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Franziska Mager, Sergio Chaparro-Hernandez ■ Bonn Climate Change conference again shows climate finance needs better tax governance. Start with harmful incentives.

An airplane wing over a sea dotted with many cargo ships in the daytime

Governments around the world pander to corporations in particularly polluting industries, effectively subsidising their carbon emissions and environmental degradation through extreme tax incentives.

Today, the Tax Justice Network launches a new report laying out in detail how corporate tax incentives undermine climate justice. We provide qualitative evidence of the prevalence of tax incentives in two particularly polluting sectors – shipping and extractives. In the absence of an effective global corporate minimum tax rate, and resulting from entrenched, decades old unjust power dynamics in global tax governance, we show how these incentives forgo critical public revenue needed to fill the climate finance gap. This revenue is important particularly for the most climate vulnerable communities in the global south – countries that at baseline already relatively suffer the most from global tax abuse.

Tax justice is climate justice

As we have laid out in our position paper, climate and tax justice are intimately linked: both movements aim to redress deeply discriminatory practices and inequalities upheld by a minority – of countries, and of people – at the expense of everyone else. The polluter pays principle is at the core of this link: those who emit more should pay for the negative impacts they create. But as we show, when many of the laws and loopholes that exist in corporate taxation are utilised by, or even exclusively applicable to polluting sectors, those who emit more can and do pay much less – a direct contradiction of the principle. Nevertheless, both the tax and climate justice movements mostly operate alongside each other, rather than together. But climate justice advocates would be hugely empowered by greater knowledge of the ins and outs of corporate tax policy and how it so deeply affects crucial climate outcomes. Tax incentives are just one, low hanging example.

Mass scale incentives for polluting sectors

Tax incentives are changes to the tax rules that reduce what individuals or companies are liable to pay, thus providing an economic benefit. They are sometimes made available only to specific groups of people or sectors. Based on our Corporate Tax Haven Index, we show that many countries offer tax incentives specifically to two of the world’s most polluting sectors: shipping and extractives. Shipping currently represents about 3% of global greenhouse gas emissions, on par with aviation. Worryingly it is projected to grow to up to 10% of global emissions by 2050. The vast, diverse and ever growing extractives industry – with China at the forefront – is estimated to produce up to 15% of global greenhouse gas emissions.

Our analysis finds that incentives are widespread in the shipping and extractives sectors. They include tax rates of effectively zero per cent for shipping operators, and pervasive tonnage tax regimes, some of which extend to extractives activities like deep sea drilling. Corporate tax havens love polluting multinationals, and are heavily implicated in undermining the polluter pays principle by helping these companies increase their profitability through profit shifting.

Many countries also offer incentives for companies operating in the extractives industries, including fossil fuel companies. This includes countries that aren’t themselves resource rich. Illegal fishing, logging and mining are plunged into further secrecy through different levels of exemptions of corporate income, sometimes shrouded behind Special Economic Zones, thus further reducing the accountability of these sectors. 

Challenges and solutions

Harmful tax incentives for polluting industries speak to two particular challenges of tax-for-climate we previously identified.

Firstly, governments are depriving themselves of badly needed public revenue in the billions of dollars. As we argue in the report, the Global Anti Base Erosion (GloBE) Rules under the OECD’s Pillar Two recommendations, with the new minimum effective global corporate tax rate of 15% is anything but a solution for this problem and leaves loopholes and incentives in place. Luckily, there are more ambitious proposals for an alternative global minimum tax rate such as the one by the South Centre. For example, countries can pursue an alternative, effective global tax rate by acting in regional groupings and unilaterally, including revisiting tonnage tax regimes.

Second, the prevalence and nature of harmful tax incentives are emblematic of deep structural inequalities in global tax governance. This system is heavily shaped by OECD leadership. Marked by exclusionary and opaque leadership, which negates countries’ sovereignty over their taxing rights – especially in the global south – the OECD has been unable to structurally reform its own global tax rules, and to significantly curb tax abuse. Only a democratic revolution in tax rule-making can shake up the existing system under which governments effectively collude with polluting corporations and continuously subsidise them through mass-scale tax incentives. Fortunately, this revolution is currently underway at the UN where countries are negotiating a game-changing UN framework convention on tax.

The astronomical cost of tax incentives – both financial and moral – is nothing new.

Locked in a race to the bottom, and under the false economy of staying “competitive” for investments, governments have been knowingly giving up revenue at mass scale through. They pander to corporate powers that are major culprits in the climate crisis – caught greenwashing and lying over and over again, and litigating aggressively when they believe their profits are endangered through environmental legislation, in barely disguised contempt of the polluter pays principle. Financial grooming, threatening, gaslighting – it all sounds very much like the worlds’ worst toxic relationship. 

Bonn Climate Change Conference brings broken tax rules into sharp focus

When governments systematically fail to use effective, progressive tax policy to help fill their budgets, it is no wonder that austerity policies are widespread. It is also no wonder that the worst polluters – both historic and current – don’t seem to like the idea of paying for their harmful climate impacts very much at all.  

The just concluded, bitter and ultimately fruitless negotiations at the Bonn Climate Change conference over climate finance commitments show how unwilling high income countries are to provide climate compensations for the global south, especially in the form of Loss and Damage funding. As one analysis put it, “developed countries have sought to focus the talks on the many ‘layers’ of finance that they see making up the final goal. They emphasize that this needs to be agreed before a number can be picked.” Rich countries stall a financial commitment in the form of unconditional climate payouts. Their “layers” instead include private finance, loans, domestic resource mobilisation and carbon markets. Perhaps holding up a mirror to their own failures, they refuse to realise what mobilising corporate tax income could do for climate finance – and public services in their own backyard.

The role of the ongoing UN tax convention process

Luckily, global tax governance is at a major inflection point. Over the past sixty years, and without a democratically agreed mandate, the OECD has positioned itself as the de facto standard setting body on international tax matters. But last year, and after a long struggle by Global South countries and civil society organisations, a once-in-a-century opportunity has emerged for international tax governance to be defined in a truly inclusive universal forum. A landslide majority of countries – home to 80 per cent of the global population – voted last year in favour of starting negotiations on a United Nations Framework Convention on International Tax Cooperation (UNFCITC). For the first time, all countries can work together on an equal footing to set the parameters for the negotiation of a legitimate binding instrument governing international tax cooperation. As our report shows, this is essential to address the fallout from the climate crisis, and to work towards achieving the Sustainable Development Goals.

The UN framework convention on tax can be an opportunity to establish standards that prevent tax incentives from being used as harmful tax competition tools, which erode the tax base and subsidise the burning of the planet. These standards should also be aligned with other agendas adopted within the UN, including the Framework Convention on Climate Change and the Paris Agreement. Any standards on tax incentives should firmly establish that no profits-based tax incentives should be granted to the most polluting sectors, including shipping and extractives – and especially the fossil fuel industry. The framework should ensure that tax advantages are only available upon proof of mitigation or eradication of environmental externalities. In short, the framework convention is a chance to enshrine the polluter pays principle as well as common but differentiated responsibilities and thus the put the spotlight on those most responsible for both historic and current emissions, and global tax abuse.


Recent years have seen unprecedented demand for action from countries around the world to address both climate crisis and global tax abuse. Economically and morally unjustified incentives and exemptions to existing tax rules granted to multinational corporations are key in this fight.

For a hope of success, and along with harmful fossil fuel subsidies and large-scale decarbonisation efforts, the tax justice and the climate justice movements need to call for ending morally bankrupt tax incentives that fuel the climate crisis.

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