Climate tax task force meets in US to close $2.4trn funding gap 

• Developing, vulnerable countries annual need

• To meet climate targets, Paris commitments

• France, Barbados, Kenya co-chair of ITTF

PHILLIP ISAKPA IN STOCKPORT, UK

The world will begin an attempt at moving the needle in the quest to close the huge estimated $2.4 trillion annual funding gap that developing and vulnerable countries require to meet their Paris Climate Agreement commitments when member countries of the International Tax Task Force (ITTF) meet in Washington, United States on Wednesday, Business a.m. can report authoritatively.

In response to questions from Business a.m., Morgan Després, executive director of international finance, European Climate Foundation, which hosts the secretariat of the ITTF, said according to the HLEG climate finance framework, to meet their climate targets and Paris Agreement commitments developing and vulnerable countries excluding China will need to mobilise $2.4 trillion every year. “Those funds need to come from somewhere. 

“The task force aims to propose solutions to this issue through innovative financing mechanisms, with revenues raised through taxes on those most responsible for the climate crisis: the most highly polluting industries and individuals,” he said. 

This inaugural meeting where all the task force members will gather in DC coincides with the IMF and World Bank Group’s Spring Meetings in the US capital, and will be observed by the European Union, Germany, the International Monetary Fund (IMF) and the United Nations (UN). 

The ITTF, which was set up at the COP28 United Nations Climate Change Conference in Dubai, United Arab Emirates (UAE), is co-chaired by Kenya, Barbados and France and has the onerous responsibility of trying “to foster political will and advance feasible, scaleable and sensible options for climate levies that can easily be implemented to help finance Paris Agreement commitments,” a briefing note made available to Business a.m. stated.

Apart from the co-chair countries, Ireland, Spain, Antigua and Barbuda, and the Marshall Islands are the other countries expected to be in attendance. But the European Climate Foundation (ECF), which hosts the secretariat of the ITTF, in a note to Business a.m. said that it anticipates that more countries will join them at the meeting in Washington. 

ECF’s Després told Business a.m. in response to questions that the strength of the task force is twofold.

“Firstly, it aims to foster political will around options for progressive climate taxes and secondly, it is creating coalitions of willing countries to become the frontrunners to implement these taxation measures. By doing this, it will provide equitable, workable tax solutions to governments that enable them to mobilise finance at scale.

“The task force will operate alongside and complement other international and multilateral organisations, such as the ongoing negotiations at the UN, OECD, G20 and IMO, by providing a neutral forum for discussion and research,” he added.

According to the ECF briefing note, the meeting in Washington will aim to agree on a work plan towards COP30 and how best to design each potential levy in preparation for impact studies.

Some potential areas are already being considered and they include air passenger levies, a financial transactions tax, a maritime fuel levy, a carbon damages tax, and a windfall tax on fossil fuel profits, as well as the redirection of fossil fuel subsidies.

But Després explained that the exact design of each tax option will be determined after extensive research and consultation, adding: “For the options currently on the table, there are a range of ways they can be designed which the task force will explore to deliver the most effective, equitable and feasible recommendations.”

ECF said each of the tax avenues under consideration could raise between $4 billion and $1 trillion annually.

A breakdown of these tax areas and the amount they could generate and which the task force may investigate include: 

• Fossil Fuel Levy or Carbon Damages Tax: A global tax that could be imposed on fossil fuel producers, charged per ton extracted at a level reflecting the carbon dioxide that is embedded. A $5/ton tax on CO2 globally would provide $210 billion per year. 
• Financial Transactions Tax: a small tax on financial transactions, either administered globally or confined to developed economies, would raise up to $418.8 billion annually. 
• Air Passenger Levy: Various levy rates could raise $150 billion annually. 
• Windfall Fossil Fuel Profits: Levied on unexpected fossil fuel profits during periods of exceptional price increases. A 10% tax on 2022 profits would have raised $300 billion. 
• Fossil Fuel Subsidy Phase Out: Diversion of existing fossil fuel subsidies to global loss and damage fund, typically administered on a developed country basis. $527 billion is the global average subsidy from 2010-2021, with the G20 averaging $215 billion (40% of total subsidies), and the OECD averaging $126 billion (24% of subsidies). Estimated to generate up to $43.91 billion annually. 
• Maritime Fuel Levy: a carbon fixed price for the use of fossil fuels in shipping, estimated to raise $80 billion per year.

However, the exact potential revenue for each tax option will be worked out through a rigorous research, consultation and analysis phase, said ECF Després.

The levies are explained as aiming to ensure the most polluting industries and people contribute to financing the fight against climate change, “while bringing more equitable climate justice and fairness to our current financial system.” It adds that the task force provides a multilateral space to discuss and study these options, looking at how they could be implemented and what impact they may have. 

“Right now, the most vulnerable people and economies who contribute the least to global emissions are not only experiencing the worst impacts of climate change, but they’re also disproportionately least able to finance adaptation and mitigation measures,” said Després.

He called on all countries to join the task force and be part of the process of finding solutions to help tackle the $2.4 trillion annual funding gap faced by developing and vulnerable countries (excluding China).