U.N. climate finance group mulls tax on banks

BONN (Reuters) - A U.N. climate finance group is studying funding sources to support countries vulnerable to climate change, including a financial institution tax, it said at talks in Bonn on Thursday.

Nicholas Stern, professor at the London School of Economics, said the group was analyzing both public and private sources of funding, including fund flows from financial institutions, revenues from carbon taxes, carbon permit auctions and financial transaction taxes.

The group, which is made up of heads of governments, economists and finance ministers, will present its final report on potential sources of revenue for financing mitigation and adaptation activities in developing countries in November at a U.N. climate meeting in Cancun, Mexico.

"Private sector investment will drive a new industrial revolution but there will be a very important part of the story which will require public money to support it," Stern said at a U.N. climate meeting in Bonn.

Carbon permit auctions, carbon taxes and penalizing emissions from international aviation and shipping could generate between $10-20 billion each, depending on the level of taxation placed on each source, Stern said.

"No single source is likely to deliver $100 billion. A number of sources will be necessary," he said.

The Copenhagen Accord at a U.N. summit last December set a long-term goal of raising $100 billion a year by 2020 to avert the effects of climate change. It also fixed a short-term goal of $10 billion a year by 2012 to aid developing nations.

Stern said a financial institution tax, which would tax the world's banks on the value of all their transactions, is controversial.

It is still one of the options being looked at by the group, though it is up to governments to decide whether to adopt it.

"Most taxation will be at a national level -- that is just pragmatic. There is great jealousy (in governments) about the right to tax," Stern said.

It has been estimated such a tax could raise up to $250 billion a year.