At the international level, the issue of how and who pays for sustainable development has been a major controversy at most major United Nations (UN) negotiations since the Earth Summit in 1992. Low-income countries have generally failed to benefit from the rapid economic globalization of the 1980s and 1990s while at the same time faced with declines in official development assistance. Many have serious debt problems and natural disasters and environmental degradation have further crippled some. Consequently, their ability to implement sustainable development strategies has been seriously hindered.

Governments, development workers and others are raising questions about how to finance sustainable development. Where are the investment dollars going to come from that are needed to propel development in a sustainable direction when many governments are revenue-poor? One proposal advanced in 1972 by James Tobin of Yale University suggested a tax on currency exchange transactions. It is estimated that a tax of just 1 percent would yield $3.5 trillion US a year, an amount more than 50 times total world official development assistance. Carbon taxes are another possibility. In 1997 the European Union (EU) proposed an international tax on airline fuel, hoping to establish a link in the public mind between transportation options and sustainability. While the proposal was rejected, the EU is looking at applying such a tax at home. Another innovative idea is the Kyoto Protocol's Clean Development Mechanism. Under the mechanism, industrialized countries could get credit for carbon emission reductions by investing in sustainable, energy-saving projects in developing countries.

Eliminating perverse subsidies provides yet another option, especially as many current policies encourage economically inefficient development that is ecologically destructive. A number of market-based instruments can correct such perverse economic incentives. These include fiscal instruments like taxation, tax credits, and subsidies; user charges; market creation such as emissions cap-and-trade systems; and green procurement schemes. In a 1997 Globescan survey of experts in OECD countries, more than 50 percent of respondents predicted that economic instruments would play a major role in furthering sustainability over the next five years, whereas only one in three expected legislation and regulation to play a major role.

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In Depth
	de Moor, André and Peter Calamai. Subsidizing unsustainable development: Undermining the earth with public funds. San Jose, Costa Rica: Earth Council, 1996. http://www.ecouncil.ac.cr/econ/sud/ Myers, Norman, with Jennifer Kent. Perverse subsidies: Tax $s undercutting our economies and environments alike. Winnipeg: IISD, 1998. http://iisd.ca/pdf/perverse_subsidies.pdf
Virtual Ideas
	Khosla, Ashok. Perverse subsidies. Editorial, Development Alternatives. Vol. 7 (December 1997): 2. http://www.ecouncil.ac.cr/devalt/nl1297b.htm Martens, Jens and James A. Paul. The coffers are not empty: Financing for sustainable development and the role of the United Nations. Global Policy Forum, July 1998. http://www.globalpolicy.org/socecon/global/paul.htm

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