data/The_Case_for_Solidarity_Levies/The Case for Solidarity Levies.txt

During COP 28 in Dubai (UAE) in November 2023, the Global Solidarity Levies Task Force was launched with an aim to explore feasible, scalable, and sensible options for climate levies. Co-chaired by Barbados, France, and Kenya, it also aims to foster political will around options for progressive levies to support climate and development action, and to bring together coalitions of willing countries to become frontrunners for implementing specific progressive levy options.

The Task Force recently released its progress report, “Scaling Solidarity: Progress on Global Solidarity Levies,” at COP29 (Baku, Azerbaijan), unveiling options for a range of new solidarity levies to bridge the global climate finance gap.

While commenting on the need for such levies, Prof. Laurence Tubiana, co-lead of the Global Solidarity Levies Task Force Secretariat, opines:
“One of the founding pillars of the Paris Agreement is financial solidarity between developed and developing countries. Such solidarity makes it possible for all countries to gradually raise their national ambitions to achieve the goal of limiting temperature rise to 1.5°C. However, there can be no climate justice without fiscal justice, as all countries are facing the same challenge: how to fund the transition while ensuring that those with the greatest means and the highest emissions pay their fair share.”

The aim of the Global Solidarity Levies Task Force is clear: between now and COP30 in Belem (Brazil), they want to put forward concrete options for global solidarity levies to provide new, predictable, stable, and concessional sources of finance.

Below are extracts from its latest reports on the options being discussed and estimates about how much could be raised.

Shipping
The IMF recently estimated pricing on international shipping and aviation could raise up to 200 billion a year in revenues by 2035. Even a partial redistribution would provide a large source of predictable climate finance to developing countries, in complement to ODA flows, without amplifying existing debt burdens. The levy that could be closest to being agreed is for shipping, responsible for around 3.0 percent of global emissions, with governments set to debate a series of measures at a meeting of the International Maritime Organization in April next.

Models for a levy include a Pacific islands and Caribbean proposal for a flat rate of $150/tonne of carbon dioxide equivalent (CO₂), rising every five years. The European Union and Japan favor a levy of $100/tonne in 2027, while countries including Bahamas and Liberia have proposed an initial flat rate of about $18.75/tonne.

Potential revenue generation
According to an impact study by UNCTAD, a well-to-wake levy of 150-300 per tonne of CO₂ could collect up to 127 billion a year in 2027-2030, while revenues would average 103 billion in 2031-2040 and 36 billion in 2041-2050. A well-to-wake levy at 30-120 a tonne would collect 36 billion a year in 2027-2030 and 47 billion and 13 billion in 2031-2040 and 2041-2050, respectively. In a scenario of full decarbonization by 2050, revenues from a 100 per tonne of CO₂ could amount to over 60 billion per year, according to the World Bank.

b. Aviation
Aviation accounts for 2.0 percent of global emissions yet is usually free of value-added tax (VAT) or sales taxes. Levies being discussed by the GSLT include kerosene fuel, private jet fuel, luxury tickets, and frequent flyers, which together could generate $19 billion to $164 billion a year.

Around 29 countries already tax aviation fuel through excise duties, carbon levies, or emission permits. The average price among G20 countries in 2021 was $9.5 per tonne. Hurdles to a broader tax include ensuring a level playing field for industry players and overcoming legal barriers.

Potential revenue generation
According to the ICCT, a levy of $30 on economy seats and $120 on premium class seats with global coverage on domestic and international flights would raise $164 billion per year with global coverage on domestic and international flights, and $58 billion per year when applied only to high-income countries and only international flights.

c. Fossil fuels
Countries already impose levies on fossil fuels, including indirectly when gasoline is bought at the pump, through VAT, carbon taxes, or emissions trading schemes, or via royalties or taxes on oil companies. Revenues could be generated in the future through a levy on extraction or “windfall” taxes on energy company profits.

A 'Climate Damages Tax' of $5/tonne extracted in 2024
would generate an estimated $216 billion, a Greenpeace report this year said.

An ActionAid report said a 50 percent tax on the windfall profits of the biggest 14 fossil fuel companies by market value in the two years to July 2023 would have generated around $173 billion.

Potential revenue generation
a. Extraction levy: The Climate Damages Tax proposal proposes a $5 fee per tonne of CO₂e on the extraction of fossil fuels. Envisioning the implementation of the tax in 2024 with a yearly price increase of $5 per tonne of CO₂e, it is estimated to generate $3.5 trillion between 2024 and 2030 if implemented globally, $900 billion if implemented by OECD countries, and $675 billion if implemented by the G7.

b. Windfall profits: According to ActionAid, a 50-90% tax on windfall profits of the biggest 36 fossil fuel companies between July 2021 and July 2023 globally would have raised between $212 and $382 billion. 

d. Financial transactions
More than 30 countries have some form of levy on financial transactions, including Britain, France, Italy, and Spain, although agreeing on a cross-border levy has proved tough.

Potential revenue generation:
The estimated revenues of a financial transaction tax are significant. A 0.1% rate on stocks and bonds instruments and a 0.01% rate on transactions of derivatives globally would raise between $237.9–418.8 billion annually, depending on the level of market reaction and evasion, according to the Austrian Institute of Economic Research.

e. Carbon
There are currently 75 carbon pricing mechanisms across 83 jurisdictions, of which 36 are structured as emissions trading systems (ETS) and 39 as carbon taxes. In total, they cover 24 percent of global emissions. But most are priced more cheaply than the $40–$80 a tonne needed to keep the world on track to rein in global warming, due to political concern about the impact on households and businesses.

A plan proposed by the International Monetary Fund would see countries agree on a minimum price of $50 a tonne, or $25, $50, and $75 a tonne, varying with the stage of a country’s development. Another option could be to link up existing trading schemes.

Potential revenue generation:
Total revenues from carbon taxes and ETS in 2023 were $104 billion. ETS account for over 70% of global government carbon pricing revenues. Over half of the revenue collected in 2023 was used to fund climate- and nature-related programs. A $50 carbon price could raise about 0.5–2% of GDP in 2030.

f. Wealth
The Group of 20 largest economies this year discussed whether to raise taxes on the super-rich. A report backed by current G20 leader Brazil proposed a global minimum tax of 2 percent of wealth for the world’s roughly 3,000 dollar-billionaires, to raise about $250 billion a year. Other options could include changing the threshold at which the tax kicks in and the rate at which it is applied.

g. Crypto
The report cites research by the International Monetary Fund (IMF) that settles on $0.045 per kWh as the amount needed for a corrective tax to make up for the impact crypto mining has on the climate, based on the consequences of the greenhouse gas emissions causing climate change and exacerbating disasters, including storms, droughts, and wildfires.

Taking into account other kinds of air pollution from burning fossil fuels, that tax rises to $0.085 per kWh. Cryptocurrencies such as Bitcoin are created by computation power driven by energy usage, which creates emissions.

In 2022, Kazakhstan moved to charge crypto miners between 1 and 25 Tenge ($0.002–0.056) per kilowatt hour. A global tax on electricity use of $0.045 per kWh could raise $5.2 billion, the IMF has estimated.

A levy on crypto trading at 0.1% could raise $15.8 billion, while a capital gains tax of 20% could raise up to $323 billion, IMF research shows.

Potential revenue generation:
Revenue potential from a levy on cryptocurrency transactions could be in the tens of billions annually, potentially varying from $15.8 billion for a 0.1% financial transaction tax to up to $323 billion for an accrual-based capital gains tax of 20% in a boom year, according to the IMF. Alternatively, a specific tax on the electricity use of crypto miners of $0.045 per kWh would reduce cryptocurrency-associated carbon by around 45% and generate revenue of $5.2 billion globally.

Conclusion
When it comes to additional sources of finance, experts often allude to “innovative finance.” In the case of global solidarity levies, the only innovation required is ambitious leadership across a sufficient base of countries. Let the tenth anniversary of the Paris climate agreement next year be remembered as the moment when we came together as a global community to implement solidarity levies, providing the financial tools necessary to meet the great challenge of our time.