. Seeing the reaction of the participants (all from the two agencies mentioned), we had to realize that our ideas were not tailored to their organizational structure. Of course the ministry and the GIZ are divided into several departments and both have hierarchical structures. Due to that compartmentalization there were experts on carbon pricing, experts on individual countries, experts on specific development programs. However, a cluster within the ministry or GIZ endowed with a competency broad enough to make direct use of our cross-cutting approach would seem to be a valuable addition.

For the problems of the 20th century, hierarchical and compartmentalized governmental structures might be a suitable and efficient form. Tackling the complex and global 21st century problems such as sustainable development and climate change, however, requires cooperation across the board and a more creative and bold approach to policy making. For us scientists, it is already a challenge to work interdisciplinary and to overcome compartmentalization (if Nature Sustainability didn’t exist, we’d have to invent it!). But for policy makers who want to take action, it becomes a very serious obstacle.

In our paper we argue for national capacity building with a view towards (carbon) tax administration. But we need to go even further and realize the importance of bold and creative policy making to address the great challenges of the 21st century.