Franziska Mager ■ Fight tax abuse for a fighting chance on climate: Reflections on COP28


COP28 came to a close earlier this week. If COP is anything, it is a show, and this time, the show was exceptionally peculiar. The manicured roads of Dubai saw Bugattis and Porsches pass crowds of indigenous climate activists; there were panels on sustainable yachting next door to interventions on the climate damage inflicted by extreme wealth. Behind the Dubai skyline – a city that prides itself on its path to becoming carbon neutral – about 80 kilometers offshore, the Zakum oil field, the third largest in the middle east, extracts about 66 billion barrels oil. Like the climate crisis itself, Dubai is a place of extremes and of contradictions. Last month, Oxfam published research showing that the carbon emissions of the richest 1 percent of people are set to be 22 times greater than the level compatible with the 1.5°C goal of the Paris Agreement in 2030.

So what’s the plan?

Maybe you have shaken your head at the fact that leadership of the world’s most important climate conference was handed to the head of a petrostate in the first place — at the very least, a mildly controversial, at worst, a deliberately Machiavellian decision. You might have heard that countries, until the very last moment of the conference, were negotiating on whether to agree to phasing out fossil fuels, ultimately landing on murky language to “transition away” from them. You may have read that there was breakthrough when it comes to climate finance – the establishment of a Loss and Damage fund, a pot of money, the first of its kind, that pools resources it will dispense to lower income countries especially hard hit by the climate crisis, in order to recover from extreme climate events. The order of magnitude of needed Loss and Damage funding is in the hundreds or billion USD annually and rising – on par with the amount of tax lost every year to multinational corporations and wealthy individuals using tax havens.

Money is at the core of these and all climate policy negotiations: it is hugely expensive to finance the recovery from increasingly common extreme weather events, let alone the sustainable overhaul of a wide number of polluting sectors, and to do so quickly, across widely different contexts. In Germany, a fierce political fight over legislation to replace outdated and polluting heating systems with sustainable, but expensive, heat pumps has been raging. The shipping sector, which produces emissions on a par with countries like Germany or Japan, will likely be slapped with a levy to speed up the transition, but costs are expected to increase more for the poorest countries, which already often pay relatively higher shipping charges. For decades, the aviation industry – worth nearly US$840 billion – has successfully lobbied against a tax on aviation fuels, partly through its leverage over hiking consumer prices. Ahead of COP24 in Poland, Shell, BP, Total, Chevron and Exxon collectively spent US$1 billion on misleading publicity and lobbying ahead of the event. In 2022, floods in Pakistan caused more than US$30 billion in damage, and killed thousands.

Mosaic funding

Where money is at stake, so is tax. Large scale financial contributions from governments, corporations and individuals most responsible for causing the climate crisis is urgently needed, as existing climate finance pledges from historic rich emitters remain unmet, and by virtue of overwhelmingly being issued as loans, lock poorer countries into continued economic dependency.

Loss and damage, let alone adaptation and mitigation all cost huge sums of money – total estimates are in the order of magnitude of trillions of US dollars. The breakthrough Loss and Damage commitments made by some historic polluters at this COP represent a drop in the ocean of what will be needed, and willfully sideline the great need for expensive adaptation and mitigation finance. Overall, there is an increasing recognition that financially, a ‘mosaic’ approach is needed to contend with the order of magnitude of missing money, which no overseas development aid (ODA), government bonds or voluntary pledges alone can fill.

We are at a critical juncture – the role of taxation for climate justice, and the climate finance gap especially, is finally being recognised. It is now on us, as both climate and tax justice activists, to push for the most ambitious and equitable fiscal solutions on offer.

Replaying age old North-South dynamics

In a move that came as a surprise to no one, the IMF used COP28 to underscore the importance of carbon taxes to raise the price of carbon globally, raise revenue and accelerate investment in sustainable activities. This is an implicit admission that tax can in fact do a lot for the climate, but it is painfully unambitious and, when being hailed as a flagship climate policy, can have disastrous equity implications for poorer groups and countries.

The related Carbon Border Adjustment Mechanism the EU passed into action this year results in declines in exports in developing countries in favour of developed countries, which tend to have less carbon intensive production processes. Such carbon taxes, pending their specifics, have been called ‘trade weapons’ by climate activists from the global south.

Meanwhile, rich countries also want to prioritise the further development of voluntary carbon markets, rapidly growing in economic value. But these markets remain self-regulated with little transparency, often resulting in the sale of phantom credits, and primarily benefit the brokers who act as middlemen in the purchase and sale of carbon credits, usually based in the global north, with a dubious record on actual carbon reductions. The market failures are such that in recent times, countries like Papua New Guinea and Honduras have been putting a moratorium on the licensing of new offset projects.

Realising the full potential of tax justice for climate justice

Once one starts thinking about tax and climate together, two things become clear. First, when we talk about the increasing awareness that tax should help fill the climate finance funding cap, we mostly mean measures that could, at least in theory, be implemented within current tax systems and frameworks. Policymakers know this, and this COP, remarkably, saw the launch of a new Global Tax taskforce. The taskforce will consider different tax policies to fund future climate action. Its objective is to identify by the time COP30 in 2025 rolls around what levies or taxes should be introduced at the global level to raise revenue. This is very welcome news, as the war in Ukraine and subsequent rise in energy prices has shown most recently, collecting tax at the corporate level from fossil fuel companies – through windfall and excess profit taxes – was relatively low hanging fruit considering the ease of implementation and high returns.

To quote some numbers, the EU Tax Observatory has found that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33 per cent would have generated around €80 billion in revenue. Other options the taskforce will consider are a tax on wealth. At the individual level, a progressive tax on extreme wealth – which has dire climate consequences – on those individuals with assets worth over US$100 million could generate an estimated US$295 billion annually according to the World Inequality Lab. It will further examine sectoral leives, knowing full well that if all 195 state signatories to the Paris Agreement imposed both a shipping and aviation levy, these levies could generate between US$132–392 billion annually. All proposals under discussion come at the ‘end point’ of any given economic activity – once fossil fuels have been extracted, once wealth has been amassed and container ships and budget airlines have reached their destinations.

But when we point out that the amount of tax lost every year to multinational corporations and wealthy individuals using tax havens is in the hundreds of billions, on par with the amount of money needed each year to cover the estimated cost of climate-induced loss and damage, we want to draw attention to the fact that the way the international tax governance system itself has been set up deprives countries of the revenue they are entitled to for public spending, including critical climate budgets. Curbing abusive profit shifting practices that shrink the amount of corporate tax payable, through the implementation of automatic exchange of financial information between countries, implementing beneficial ownership registers and country by country reporting for multinational companies and unitary taxation of income with a global minimum tax rate are all policies to end tax abuse that will fill domestic budgets.

Changing how we change tax rules

It is critical – and absolutely feasible, with some collective will – to use targeted taxes and levies to fill some of the climate finance gap. But beyond these measures, both movements should focus challenging the international tax order itself, which has limited countries’ abilities – particularly lower income countries – to exercise sovereignty over their tax rights. For the past sixty years, global tax policy development has been largely determined by the OECD, which represents only a minority of rich countries – and which has proven ineffective in curbing the significant tax abuses by multinational companies and high net worth individuals – money that is going missing when it could be spent on climate finance, and so much more. But the tide is turning – history was made last month at the UN when countries adopted by a landslide majority a resolution to begin the process of establishing a framework convention on tax and completely change how global tax rules are decided.

Giving all countries around the world a fighting chance to mitigate and deal with climate breakdown starts with adopting global tax rules that both eliminate tax abuse and fairly distribute tax revenues.

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