What new taxes can help raise money for climate change?

The COP29 Climate Talks in Azerbaijan are aiming to reach an agreement on a finance target of at least $1 trillion a year for poorer countries to combat global warming. New taxes are one option.

The Global Solidarity Levies Task Force, led by France Barbados and Kenya is exploring this issue. The following are excerpts from the latest report of its Global Solidarity Levies Task Force (GSLT), led by France, Barbados and Kenya.

Shipping

A levy for shipping could be the closest to agreement, as it is responsible for about 3% of global emission. Governments will debate a number of measures during a meeting of International Maritime Organization (IMO) in April.

The GSLT has proposed several models for a levy, including a Pacific Islands and Caribbean proposal of a flat rate $150/ton CO2e (carbon dioxide equivalent), increasing every five years.

The European Union, Japan and other countries such as Bahamas and Liberia are in favour of a $100/ton levy by 2027.

The GSLT, citing a U.N. Trade and Development study, said that a levy between $150 and $300 per ton could generate $127 billion a yearly in 2027-2030. As ships become less polluting, revenue would drop to $103 billion between 2031-2040. It would then fall to $36 billion from 2041-2050.

AVIATION

The aviation industry accounts for only 2% of all global emissions, but is exempt from value-added taxes (VATs) and sales taxes. The GSLT is considering levying taxes on kerosene, private jet fuel and luxury tickets, as well as frequent flyers. These could collectively generate between $19 billion and $164 billion a yearly, according to the estimates.

Around 29 countries tax aviation fuel via excise taxes, carbon levies, or emission permits. In 2021, the average price per ton among G20 countries was $9.50 euros.

The biggest obstacles to a wider tax are ensuring that industry players have a level playing ground and removing legal barriers.

The GSLT reported that at least 21 other countries have a similar levy, ranging in price from 2 euros per ticket in Portugal up to 500 euros for some flights departing Britain.

FOSSIL FUELS

Many countries already charge a tax on fossil fuels. This can be done in several ways, such as through the purchase of gasoline at the gas station, VAT, carbon taxes, emissions trading schemes, royalties, or taxes paid by oil companies.

GSLT stated that revenues could be generated by a levy or windfall tax on profits of energy companies in the future. Greenpeace's report from this year estimated that a "Climate Damages Tax", of $5/ton, would generate $216 billion in 2024. A report by ActionAid said that a 50% tax would have been levied on the windfall profit of the 14 largest fossil fuel companies based on their market value over the two-year period up to July 2023. This would have raised $173 billion.

FINANCIAL TRANSACTIONS

Over 30 countries impose a tax on financial transactions, including Britain, France and Italy. However, establishing a cross-border tax has proven difficult. Austrian Institute of Economic Research estimates that a 0.1% tax on stocks, bonds, and derivatives could generate $238 billion to $400 billion annually.

CARBON

According to the GSLT, there are 75 carbon pricing mechanisms in 83 countries. Of these, 36 are carbon taxation and 39 are emissions trading systems. They cover 24% global emissions.

Most are cheaper than the $40 to $80 per ton that is needed to curb global warming. This is due to the political concerns about the impact of the product on businesses and households.

The International Monetary Fund proposed a plan where countries would agree to a minimum price per ton of $50, or $25, $50, and $75 depending on the country's stage of development.

Another option, according to the GSLT, could be linking existing trading schemes.

WEALTH

This year, the Group of 20 largest countries discussed raising taxes on super-rich people. The current G20 leader Brazil backed a report that proposed a minimum global tax of 2% on wealth for the roughly 3,000 billionaires in the world. This would raise $250 billion per year.

You could also change the threshold and rate of taxation.

CRYPTO

The creation of cryptocurrency such as bitcoin is based on the use of energy that produces emissions.

The GSLT stated that Kazakhstan will charge crypto-miners 1 to 25 Tenge ($0.002-0.056) for each kilowatt hour in 2022. The IMF estimated that a global tax of $0.045/kWh on electricity could raise $5 billion.

IMF research suggests that a 0.1% tax on crypto trading could generate $15.8 billion and a 20% capital gains tax could raise $323 billion.

PLASTICS

Next week, a group of countries will meet in South Korea to reach an agreement on reducing plastic pollution. Ghana and other countries have called for a tax on virgin polymers.

The GSLT, citing an analysis by the Australian non-profit Minderoo Foundation, said that a fee of $60-90 a tonne for primary polymer production would raise between $25-35 billion yearly.

(source: Reuters)