The search for targeted taxes to fund climate action

Hello again from Baku, where COP29 is entering its second week. Even as they push for progress — especially around a new global climate finance goal — some delegates are starting to worry about backsliding on previous commitments.

In particular, there’s concern about whether the agreement at COP28 on a “transition away from fossil fuels” — a flashpoint last year in Dubai — will be restated in this year’s text. A failure to reaffirm that commitment could overshadow anything else achieved in Baku.

While environment ministers lock horns at COP29 over the next couple of days, many of their bosses are gathering in Rio de Janeiro for a meeting of the G20 heads of government. International co-ordination on taxation will be a crunch topic at the meeting in Brazil. And as we explain below, it could prove crucial to solving the climate finance puzzle.

COP29 in brief

Talking taxes

The debate at COP29 over international climate finance has been focused largely on the “money out” element: the amount of cash that developed nations will provide to help developing countries respond to climate challenges. There are good reasons for that, as we’ve covered in previous editions.

But to achieve a serious expansion of public climate finance, governments will also need to give serious attention to the “money in” dimension: changes to tax regimes that will raise the funds required. Climate-related taxes and other revenue-raising approaches have been gradually creeping in around the world: witness the EU’s long-standing emissions trading scheme, and carbon taxes that are now in force from Singapore to Canada.

Many governments have recently proved leery of aggressive new moves on this front, however. See, for example, last month’s first Budget from UK chancellor Rachel Reeves, who angered green campaigners by avoiding any increase to fuel taxes.

So it’s noteworthy to see the increasing momentum around co-ordinated action on climate-related taxes, from a growing coalition of nations. Last year at COP28, we covered the launch of a new international body on this subject, set up by the governments of Barbados, France and Kenya. Here at COP29, the Global Solidarity Levies Task Force unveiled a new report highlighting options for new international taxes. The coalition of governments supporting its work now numbers 14, including Colombia, Denmark, Senegal and Spain. Germany, the European Commission and the African Union are formal observers to the body.

Rather than coming up with its own original proposals and calculations, the GSLTF — with 15 members and a secretariat led by French economist Laurence Tubiana — has compiled what it considers the most significant and realistic proposals for new levies to fund climate finance.

These include a levy of 0.1 per cent on equity and bond transactions, which could raise as much as $418bn. Such levies have already been introduced in several countries without a crippling effect on the financial sector. The UK’s long-standing stamp duty on share transactions, for example, currently stands at 0.5 per cent.

A further $127bn per year could come from levies on shipping emissions, the report suggests — an area where international discussions are already at a relatively advanced stage.

On aviation, policymakers have options: either taxes on jet fuel, or progressively rising levies on frequent flyers, the latter of which could raise as much as $121bn.

The potential sources of new tax revenue keep on coming. A tax on energy-hungry cryptocurrency transactions could raise $15.8bn a year, while taxes on primary plastic production could raise another $35bn.

Then there’s the billionaire tax — a proposed new global agreement for a minimum tax rate of 2 per cent of net assets, to be paid by perhaps 3,000 ultra-rich individuals, which could raise as much as $250bn a year. Importantly, this would not be a new levy on those already making big tax payments. Rather, it would apply as a “top-up” requirement for those whose annual tax contributions currently fall below 2 per cent of their wealth.

Under existing tax regimes, billionaires are able to minimise their tax requirements by borrowing against their wealth to finance spending needs, rather than receiving income that would be subject to income tax.

Momentum around a new billionaire tax has been growing among economists (see our interview earlier this year with Nobel laureate Esther Duflo). And it has won the support of the Brazilian government, which is currently chairing the G20 group. Last month, a meeting of G20 finance ministers and central bank governors agreed to increase efforts around “effective taxation, including of ultra-high-net-worth individuals”.

Brazil now wants to reinforce that commitment through a joint statement from national leaders, to be issued at a meeting that begins today in Rio de Janeiro. But Argentina’s President Javier Milei — who has already recalled Argentine negotiators from COP29 and is a close ally of US president-elect Donald Trump — is threatening to block the agreement on tax. The re-election of Trump, who has consistently backed lower taxes on companies and wealthy individuals, has put international efforts around co-ordinated corporate taxation “in peril”, according to tax experts.

The stand-off raises the potential for competing “axes of taxes” — with a coalition of countries pushing to advance global co-ordination on minimum tax levels, while Trump and others try to undermine it. The growing support from governments for the GSLTF suggests it may yet make headway with its proposals — but the Trump presidency will put this enthusiasm to the test.

For some advocates of this agenda, an overhaul of tax systems will be indispensable if the world is to achieve its climate goals.

“This is one of the most powerful tools that governments have,” Colombian environment minister Susana Muhamad told me. Tax changes would shift the economic incentives to align with lower-emissions trajectories, as well as providing a “consistent, predictable” source of finance for global climate action, she said. “We need more public finance,” Muhamad added, “and the way governments get public finance is through taxes.”

Quote of the day 

Over the last few days, some people have doubted whether collectively we can deliver. It’s time for the negotiators to start proving them wrong.

— Samir Bejanov, deputy lead negotiator for COP29

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