Climate Damage Tax
Context:
A new report by Nonprofits Greenpeace International and Stamp Out Poverty suggests a climate tax on the world’s biggest oil and gas companies could significantly benefit an undernourished UN fund meant to address the impact of climate disasters.
About the New Report and Its Advice on the Climate Damages Tax (CDT):
- Proposal of CDT: A new report by Greenpeace International and Stamp Out Poverty proposes a Climate Damages Tax (CDT) to hold fossil fuel companies accountable for their role in climate change.
- Levying of Tax: This tax would be levied on the extraction of coal, oil, and gas, calculated based on the carbon emissions they generate. Fossil fuel companies, which already pay royalties, would contribute an additional fee directly to a global Loss and Damage Fund (LDF).
- Expected Revenue Generation: The report suggests starting the CDT at $5 per tonne of CO₂-equivalent emissions in 2024, increasing annually. This incremental approach could raise $900 billion in OECD countries alone by 2030, with $720 billion allocated to the LDF to support vulnerable nations facing climate disasters.
UN Fund for Responding to Loss and Damage: Current Status and Purpose:
- Aim: The UN Fund for Responding to Loss and Damage (FRLD) was launched to support developing nations in recovering from climate-related disasters.
- Launch and Expected Revenue: Operationalised at COP28, it aimed to address the long-unmet $100 billion annual climate finance target pledged by developed nations since 2009.
- Revenue Generation till now : However, the FRLD currently holds only $702 million—far below what is needed. Recent disasters, including heatwaves in India and hurricanes and typhoons elsewhere, have caused damages exceeding $64.6 billion in 2024 alone.
CDT to boost UN Loss and Damage Fund : The CDT aims to bolster this fund, ensuring that financial support reaches communities in dire need.
The Rationale for CDT – Addressing Recent Extreme Weather Events:
Climate disasters are escalating in intensity and frequency, driven largely by fossil fuel emissions, which account for nearly 70% of climate change impacts since the industrial era. The CDT can serve a dual purpose:
- Generate critical funding to help vulnerable nations recover from events like India’s devastating $25 billion heatwaves or Hurricane Beryl’s $18 billion damages.
- Make fossil fuels costlier, thereby incentivising a shift toward renewable energy and green technologies.
Why Should the Rich Be Taxed? The Moral Dimensions:
The Climate Damages Tax aligns with key principles of international environmental law:
- Common but Differentiated Responsibilities (CBDR-RC): Developed nations, having industrialised earlier and contributed more to global emissions, must lead in addressing climate change.
- Polluter Pays Principle: Those responsible for pollution should bear the cost of its damages.
India’s Advice at COP29 on Climate Finance:
At COP29, India strongly advocated for increased climate finance, emphasising the need for $1.3 trillion annually under the New Collective Quantified Goal (NCQG). India stressed that developing nations require predictable, accessible, and adequate funding to adapt to climate impacts and transition to sustainable energy systems.
Decisions on Climate Finance at COP29: Focus on NCQG
The NCQG is set to replace the unmet $100 billion annual commitment post-2025, reflecting the growing scale of climate challenges. COP29 discussions highlighted:
- Prioritising loss and damage financing.
- Supporting just energy transitions.
- Establishing mechanisms to ensure developed nations fulfil their financial commitments.
- No-Harm Principle: Nations and corporations must prevent environmental harm and compensate for damages caused.
Wealthy countries and fossil fuel giants, having reaped immense profits while fueling global warming, have a moral obligation to help mitigate its consequences.
Precedents in Collection and Disbursement of Revenue:
The CDT model draws on existing mechanisms:
- International Oil Pollution Compensation Funds (IOPC Funds): These bypass national treasuries, with polluters paying directly into a global fund. Similarly, fossil fuel extractors would remit CDT payments directly to the LDF.
- Airline Solidarity Levy: Introduced by France in 2006, this tax on air tickets funds UNITAID’s global health initiatives, proving that similar mechanisms can be effective for climate finance.
These precedents highlight the feasibility of implementing the CDT while ensuring transparency and accountability.
Opposing Views on Taxing Rich Firms: Ethical Concerns
Critics of taxing major fossil fuel companies argue:
- Such measures might disproportionately impact their employees and dependent communities.
- Fossil fuel firms may pass on costs to consumers, raising energy prices.
- Some claim it could hinder economic growth in regions reliant on fossil fuel industries.
Proponents counter that the CDT ensures polluters take responsibility while generating funds for equitable climate action. To address ethical concerns, the CDT also includes provisions for domestic dividends to aid workers and communities transitioning to green jobs.
