Cop29: which climate finance ideas are most likely to work?
NEWS | 13 November 2024
Countries meeting in Baku, Azerbaijan, for the Cop29 climate summit are under pressure to find ways to raise money to help poorer nations cut greenhouse gas emissions, shift to a low-carbon economy, and adapt to the impacts of extreme weather. At least $1tn a year is needed. Developed countries are willing to ensure about half of that is provided from public sources, leaving a large gap that countries are hoping to fill with other sources of cash, known as innovative forms of finance. These can be levies on high-carbon activities, from private jets to oil and gas extraction, or taxes on wealth, an idea gaining traction as global inequality soars. But all of these innovative forms of finance have winners and losers, and some are likely to be difficult to implement. Here are some of the main ideas being considered. Reform of the World Bank, International Monetary Fund and other multilateral development banks The World Bank and other development institutions are supposed to help poor and vulnerable countries alleviate poverty, develop their economies and give their citizens access to basic services. Climate finance should be a major focus. But many developing countries complain this finance is meagre, difficult to access, costly and bureaucratic. Accessing finance from the private sector is also tricky for them. If the World Bank were to reform its practices to help “de-risk” investments in poor countries, for instance by providing loan guarantees, that could unlock billions in finance from the private sector and public funds. The World Bank could also provide far more climate finance if its replenishment round, coming up next month in South Korea, elicits sizeable pledges from donor countries. That prospect may, however, have been damaged by the election of Donald Trump in the US – unless other developed countries step up. Rationality: 5/5 Ease of implementation: 4/5 Verdict: Can and must be done urgently Taxes on profits from fossil fuels Fossil fuel companies, both private companies and those owned by their governments, have enjoyed an unprecedented bonanza since Russia’s invasion of Ukraine in February 2022. Five of the biggest private companies alone made more than $280bn in profit in the two years after the invasion. These bumper profits were not linked to any productivity gains or new production but were purely the result of price rises generated by the invasion. Taxing fossil fuel wealth would seem an obvious source of climate finance. Even the staid and conservative International Energy Agency has supported windfall taxes on the profits. View image in fullscreen Fossil fuel companies have enjoyed a bonanza since Russia’s invasion of Ukraine. Photograph: Jim Tanner/Reuters Petrostates should also be required to pay up, according to a group of former world leaders headed by Gordon Brown, the former UK prime minister. They wrote an open letter last year asking for a $25bn levy on petrostates, which would barely dent such countries’ profits but make their first significant contribution to climate finance. Rationality: 5/5 Ease of implementation: 2/5 Verdict: Morally right, but faces powerful opposition Frequent flyer levy Only about one in 10 people worldwide take an airline flight in any given year, according to research from 2018. Even in the UK, most people do not fly in any given year, and about 20% of international flights are taken by about 1% of the population. One long-haul flight generates as much carbon dioxide as the average person in many developing countries does in a year. Flying is a high-carbon activity mainly by the rich, who fly many times more frequently than the average person. So levies on flying – in particular if they are introduced in such a way that people are spared charges on their first one or two trips each year, or that fall most heavily on business and first-class passengers – should target the enormous and growing carbon inequality gap. Rationality: 4/5 Ease of implementation: 5/5 Verdict: Should be a top priority, as a small charge added to a business class flight is hard to argue against and easy to collect Levy on shipping International shipping causes about 2% of global greenhouse gas emissions, and other pollutants, because ships use a particularly dirty form of diesel. There is much room for improving the fleet, and promising work is being done on using hydrogen, and even sails, to power future ships. A small charge on shipping based on the carbon emissions of vessels would be relatively easy to apportion and collect, as ships are closely licensed. Shipping is governed by the International Maritime Organization, a branch of the UN, which has long been accused of foot-dragging on reducing the climate impact of the sector, but which has finally begun to move. View image in fullscreen Shipping is responsible for 2% of global greenhouse gas emissions. Photograph: imagedepotpro/Getty Images Detractors argue that charges on shipping would be passed on to consumers, adding to price inflation. However, a large proportion of the world’s fleet is engaged in carrying fossil fuels, such as liquefied natural gas, and coal, so taxing that would be another incentive to move to cleaner energy. Rationality: 4/5 Ease of implementation: 4/5 Verdict: Instituting a shipping levy has already begun, through the IMO, and could be in place this decade with support from governments Wealth tax The world’s billionaires came out of the Covid pandemic richer than ever before. Since 2020, according to Oxfam, their wealth has grown by a staggering $3.3tn, three times faster than the rate of inflation. The world’s richest five men have doubled their money, while the purchasing power of the poorest 60% has fallen significantly over the same period. These rates of global inequality have not been experienced in well over a century. Yet wealth is more lightly taxed now than in decades. Carbon emissions are following the same pattern: the Guardian reported last year on how a great carbon divide has opened up, and is widening, as the world’s wealthiest people indulge in luxury lifestyles with outsize emissions attached. Brazil’s president, Luiz Inácio Lula da Silva, has proposed a billionaire tax of 2% that could raise $250bn while affecting only 100 families in the world. Although few governments have been willing to publicly oppose the policy, many are obstructive in private. Governments are reluctant to announce taxes on billionaires for fear they will flee to more attractive regimes. In fact, most of those who might flee have already gone, and there are ways of levying taxes – on assets, shares and property, for instance – that would make flight harder. But the influence of billionaires is proving hard even for progressive governments to counter. Rationality: 5/5 Ease of implementation: 1/5 Verdict: Money talks, and politicians listen. A wealth tax faces stiff opposition from powerful billionaires, so only if political leaders hear clamour from their voters will it have a chance Reform of harmful subsidies to fossil fuels, agriculture and fishing More than $650bn is spent each year in the developing world on harmful subsidies to fossil fuels, agriculture and fisheries, and other polluting industries that do environmental damage. While a small amount of these subsidies could be redistributed to benefit the poor and protect them from high prices, most of the sums are wasted or encourage wasteful practices, such as the excess use of fossil fuels, overfishing or the overextraction of water for farming. View image in fullscreen Farmers protesting in Hamburg, Germany, against attempts to cut subsidies and tax breaks on diesel. Photograph: AFP/Getty Images Redirecting these subsidies, to stop them doing active harm and recoup the wasted cash, would free up large chunks of government money in the developed and the developing world and reduce damage to the planet. Rationality: 5/5 Ease of implementation: 2/5 Verdict: This should be a no-brainer, but decades of subsidies have created reliance among some politically powerful industries, which must be weaned off public money for the greater good Proceeds from carbon trading Selling carbon offsets is an attractive prospect: keeping existing forests is essential to maintain the planet’s vital carbon sinks, and as they absorb carbon dioxide from the atmosphere they help to soak up the emissions from harmful activities. Selling carbon credits could in theory encourage the protection of forests and other carbon sinks, while allowing some emitting activities – such as flying – to carry on. Monitoring whether carbon credits are real has become much easier in recent years, with the development of satellite imaging systems that can peep under the canopy of forests and see whether trees are being removed or roads built secretly. It is also possible to more accurately estimate how much carbon vegetation is absorbing from the atmosphere. But the carbon offset sector is beset with problems over the integrity of credits, the transparency of the systems used to estimate their value, and problems over double counting, as well as cases of Indigenous people being poorly treated. Investigations by the Guardian have uncovered widespread problems in the sector, including companies and consumers paying for credits that have been found ecologically worthless. Rationality: 2/5 Ease of implementation: 1/5 Verdict: Carbon trading is a poor substitute for the real solution of paying developing countries for the good they do for the planet by keeping their forests standing Carbon tax If the culprit in the climate crisis is carbon dioxide, why not tax it directly? A carbon tax has been frequently proposed, as a way of encouraging countries, companies and individuals to move away from fossil fuels towards clean energy. Most countries already have carbon taxes in some form, but without calling them carbon tax. These are taxes on fuels or the industries and activities that use fuels and produce goods with them. They are usually not based on the amount of emissions produced, however. Some countries have also embraced domestic emissions trading schemes, like those in the EU and China, that achieve some of the same ends. However, while a global carbon tax has been frequently proposed, it has proved too easy for detractors, such as fossil fuel companies, to attack, and has never been implemented. Rationality: 5/5 Ease of implementation: 0/5 Verdict: Economists are wedded to the idea of a carbon tax as the most economically efficient way to bring down emissions. But theoretical elegance is no match for real world special interests, and 30 years of theorising has brought the prospect of a global carbon tax no closer. It is time to abandon this utopian concept and seek more realistic solutions while there is time.
Author: Fiona Harvey.
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