It’s time for wealthy countries to open the climate finance spigot
World leaders, economists and bankers wrapped up a major meeting in Paris with the goal of designing a new global financial system built for the 21st century and a world struggling to respond to the climate crisis.
The ‘New Global Financing Pact’ was originally inspired by the prime minister of Barbados, Mia Motley, who called for a “green transition that leaves no one behind.” The idea was quickly backed by French president Emmanuel Macron and subsequently endorsed by many world leaders including Joe Biden.
The core topic of the summit was the Bridgetown Initiative (named after the capital of Barbados), which demands that multilateral development banks (MDBs) and the International Monetary Fund (IMF) reform their lending practices, particularly in response to natural disasters. These practices have been described as “imperial” — locking poor and vulnerable countries into toxic debt they can never repay whilst providing preferential terms for new fossil fuel infrastructure that worsens the climate crisis.
Barbados is one of 58 member countries of the Climate Vulnerable Forum, a cohort of nations pushing for major financial reforms and new funding commitments to help the world’s poorest and most at-risk countries respond to worsening impacts caused by climate change (and extractive development).
According to the newly released Climate Vulnerability Monitor (CVM3), poor countries in the Global South have borne the worst impacts of climate change, whilst contributing the least to its underlying cause. And these impacts will increase in frequency and severity in the coming decades, disproportionately affecting the developing world.
Who is responsible?
A major study estimates that loss and damage from climate change will cost developing countries between $290-$580B per year by 2030, rising to more than $1 trillion by 2050. From a moral perspective, the lion’s share of these costs should be provided by wealthy countries as ‘reparations’ to developing countries for loss and damage.
Since 1965, when scientists officially warned governments about climate change, North America and Europe have gone hog wild on fossil fuels, emitting nearly two-thirds of total greenhouse gas emissions to date (705 GtCO2 out of a total 1102 GtCO2 through 2021 to be precise). So it would stand to reason that the Global North owes the Global South.. big time.*
Until very recently, this topic has been off-limits in the UN climate negotiations. Even just a few months ago when John Kerry, the U.S. Special Envoy for Climate, was asked about finance for loss and damage he said, “There is not enough money in any country in the world to actually solve this problem.”
That is debatable… The U.S. alone managed to come up with $2.2 trillion for just the first round of COVID relief by printing money more or less out of thin air. Giving Kerry the benefit of the doubt, let’s agree there isn’t enough money in any one country to pay for loss and damage. However, if wealthy countries were to join forces there certainly is an abundance of capital to be had.
And I’m not talking about voluntary government pledges. Thirteen long years after the COP15 announcement by then Secretary of State Hillary Clinton, the commitment for $100B billion in new annual funds to assist developing countries has not yet been fulfilled. Even if donor countries do reach that goal by 2025, this wouldn’t come close to supplying the funds needed to respond to the crisis at scale.
How do we close the climate finance gap?
Several proposals have been put forward by NGOs and think tanks to meet the urgent need for climate finance. The Climate Damages Tax Coalition (CDTC) has proposed a levy on new fossil fuel extraction at $5/tonne gradually rising to $250/tonne by 2050. If applied globally, this would meet the low-end estimate of $290B per year for loss and damage funds in the Global South.
Another proposal, which seems to be gaining a bit of steam, is a levy on maritime shipping that could generate as much as $60B per year. An additional tax applied to aviation could generate $120B per year. Critics say these taxes would slow the process of decarbonizing the transport sector, but quite the contrary is true if a split-revenue approach were applied (recommended by CDTC) — giving shipping and aviation companies half of the proceeds to directly finance the decarbonization of their fleets.
No doubt these industry-specific proposals would be fought fiercely by corporate lobbyists and armies of morally bankrupt lawyers. If there’s one thing we’ve learned about late-stage neoliberal capitalism, it is that the corporation always seems to win. Twenty years of failing to implement a simple carbon tax should make that clear.
Will the carbon markets help? While both compliance and voluntary carbon markets are growing, they are still far too small currently to have much of an impact. They have also been riddled with accounting and verification problems that erode the credibility necessary for these markets to scale — some credits were even shown to have funded new fossil fuel projects! Perhaps the voluntary market will scale to $50B per year, as suggested by Mark Carney, but much of that will be directed to nature conservation and restoration, which is important but won’t help much on loss and damage.
How about taxing wealthy individuals?
In advance of the Paris summit, a coalition of NGOs released a letter addressed to government leaders in the Global North, now signed by over 150 economists, which calls for an ‘all of the above’ approach to solve the converging crises that now face our planet. The letter offers a three-pronged solution:
- Implement a global “windfall tax” on fossil fuel profits and rapidly phase out fossil fuel subsidies.
- Cancel unfair debts held by Global South countries and end preferential terms for fossil fuel infrastructure projects.
- Tax the rich by levying a global wealth tax on the world’s wealthiest individuals, raising as much as $2.5 trillion per year.
When asked about a global wealth tax President Macron dismissed it, and it wasn’t on the formal agenda of the Financing Pact summit. But the stake has been planted in the ground. Going after the people that accumulated the most wealth in the midst of multiple crises might be the clearest pathway to raising the funds urgently needed — not only for loss and damage but to finance the transition to a zero carbon economy.
In the next post, Could a wealth tax on the Top 0.1% solve the climate crisis? I’ll review the various proposals put forth thus far, and how this could become a defining campaign focus for climate activists over the next five years.
*A recent study examining the “atmospheric appropriation” by Global North countries of the remaining carbon budget puts the estimate at a mind boggling $192 trillion owed to Global South countries.
