First call on fuel taxes and banks for $1 trillion climate finance

Analysis: As climate talks in Baku, Azerbaijan near the end of their second week, there’s still been remarkably little movement on the central aim of the summit: Agreeing a new global climate finance goal.
The finance target (the New Collective Quantified Goal on Climate Finance in United Nations speak) is crucial to getting buy-in from developing nations as they set their next round of emissions reduction targets under the Paris Agreement. But diplomats entered COP29 with a range of thorny questions – who should pay, what should the money cover and what form should it take – and have yet to compromise on any satisfactory answers.
And, of course, there’s the big question looming over everything: How much?
Developing countries have been more than happy to put a price on the table. The African Group says $6.5 trillion over the next five years, the Arab Group wants a flat $1.3 trillion a year and the Like-Minded Developing Countries bloc has called for $1 trillion annually. All of these figures are in United States dollars.
A significant portion of the total should come from public coffers, these nations say – the Arab Group says $440 billion, India and the G77+China have landed on $600 billion. That’s because public finance is viewed as more reliable. Developed countries are parties to the Paris Agreement and the UN climate change treaty and have legal obligations to provide climate finance, while private companies that might top up the fund face no such requirements.
Developed nations, for their part, have been loath to put a potential number on the finance target. They say all the other questions (covered in Newsroom’s in-depth explainer on the finance goal) must be answered first.
The only public statements made by developed countries are that the floor of the goal should be $100 billion – which is the current goal. Not all of that would necessarily be public finance either. Internally, Politico Europe reported, the European Union is thinking about a $200 to $300 billion public finance goal.
What’s clear is the deal, if it lands, will be in the hundreds of billions, in terms of cash needed from public coffers and multilateral development banks. The past few months have seen a flurry of ideas on where to get that money, in preparation for the COP.
Despite activists’ hopes, the reality is an ambitious target won’t immediately lead to wealth taxes or solidarity levies in all the world’s developed nations. UN climate finance targets are global goals and the mechanisms for meeting them aren’t dictated centrally. Nor is the relative responsibility for meeting them allocated in any way.
Instead, developed nations will simply step up their climate finance, each finding the balance of what is politically possible but still an ambitious contribution. This approach meant developed countries failed to meet the current $100 billion climate goal in 2020 and 2021, but they have since exceeded it three years in a row.
Still, the target becomes something developed nations as a collective can be held accountable for meeting. And discussing avenues for financing the goal can help shift the Overton window of what’s possible. Two decades ago, $100 billion in climate finance was unimaginable, but now we hit it every year. Who’s to say $1.3 trillion won’t seem just as commonplace in a decade’s time?
So, given all that, where can the developed world find up to $1.3 trillion?
This is the obvious starting place. Climate finance will help countries get off fossil fuels and cover the costs of adapting to and recovering from disasters worsened by fossil fuels. Developed nations subsidise fossil fuels to the tune of at least $270 billion, according to Oil Change International. Converting those to climate subsidies in the form of finance for developing nations seems like a no-brainer to some.
This proposal from Greenpeace picks up the same logic as axing fossil fuel subsidies and carries it a step forward. If the OECD nations were to apply a $5 per tonne of CO2 emissions tax on fossil fuels, rising by $5/tonne each year, they’d be able to raise $160 billion a year on average out to 2030. This money would go straight to covering climate-related losses and damages, per the Greenpeace proposal, but that may well be in scope of the finance target anyway.
Here’s an idea offered up by Barbados Prime Minister (and climate champion) Mia Mottley, Kenyan President William Ruto and French President Emmanuel Macron: Small levies on global activities to raise cash for climate finance. In an op-ed earlier this month, the three leaders proposed three levies in particular: The fossil fuel levy mentioned above, a 0.1 percent levy on global stock and bond trades (raising $418 billion a year) and a $100 per tonne of CO2 levy on international shipping emissions ($80 billion a year). International shipping currently falls outside national jurisdictions and faces no carbon price, though this may soon change.
The trio last year launched a Global Solidarity Levies Task Force, which will be reporting back in a few months on “a handful of concrete proposals with rigorous impact assessments. These will be scalable – raising at least $100 billion per year – and accompanied by clear assessments of potential externalities.”
The top development banks announced at COP29 that they expect to contribute $120 billion a year to climate finance by 2030, a third of which would go to adaptation projects. These are entities like the World Bank, the Asian Development Bank (which operates in the Pacific) and the European Investment Bank. Some developing countries have criticised these contributions for saddling them with more debt, but developed nations say multilateral finance should be part of the finance target mix.
Another ambitious proposal, Oil Change International says a 1 percent tax on wealth over $1 million in developed nations would raise more than enough to meet whatever level the target ends up at. The political challenges here, of course, are greater than the other options. But for a strapped-for-cash developed country, maybe the maths works out?
This is another Mottley scheme. It also doesn’t fit developing countries’ usual definition of public finance, but does tick the box for developed nations who also want to count money “mobilised” by public spending. In a recent article with Danish PM Mette Frederiksen, Mottley outlines three changes that multinational development banks could make to boost private climate finance through public cash. Every $1 of public spending, they write, can mobilise up to $5 in private finance.
First, a massive investment pipeline in emissions slashing and climate adaptation projects. This should involve taking up greater risks that the private sector won’t bear, like early-stage, large-scale projects. Second, de-risking future private investment through loan guarantees or publicly provided insurance. And third, mobilising novel pools of capital like pension funds in developing countries, which could be supported to invest in their own communities.
Exactly how much money could be mobilised here is unclear, but it would be in the hundreds of billions at least.
This option comes last, because it has been roundly rejected by civil society as a form of climate finance. While there is a widely recognised need for carbon trading – and agreement on the rules for trading under the Paris Agreement seems likely to land at COP29 – some say this doesn’t count as climate finance because developed nations are already reaping a benefit from their investment. The International Emissions Trading Association says carbon trading could raise $250 billion by 2030, but others have cast doubt on that number.