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Hello again from Baku, where COP29 is entering its second week. Even as they push for progress รขโฌโ especially around a new global climate finance goal รขโฌโ some delegates are starting to worry about backsliding on previous commitments.
In particular, thereรขโฌs concern about whether the agreement at COP28 on a รขโฌลtransition away from fossil fuelsรขโฌ รขโฌโ a flashpoint last year in Dubai รขโฌโ will be restated in this yearรขโฌs text. A failure to reaffirm that commitment could overshadow anything else achieved in Baku.
While environment ministers lock horns at COP29 over the next couple of days, many of their bosses are gathering in Rio de Janeiro for a meeting of the G20 heads of government. International co-ordination on taxation will be a crunch topic at the meeting in Brazil. And as we explain below, it could prove crucial to solving the climate finance puzzle.
COP29 in brief
Talking taxes
The debate at COP29 over international climate finance has been focused largely on the รขโฌลmoney outรขโฌ element: the amount of cash that developed nations will provide to help developing countries respond to climate challenges. There are good reasons for that, as weรขโฌve covered in previous editions.
But to achieve a serious expansion of public climate finance, governments will also need to give serious attention to the รขโฌลmoney inรขโฌ dimension: changes to tax regimes that will raise the funds required. Climate-related taxes and other revenue-raising approaches have been gradually creeping in around the world: witness the EUรขโฌs long-standing emissions trading scheme, and carbon taxes that are now in force from Singapore to Canada.
Many governments have recently proved leery of aggressive new moves on this front, however. See, for example, last monthรขโฌs first Budget from UK chancellor Rachel Reeves, who angered green campaigners by avoiding any increase to fuel taxes.
So itรขโฌs noteworthy to see the increasing momentum around co-ordinated action on climate-related taxes, from a growing coalition of nations. Last year at COP28, we covered the launch of a new international body on this subject, set up by the governments of Barbados, France and Kenya. Here at COP29, the Global Solidarity Levies Task Force unveiled a new report highlighting options for new international taxes. The coalition of governments supporting its work now numbers 14, including Colombia, Denmark, Senegal and Spain. Germany, the European Commission and the African Union are formal observers to the body.
Rather than coming up with its own original proposals and calculations, the GSLTF รขโฌโ with 15 members and a secretariat led by French economist Laurence Tubiana รขโฌโ has compiled what it considers the most significant and realistic proposals for new levies to fund climate finance.
These include a levy of 0.1 per cent on equity and bond transactions, which could raise as much as $418bn. Such levies have already been introduced in several countries without a crippling effect on the financial sector. The UKรขโฌs long-standing stamp duty on share transactions, for example, currently stands at 0.5 per cent.
A further $127bn per year could come from levies on shipping emissions, the report suggests รขโฌโ an area where international discussions are already at a relatively advanced stage.
On aviation, policymakers have options: either taxes on jet fuel, or progressively rising levies on frequent flyers, the latter of which could raise as much as $121bn.
The potential sources of new tax revenue keep on coming. A tax on energy-hungry cryptocurrency transactions could raise $15.8bn a year, while taxes on primary plastic production could raise another $35bn.
Then thereรขโฌs the billionaire tax รขโฌโ a proposed new global agreement for a minimum tax rate of 2 per cent of net assets, to be paid by perhaps 3,000 ultra-rich individuals, which could raise as much as $250bn a year. Importantly, this would not be a new levy on those already making big tax payments. Rather, it would apply as a รขโฌลtop-upรขโฌ requirement for those whose annual tax contributions currently fall below 2 per cent of their wealth.
Under existing tax regimes, billionaires are able to minimise their tax requirements by borrowing against their wealth to finance spending needs, rather than receiving income that would be subject to income tax.
Momentum around a new billionaire tax has been growing among economists (see our interview earlier this year with Nobel laureate Esther Duflo). And it has won the support of the Brazilian government, which is currently chairing the G20 group. Last month, a meeting of G20 finance ministers and central bank governors agreed to increase efforts around รขโฌลeffective taxation, including of ultra-high-net-worth individualsรขโฌ.
Brazil now wants to reinforce that commitment through a joint statement from national leaders, to be issued at a meeting that begins today in Rio de Janeiro. But Argentinaรขโฌs President Javier Milei รขโฌโ who has already recalled Argentine negotiators from COP29 and is a close ally of US president-elect Donald Trump รขโฌโ is threatening to block the agreement on tax. The re-election of Trump, who has consistently backed lower taxes on companies and wealthy individuals, has put international efforts around co-ordinated corporate taxation รขโฌลin perilรขโฌ, according to tax experts.
The stand-off raises the potential for competing รขโฌลaxes of taxesรขโฌ รขโฌโ with a coalition of countries pushing to advance global co-ordination on minimum tax levels, while Trump and others try to undermine it. The growing support from governments for the GSLTF suggests it may yet make headway with its proposals รขโฌโ but the Trump presidency will put this enthusiasm to the test.
For some advocates of this agenda, an overhaul of tax systems will be indispensable if the world is to achieve its climate goals.
รขโฌลThis is one of the most powerful tools that governments have,รขโฌ Colombian environment minister Susana Muhamad told me. Tax changes would shift the economic incentives to align with lower-emissions trajectories, as well as providing a รขโฌลconsistent, predictableรขโฌ source of finance for global climate action, she said. รขโฌลWe need more public finance,รขโฌ Muhamad added, รขโฌลand the way governments get public finance is through taxes.รขโฌ
Quote of the dayร
Over the last few days, some people have doubted whether collectively we can deliver. Itรขโฌs time for the negotiators to start proving them wrong.
รขโฌโ Samir Bejanov, deputy lead negotiator for COP29
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