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NGO report calls for fossil fuel tax to help poor countries recover from climate change damage
8/5/2024
A tax on the extraction of fossil fuels in the world’s richest advanced economies could raise $720bn by the end of the decade to support the world’s most vulnerable facing climate damages, according to a new report backed by over 100 climate organisations worldwide including Christian Aid, Greenpeace, Climate Action Network, Stamp Out Poverty and Power Shift Africa.
The Climate Damages Tax report proposes that OECD countries, in particular members of the G7 (Canada, France, Germany, Italy, Japan, the UK and US), introduce a fee per tonne of CO2 embedded (CO2e) of domestic coal, oil and gas extracted.
The report argues for the bulk of the proceeds (80%) to be transferred to the newly established Loss and Damage Fund (LDF) for assisting developing countries in their response to climate losses and damages. The remainder – equating to $180bn by 2030 – could be reserved as a ‘domestic dividend’ to support communities with the climate transition in countries where the tax is imposed. The tax could be administered within existing systems of royalties or similar payments that fossil fuel companies already have to pay where they operate.
The LDF was set in motion by world leaders at COP28 in Dubai, after years of debate. However, the nearly $700mn pledged so far has been estimated to equate to less than 0.2% of the irreversible economic and non-economic losses developing countries are facing from global warming every year. A significant proportion of global emissions can be attributed to a small number of fossil fuel producers, who are claimed to have avoided paying for the rapidly growing costs of intensifying climate impacts even while their profits have skyrocketed, says the report.
The report’s publication coincided with the first meeting of the newly-established Loss and Damage Fund Board, who gathered in Abu Dhabi last week to discuss how the LDF will be financed.
The proposed tax is said to generate much-needed funds to help countries least responsible for the climate crisis cope with the costs. It would also help accelerate the phase-out of fossil fuels by making their production more expensive by progressively ratcheting up the tax rate each year. Equally, the proposed domestic dividend would ensure that workers and communities in developed countries also reap benefits from the tax, to ensure a just transition towards renewable energy and other green infrastructure.
If it were introduced in OECD countries in 2024 at a low initial rate of $5/tCO2e, rising by $5 each year, the proposed tax could raise a total of $900bn by 2030, equating to $720bn for the LDF and a $180bn domestic dividend, suggests the report.
By way of example, the total sum raised by 2030 could pay for rebuilding and recovery from the damage caused by Cyclone Freddy, which displaced over half a million people in Southern Africa in 2023, more than 1,300 times over.
The report's authors point out that the so-called Climate Damages Tax (CDT) proposal ‘places the onus of payment of revenue to the LDF on developed countries, who have the greatest fossil fuel footprint through their industrialisation and ability to pay through the wealth they have historically accrued.’ They stress that there is ‘no obligation on non-Annex 1 countries to fund the LDF’.
However, they point out that: ‘There is a case to be made that countries from this grouping, such as the Gulf States, who have derived their considerable wealth from fossil fuel extraction, may wish to employ the CDT as a means to make a voluntary contribution to the LDF and, through the domestic dividend, invest in green transformation nationally.’
The report’s release also came as ministers gathered at the G7 Climate, Energy and Environment Ministers meeting in Turin, Italy. According to the report, even if the CDT were introduced solely in G7 states, where a considerable number of international oil and gas companies are based, the proposal could raise $540bn for the LDF by the end of the decade, with a $135bn domestic dividend for national climate action across the G7 nations.
David Hillman, Director of Stamp Out Poverty and co-author of the report with Dr Sindra Sharma, an independent consultant and currently Senior Policy Advisor for Pacific Island Climate Action Network (CAN), said: ‘The richest, most economically powerful countries, with the greatest historical responsibility for climate change, need look no further than their fossil fuel industries to collect tens of billions a year in extra income by taxing them far more rigorously. This is surely the fairest way to boost revenues for the Loss and Damage Fund to ensure that it is sufficiently financed as to be fit for purpose.’
