Billionaires, fossil fuels and the future of climate finance

A recent study suggests that some of the world’s richest countries could raise about $5 trillion each year to finance climate change through taxes on windfall profits from fossil fuels, an end to harmful subsidies and a wealth tax on billionaires. New testspublished in September by Oil Change International, shows that wealthy countries around the world have the potential to raise about five times as much money as low-income countries request to finance climate change. Developing countries asked for it at least $1 trillion annually in public funds supporting their decarbonization efforts and responding to extreme weather events. However, to date, high-income countries have not offered anywhere near the level of financial resources to support the global ecological transition. Most financing comes in the form of low-interest loans from the World Bank and other financial institutions, rather than investments that are urgently needed to combat climate change.

As the current leader of the G20, Brazil encourages member states to introduce: 2% wealth tax for billionaires to help finance the global ecological transition. This type of wealth tax could help raise $483 billion globally, and a financial transaction tax could generate another $327 billion. Additional taxes could help raise even more funds, for example from sales of big technologies, weapons and luxury fashion, which would amount to about $112 billion. Redistributing 20 percent of public military spending around the world could add another $454 billion.

While taxing the rich could help raise funds, simply ending subsidies for some of the most polluting forms of energy could help provide a further $270 billion from rich countries and $846 billion if applied globally. In total, Oil Change estimates that rich countries could raise about $5.3 trillion to finance climate change efforts. This amount could be even higher if high-income countries introduced more radical fiscal measures, which has happened before during emergency periods. For example, during the Covid-19 pandemic, countries deployed $16 trillion in public Covid-19 stimulus in 2020.

Laurie van der Burg, director of public finance at Oil Change International, he stated“Last year, countries agreed to phase out fossil fuels. It’s time for rich countries to pay up and turn this promise into action. Rich countries have no shortage of public resources that could make their fair share of climate action, both at home and abroad. They can unlock trillions in subsidies and grant-equivalent climate finance by eliminating fossil fuel subsidies, making polluters pay and changing unfair financial rules.”

While there is significant potential to increase high levels of climate finance, Oil Change emphasizes that the pace and ambition of the policy reform being considered is yet to be determined

ambitious enough to unlock the scale of public funds presented in the report. The organization says deeper multi-stakeholder cooperation is needed between governments advocating for these demands and combining fair finance and climate action agendas at a global level to help unlock the funds.

The study results were published ahead of the COP29 climate summit, which will be held in November in Azerbaijan. At previous COPs, many developing countries expressed the need for more financing from high-income countries to reduce their dependence on fossil fuels, increase their renewable energy capacity and reduce the risk of climate disasters. In mid-September, the leadership of Azerbaijan presented his plans for the climate summit. One of the main goals is to establish new annual funding objective that rich countries will contribute to helping poorer countries cope with climate change.

But countries do so far I couldn’t agree more on the amount of funding they will offer to low-income countries to combat climate change. In July, Azerbaijan announced plans to establish it $1 billion fund supporting some of the countries most affected by climate change in combating its effects, as well as in developing their green energy potential. The biggest obstacle to raising funds is that contributions will be voluntary and there are no plans to introduce a mechanism forcing fossil fuel producers to make payments, despite growing pressure from environmentalists for such a move.

Many developing countries say they cannot set a more ambitious climate goals without more financial support from rich countries. Over 120 countries participated in COP28 in Dubai last year he promised tripling renewable energy capacity by 2030. However, this will be a drop in the ocean if developing countries do not receive more support in the same area.

Many low-income countries are undergoing industrialization, which is increasing greenhouse gas emissions. This is especially true in countries like Guyana and Namibia, which are seeing rapid growth development of its oil and gas sectors. The organization hopes Oil Change’s research will provide a clear path for climate fundraising and encourage rich countries to continue their efforts to support the global green transition ahead of COP29.

Author: Felicity Bradstock for Oilprice.com

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