World’s biggest polluting industries must pay fair share for climate

• New task force puts forward global climate levies to raise money for climate-vulnerable communities, says Director of European Climate Foundation

Ahead of the meeting in Washington D.C., United States last Wednesday, 17 April 2024 of the International Tax Task Force (ITTF), which was set up at the COP28 United Nations Climate Change Conference in Dubai, United Arab Emirates (UAE) co-chaired by Kenya, Barbados and France, with 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,” by developing and vulnerable countries, Business a.m., Nigeria’s fastest growing financial and business newspaper, got MORGAN Després, executive director of international finance, European Climate Foundation (ECF), to field questions from PHILLIP ISAKPA & ONOME AMUGE

Morgan Després, executive director of international finance, European Climate Foundation.

What makes the International Tax Force unique, and how does it differ from other organisations that are working on similar issues, and what is the significance of having France, Barbados and Kenya as the co-chairs of the task force?

The task force’s unique strength 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.

Having Kenya, Barbados and France as co-chairs of the task force, and diverse global membership, demonstrates its commitment to genuine equity. Progress must involve developing and vulnerable countries that historically have been locked out of such negotiations. We invite 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).

How will the task force engage with countries and organisations that are not members, and what will be the task force’s process for developing and implementing new taxation policies?

The task force will conduct impact studies and consultations with the widest possible range of stakeholders including industry representatives, civil society organisations and the general public. All countries are invited to become members or observers of the task force.

The final recommendations will likely be delivered at COP30. After this, all discussions related to the endorsement and implementation of the taxes by governments will be part of international political negotiations between governments that are outside of the task force’s mandate.

How will the task force determine what tax options are feasible and equitable? What kinds of impacts will the task force consider when evaluating each tax option?

For each tax option, the task force will determine how much revenue could potentially be raised, whether this is adequate to needs, and how it can be allocated to climate-positive investments, adaptation projects, and assisting developing nations in their climate efforts. It will also consider questions of national and international equity, to ensure polluters pay their fair share, while also ensuring that consumers are protected during this cost-of-living crisis and potential tax options are all feasible taking into account the current economic challenges many countries face around the world.

Importantly, the task force will assess the economic impact, with the goal of proposing an effectively designed global climate tax that creates an incentive to curb carbon emissions while ensuring political feasibility, minimal distortive effects and fairness. It will also evaluate the political feasibility and scalability of each tax option to ensure it can be easily adopted by new countries.

What exactly is the $2.4 trillion funding gap, and how does it affect developing and vulnerable countries?

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.

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 USD $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.

Can you explain more specifically what the proposed climate taxes would entail, and how they would work? Do you think these proposed taxes will be enough to address the funding gap, or are additional measures needed?

The exact design of each tax option will be determined after extensive research and consultation. 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.

Taxes under consideration currently include a fossil fuel levy, financial transactions tax, air passenger levy, windfall fossil fuel profits tax, maritime fuel levy and a fossil fuel subsidy phase out. The exact potential revenue for each tax option will be worked out through a rigorous research, consultation and analysis phase.

Are these additional tax proposals likely to be met with resistance from certain groups or countries? If so, how might such resistance be addressed?

The climate crisis is a challenge we all face together. Some countries and stakeholders may be resistant to tax options they feel might adversely impact them, but all countries are free to join the task force and support in the development of proposals that are equitable and fit-for-purpose while minimising any adverse consequences.

Crucially, the task force brings together coalitions of willing countries to advance specific tax options, and later on in our mandate, the task force will put forward credible, feasible and scalable ways to implement these options.

How do these proposed levies aim to make polluting industries and people contribute to fighting climate change?

This is about breaking taboos. The tax avenues being considered are targeted at the most polluting industries and individuals that have historically been able to avoid taxation and therefore have not contributed their fair share to the fight against climate change. The task force aims to change that.

How can these proposed levies bring about more equitable climate justice and fairness to the financial system?

Vulnerable countries and people shouldn’t be footing the bill for a problem they didn’t cause. If we want a fairer global financial system, we need to correct this and ensure the biggest polluters contribute their fair share to climate finance. The research process will determine the most effective way this can be achieved for each tax option.

What is the potential impact of a financial transactions tax on global markets, and how might it affect investors and financial institutions?

One of the task force’s top priorities is to evaluate the impact of each levy option on all stakeholders, as well as the impact on the economies of developing and vulnerable countries. In-depth impact studies will determine the likely economic impact of each levy option, including how to avoid any potential adverse impacts. The final recommendations will include evidenced, effective measures governments can take to mitigate any negative consequences.

What would be the impact of a wealth tax on the global economy, and how might it affect economic growth and income inequality?

As it stands, a potential wealth tax is not currently part of the mandate of the International Tax Task Force, as set out in the original terms of reference. It is however being discussed at the G20 under the Brazilian Presidency, something which governments like France – one of the task force co-chairs – are supportive of. The task force is keen to ensure all of the potential climate levies it looks at avoid duplication and are complementary to existing initiatives.