As the world contends with the most interconnected crises it has ever known, the emergence of promising solutions like new taxes could pave the way towards more equitable funding for climate disaster recovery.
Few communities stand untouched by the interrelated disasters that mark today’s world: global food and energy crises compounded by the Ukraine war, the continued impact of the COVID-19 pandemic and the impact and threat of climate disaster.
But for many developing countries, this predicament comes on top of an already unsustainable financial situation. Indeed, growing debt burdens leave few funds available for managing climate emergencies.
A possible avenue for urgent action lies in unlocking fresh revenue sources. Taxes on windfall profits, transport emissions, fossil fuel extractions and financial transactions could be powerful catalysts for transformative change.
Below are the new global tax instruments being discussed this year by experts and their prospective impact.
A Shipping Greenhouse Tax for cleaner seas and fairer financing
The impact of global shipping industry emissions in accelerating climate change is little known, even among many climate-conscious communities. The sector is responsible for approximately 3% of the world’s climate pollution, emitting an enormous 1 billion tonnes of greenhouse gases annually. The Solomon Islands and the Marshall Islands propose a universal mandatory levy, sanctioned by the UN shipping regulator, that would incentivise the industry to reduce emissions and help fund climate recovery and resilience.
Who pays the tax? The tax would be collected directly from ship operators worldwide during fuel purchases and funnelled into a dedicated fund. The amount each ship pays would be contingent on the level of greenhouse gases in their fuelling oil.
What impact could this have? The funds raised will depend on the levy rate and how quickly it is implemented. The Solomon Islands and Marshall Islands suggest an initial levy of $100 per tonne of greenhouse gas emitted by ships globally, with implementation taking place by 2025. If this proposal is accepted, the World Bank estimates that the tax could generate over $60 billion annually, amassing $1-2 trillion by 2050.
A Fossil Fuel Extraction Levy for those profiting from polluting
Since the industrial revolution in 1750 AD, roughly 100 fossil fuel companies have been responsible for more than half of global greenhouse gas emissions.
With the basic principle that those who have long profited from producing pollution should bear the costs of managing it, a new global tax is on the table that redistributes ‘over average’ fossil fuel profits to aid countries rebuild and recover from the worst impacts of climate change.
Who pays the tax? The individual companies extracting oil, gas and coal. While many levies exist at smaller scales, this new proposal, modelled on the International Oil Pollution Compensation Fund, would be imposed on each ton of coal, barrel of oil or cubic metre of gas extracted. Therefore, polluters would contribute directly to the loss and damage fund established under the UNFCCC, in line with the Paris Agreement.
What impact could this have? With a global rate that would apply in all jurisdictions (to avoid tax evasion or market distortion) at $6 per ton of CO2, it is estimated that the levy could raise $150 billion annually.
A Windfall Profits Tax to stop fossil fuel companies unfairly profiting from crisis
A ‘windfall tax’ is a temporary, specific measure applied to companies reaping unjust and excessive profits from unforeseen economic conditions.
UN Secretary-General António Guterres set out a clear example of these economic conditions in September 2022, urging developed nations to impose windfall taxes on fossil fuel companies that recorded exceptional profits due to the energy crisis triggered by Ukraine’s invasion. In 2022, the profits for the five major oil companies rose to nearly $200 billion.
“Those funds should be redirected in two ways,” he told the General Assembly, “to countries suffering loss and damage caused by the climate crisis and to people struggling with rising food and energy prices.”
An Air Ticket Levy for more responsible air travel
Despite constant growth in the aviation sector since 2006 and an increasing number of consumers looking to offset their travel impact, a proposal for an airline ticket levy by developing countries has been suppressed for over fifteen years.
Who pays the tax? Those purchasing air tickets. The tax could apply to both domestic and international aviation, adjusted to different passenger types based on their ability to pay, or used more heavily on frequent flyers.
What impact could this have? With air travel expected to increase by 4% annually over the next two decades, a ticket tax could be a stable source of climate finance. Estimates suggest that a mere 2% levy could yield $17 billion annually for redistribution.
A Financial Transaction Tax
Since the 2008 global financial crisis, policymakers have considered financial sector taxes to curb extreme speculative behaviours and generate revenue for the broader community.
What impact could it have? A financial transaction tax on financial instruments and contracts like bonds, stocks, options, derivatives, and foreign currency exchanges could generate significant revenue despite a very low rate, given the vast scale of daily transactions in financial and currency markets.
By applying a financial transaction tax of just 0.3%, it is estimated that G20 countries alone could accumulate €162 billion yearly, with the figure jumping to €270 billion at a 0.5% rate. Including day trading and high-frequency trading could yield more than €400 billion.
These global taxes could bring hope to many
These taxes are designed to encourage our transition to decarbonisation while generating revenue from those who profit from pollution and can afford to pay. As a global economy, it is cost-effective to tackle problems at their global roots rather than locally treating their symptoms.
With genuine collaboration, coordination and commitment from all stakeholders, we can harness the potential of taxes for a safer, more secure future for all.
