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‘Tax the bad’ to raise climate finance

Tan KW
Publish date: Thu, 30 Nov 2023, 11:25 AM
Tan KW
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Dubai: Increasing taxes on polluting activities and cutting fossil fuel subsidies may generate trillions of dollars to tackle climate change, according to an advisory panel to the COP28 talks here.

Summit host the United Arab Emirates (UAE), a major oil producer, has said the two-week meeting starting today must deliver “tangible action” on climate funding, which has been squeezed by rising debt burdens, faltering political will and patchy efforts by private finance.

Higher carbon taxes - including levies on emissions from the maritime and aviation sectors - should be among options for COP28 to study, the panel recommended.

“We see a big potential, particularly from taxing the bad internationally and using that money to generate predictable resources,” panel member Amar Bhattacharya of the Brookings’ Centre for Sustainable Development told a briefing.

In economics, taxing the bad refers to levies that target harm to the public good - for example, greenhouse gases - as a way to raise revenues and discourage the activity.

While citing an urgent need for new funding sources, the report by a group of independent economists said existing streams of revenue could also be reallocated.

Investments in the fossil-fuel economy continued to outstrip those made in the clean economy, it said.

Subsidies for fossil fuels totalled US$1.3 trillion, and substantially more if counting the societal cost of dealing with emissions and pollution.

Report co-chair Vera Songwe, a former World Bank economist, said the report’s focus was on how to advance the investments needed for the world to catch up on Paris Agreement targets to cap global warming well under two degrees Celsius“That is why we are emphasising speed and scale - the more we wait, the more expensive it comes,” she said.

The report’s authors said taxes on the record profits made by oil and gas companies, from higher energy prices that followed the Ukraine war, were unlikely to get political traction, in part because many, such as the UAE’s Abu Dhabi National Oil Company are state-owned.

Co-chair Nicholas Stern, professor at the London School of Economics and Political Science/Grantham Research Institute, said there was a compelling case for energy companies to make voluntary contributions.

“I think that moral obligation is something that will be emphasised at COP28, and indeed before and after,” he said.

There are growing calls for a carbon levy on shipping, which transports around 90% of world trade and accounts for nearly 3% of the world’s carbon dioxide emissions.

Aviation, which accounts for some 2% to 3% of emissions, is not directly covered by the Paris Agreement but the air transport sector has pledged to align itself with its goals.

The panel estimated that emerging and developing economies excluding China will need a total US$2.4 trillion investment a year by 2030 - four times current levels - to make the energy transition, adapt their economies and deal with climate damage.While the bulk of that can be raised domestically, it called on rich nations -already at least two years late on a promise of US$100bil to help poorer countries with climate change - to triple the volume of concessional loans on offer by 2030.

The report characterised private finance in emerging and developed countries as “dismally low”, while development banks were criticised for poor cooperation with the private sector, often competing with it on projects seen easiest to launch.


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