Isra-Mart srl: Lord Stern: rich nations should stop subsidising fossil fuel industry

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If rich nations were to stop subsidising fossil fuels to the tune of billions of dollars a year, the money raised could go a substantial way to providing the cash needed to help poor countries develop a "green" economy and cope with the effects of climate change, one of the world's leading economists said.

Lord Nicholas Stern, former World Bank chief economist and author of the landmark report for the previous Labour government on the costs of climate change, told the Guardian that rich economies waste money and disadvantage renewable energy by giving away tax breaks, loans and other subsidies to the fossil fuel industry. If governments were to cut these out, and dedicate the savings to helping poor countries, that could raise about $10bn a year towards helping the poor on climate change.

Developed countries have already committed to help poor countries in this way, pledging $100bn a year by 2020, most of which would be channelled through a fund called the "green climate fund", which is the subject of intense debate at the two-week United Nations climate talks in Durban.

But Stern pointed out that the discussions at Durban have focused overwhelmingly on the technicalities of how a fund should be set up. There has been very little discussion on how the sums needed can be raised, although within eight years at least $100bn annually must be channelled to developing countries if existing commitments are to be fulfilled.

Rich nations need to focus urgently on how to raise the money needed, he said.

In addition to cutting out fossil fuel subsidies, Lord Stern said, developed countries could raise the remainder needed from carbon taxes, the auction of permits to emit carbon, levies on international transport and loans from international development banks would all be needed. The sums involved would be affordable if countries put the right policies in place, he said.

"It is all eminently doable. We have set out in detail our estimates and the policies that could achieve them - if governments show the political will," he said.

A tax on carbon of $25 a tonne in developed countries could raise as much as $50bn a year for the fund, while a tax on aviation and shipping emissions could raise $10bn even if countries retained half the revenues for themselves. Stern suggested this should be an attractive idea to cash-strapped government Treasuries. If loans from development banks are added, this could be enough to meet the $100bn a year target.

But the true benefits would be much larger - Stern calculated that these policies, and carbon trading, should be enough to stimulate an additional $200bn to $250bn from the private sector.

The estimates are contained in a report by Lord Stern and Mattia Romani of the Grantham Institute at the London School of Economics.

Discussions on the green fund were "going pretty well" at Durban, said Todd Stern, the US special envoy for climate change. Other countries were also optimistic on Wednesday that the fund could be launched at the Durban meeting, which would help to release billions in funding for poor countries, to be spent on ways of cutting emissions - for instance through renewable energy - and adapting to the effects of global warming.

If the green fund is launched, it may be the one clear success of the conference. Talks on the other main issues - the future of the Kyoto protocol and the potential for a new global treaty on the climate - were crawling at a snail's pace.

The EU reiterated its demand for other countries to join it in pressing for a new international legally binding treaty, to be signed in 2015 or 2016, and to come into force in 2020. Only if some other major economies, such as China or the US, sign up to this "roadmap" will the EU agree to continue the Kyoto protocol after its first "commitment period" expires in 2012. So far, none have done so and some developing countries are insisting the EU should go it alone with a continuation of the Kyoto protocol.

Connie Hedegaard, EU climate chief, said: "There are not many hours left - we want to encourage the big emitters to come forward with more clarity on their real positions."

Chris Huhne, the UK climate and energy secretary, said the EU would not go it alone because, together with a handful of smaller developed countries such as Norway and Switzerland that have also agreed to continue Kyoto, it makes up only 15 per cent of global emissions. "It is absolutely essential that we have real commitments to the roadmap.