COP28 advisory panel proposes higher carbon taxes and fossil fuel subsidy cuts as solutions
As the world grapples with the urgent need to address climate change, a panel of economists advising the COP28 talks in Dubai has recommended increasing taxes on polluting activities and cutting fossil fuel subsidies. The panel argues that these measures could generate trillions of dollars to fund climate action. With rising government debts, faltering political will, and insufficient private finance efforts, the United Arab Emirates, the host of the summit, is calling for tangible action on climate funding. The panel’s recommendations include higher carbon taxes, including levies on emissions from the maritime and aviation sectors, as well as reallocating existing revenue streams.
The Potential of Taxing the Bad and Reallocation of Resources
The panel highlights the potential of taxing harmful activities to raise revenues and discourage polluting behaviors. By implementing higher carbon taxes, including levies on emissions from the maritime and aviation sectors, countries can generate predictable resources for climate action. The report emphasizes the urgent need for new funding sources while also suggesting the reallocation of existing revenue streams. Currently, investments in the fossil fuel economy continue to outstrip those made in the clean economy, with fossil fuel subsidies totaling $1.3 trillion. When factoring in the societal cost of dealing with emissions and pollution, this figure rises substantially.
Urgency for Speed and Scale to Meet Paris Agreement Targets
The report’s focus is on advancing the investments necessary to meet the targets set by the Paris Agreement, which aims to cap global warming well below 2 degrees Celsius. Co-chair Vera Songwe, an ex-World Bank economist, stresses the importance of speed and scale in addressing climate change. The longer we wait, the more expensive the consequences become. The panel estimates that emerging and developing economies, excluding China, will require a total investment of $2.4 trillion per year by 2030, four times the current levels. While domestic resources can cover a significant portion of this investment, the panel calls on wealthy nations to fulfill their promise of $100 billion to assist poorer countries with climate change by tripling the volume of concessional loans by 2030.
The Moral Case for Oil Companies to Contribute
While taxes on the record profits made by oil and gas companies, driven by higher energy prices following the Ukraine war, are unlikely to gain political traction, the panel argues that there is a moral case for these companies to make voluntary contributions. Co-chair Nicholas Stern, a professor at LSE/Grantham Research Institute, emphasizes the moral obligation of energy companies to contribute to climate action. This moral imperative is expected to be emphasized at COP28 and beyond. Additionally, the panel highlights the need for a carbon levy on shipping, which accounts for nearly 3% of global carbon dioxide emissions, and calls for the air transport sector to align itself with the goals of the Paris Agreement.
Insufficient Private Finance and the Role of Development Banks
The report criticizes the dismally low level of private finance in both emerging and developed countries. It also highlights the poor cooperation between development banks and the private sector, with development banks often competing with private finance on projects that are easier to launch. The panel calls for better collaboration and coordination between development banks and the private sector to mobilize the necessary funding for climate action.
The COP28 advisory panel’s recommendations to increase taxes on polluting activities and cut fossil fuel subsidies offer potential solutions to the pressing issue of climate finance. By implementing higher carbon taxes and reallocating existing revenue streams, trillions of dollars could be generated to fund climate action. The urgency for speed and scale in meeting the targets of the Paris Agreement is emphasized, with emerging and developing economies requiring a significant increase in investment. The moral case for oil companies to contribute voluntarily is also highlighted, alongside the need for a carbon levy on shipping and the alignment of the air transport sector with the goals of the Paris Agreement. To achieve these goals, better collaboration between development banks and the private sector is crucial. As governments grapple with rising debts, it is imperative that tangible action is taken to secure the necessary funding to combat climate change.