International Climate Change Lottery: a financing mechanism that could actually be agreed in Cancún.

Miquel Muñoz, Guest Blogger

It is increasingly evident that a comprehensive climate change agreement is unlikely at the next climate change meeting (COP 16) in Cancún, Mexico, on December 2010. Finance – that is how much money will be provided, where will it come from, how will it be used, and who will hold the strings of the purse – is one of the main obstacles to agreement, compounded by deep distrust between developing and developed countries. While a comprehensive deal is unlikely, there are financing instruments that could conceivably be agreed upon in Cancún; for example, an International Climate Change Lottery.

The idea of an international goal-driven lottery has been regularly raised since the 1970’s. A good starting point is work by Addison and Chowdhury in 2003 analyzing the prospects of harnessing the world lottery market (worth US$126 billion and generating US$62bn in gross profits) for the purposes of development.

The idea, in principle, is simple:

(1) establish an international climate change lottery;

(2) generate revenue; and

(3) channel this revenue towards one or more of the many climate funds.

In practice there are a few hurdles. For instance:

(a) the lottery should respect principle of common but differentiated responsibilities (which in plain language means the money should come from developed countries);

(b) there may be principled opposition, for example on religious grounds, ethical issues, or the “regressiveness” of lotteries in general; and

(c) the lottery will compete with and face opposition from existing lotteries and their beneficiaries (including many governments)

On closer look, however, none of those hurdles is fundamental and they could all be overcome with the political decision-maiking level expected in Cancún. Let’s examine them one by one.

The principle of common but differentiated responsibilities would be mainly met by the fact that most lottery revenue comes from developed countries. A few provisions would be necessary to ensure that revenue generated in a developing country is recycled to fund climate change policies within that country. This would be particularly necessary for countries with high lottery participation rates, such as India, to ensure inter-country equity amongst developing countries.

Religious concerns may preclude some countries from participation, but they would not conceivably be the grounds for blocking the mechanism within the UNFCCC. Ethical opposition on the grounds that lottery incites gambling could be reduced with proper design. More importantly, since all developed countries, whose participation is the key for a climate lottery mechanism, have lotteries, the arguments on principled opposition, while legitimate, remain mainly of academic interest.

Opposition from existing lotteries (normally in the hands of government or heavily taxed) could pose a more serious problem. Addison and Chowdry estimate that a global lottery could capture 10% of the market profits, to the tune of US$6.2 bn/year. That amount would certainly stir sufficient political opposition to kill any deal. Opposition could be overcome by limiting market capture of the climate change lottery (0.5-1% seems reasonable) and giving existing lotteries a stake in its success. This could be accomplished with an approach similar to the one used by EuroMillions, where a joint lottery is organized by existing national lotteries, pooling the stakes of participants from 9 European countries into a larger prize. Under the EuroMillions approach the revenue is shared among member lotteries according to relative weight. Under a “ClimateMillions” Lottery, revenue (from developed country lotteries) would be shared between a climate fund, domestic climate measures, and the organizing lotteries. Revenue in developing countries would be shared by domestic climate measures and the existing lotteries. Such an approach has the added benefit that no new organizations are needed, thus reducing transaction costs and speeding up the process.

Lottery could have ancillary benefits, notably education on climate change. This information could be conveyed through the lottery advertising, the local selling stores and the tickets themselves.

In conclusion, a climate change lottery is politically and technically feasible, with no fundamental problems preventing its agreement in Cancún. If the climate lottery captures 0.5-1% of the market, it would provide climate finance in the order of US$300-600 million/year. This is only a tiny fraction of the climate funding needed, but still more, in a single year, than what the Adaptation Fund has raised in almost a decade (including Spain’s groundbreaking contribution of €45 million on Wednesday 28 April).

Agreeing to an International Climate Change Lottery seems like a step in the right direction. And if nothing else, it would provide negotiators with something concrete to show back home for their trip to Riviera Maya.

Miquel Muñoz is a fellow at Boston University’s Pardee Center

14 Responses to “International Climate Change Lottery: a financing mechanism that could actually be agreed in Cancún.”

  1. steven says:

    Seems like a great idea, but a little incredible that we need a lottery with prizes to spur investment to combat climate change.

  2. jj says:

    It would be more fun if we could bet on which tropical mega-city would be hit my climate-related disasters.

    Sorry to sound cynical but lotteries are essentially highly regressive tax systems that target inner-city poor.

    Then again, the powerful of the world are definitely playing the odds that carbon markets might actually reduce emissions.

  3. Erica says:

    The lottery could be a little less regressive if some of the proceeds were used to help the “inner-city poor” in developed countries deal with the effects of climate change in their own communities. It is no secret who is most likely to have asthma and who is most likely to die in heat waves. There are common but differentiated responsibilities within developed countries as well. This would also have the benefit of educating many people who would otherwise know very little about climate change.

    BTW, I say “inner-city poor” in quotes because poverty is increasingly a suburban issue, just better hidden there.

  4. Mark says:

    I’m assuming this proposal is being made “tongue in cheek” to illustrate just how badly we’re managing the climate change issue. It is indeed a sad state of affairs.

  5. toyin says:

    Great thought,but i think there a need to define the goals specifically.

  6. Manipadma Jena says:

    India and China could pitch in too. But I hope there will be transparency in disbursement of this lottery fund.Quite a good starter really.

  7. jj makes a good point. This might not be the most obnoxious idea I’ve seen for climate change mitigation and adaptation, but it’s quite close. A lottery? Honestly, I had to read it until the end to be sure this is not a joke.
    We already have a climate casino: it’s called carbon market. That’s where speculators can earn lots of money gambling with the fate of the world. Now you want to create another sort of gamble, where poor people from the North can spend their money in the hope of getting rich, following the example of euromillions. A lottery that only survives because most people don’t calculate their probability of winning.
    Have you ever heard of a thing called “climate justice”?

  8. Nick Robson says:

    It is not a bad idea, as pointed out the biggest stumbling block is finance. It should go to the most affected, the ‘inner-city poor’ of the less developed countries.
    It would have to be done in conjunction with the major state lotteries, taking a percentage of their profits, and if it was marketed properly, as helping the most disadvantaged, the public may buy into it. It is certainly needed AND worth considering.

  9. Thanks for all the comments.
    First of all, I want to stress that the idea of a lottery is not THE solution for climate change financing. If successfully implemented it would, at most, provide a very tiny fraction of the necessary financing. But the lottery could get some real money flowing from developed to developing countries, which is critical to establish some trust and be able to move forward. And this money would be public money, since most lotteries are either state-owned or heavily taxed and the climate lottery would most likely capture market from existing lotteries.

    The regressive nature of lotteries, as I note on the post, could be a basis for principled opposition. Ricardo says that lottery “only survives because most people don’t calculate their probability of winning” and JJ notes that lotteries are “highly regressive tax systems”. Why people plays lottery supposedly making irrational choices has long baffled economists, generating a large body of economic literature on the issue. It seems that most people roughly knows their probability of winning.
    It is true that lotteries are regressive in the sense that they generate the largest proportion of their revenue from lower income citizens. However, lotteries are not a “tax” because they are voluntary. Erica makes a very good point on how the lottery could be less regressive. I would like to add that the lottery, because it is voluntary, would be less regressive than a carbon tax, and definitely less regressive than the impacts of climate change, which will disproportionately affect the poorest and least responsible for it.

  10. The lottery is a good adea,because if you winn the lottery you
    can plan for the good things like development plan for helping.
    some people who is in big problem for poverty,climate lottery can change many countries to eriducated poverty for doing busness to go up ,creat activity for Developpement,to activited the young people.I hope to winn for helpin my country.

  11. I completely subscribe to the lottery, if the scam elements could be removed before hosting to avoid doubt. Here in Nigeria lottery is not new but the operators need to protect the system to enable lots of people participate as it enhances economic advantage and poverty reduction to winners.

    Until we see it out, I assure you villagers will participate through our network

  12. Phill says:

    J’ai pu voir et constater ça, par moi meme, plutot interesant. Merci bonne continuation.

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