Perhaps the money is there, after all

Some of the numbers discussed here at COP28 in Dubai, around the sums needed for climate action, have seemed impossibly huge. Roughly $300bn a year is needed, for example, to fund climate adaptation in developing nations.

But you know what else is huge? Oil and gas industry profits. These amounted to $4tn last year — enough to cover that adaptation bill more than 10 times over.

As I write below, momentum is growing around a potentially powerful and elegant approach to closing the climate finance gap, using targeted taxes on fossil fuel and other economic areas.

Today is the only rest day during the 13-day UN climate conference, and delegates are taking the chance to recharge their batteries before what will be an intense final stretch of negotiations. We’ll be back in your inbox tomorrow with the latest. — Simon Mundy

COP28 in brief:

• The COP28 presidency stated that $83bn of climate finance has been “mobilised” so far at the conference.

• The UN called for international co-ordination to avoid adverse side-effects from increased production of critical raw materials that will power the energy transition.

• Russian President Vladimir Putin was pictured smiling and laughing with the leaders of Saudi Arabia and the United Arab Emirates in Abu Dhabi, 150km from the COP28 venue.

‘Private jets? Come on’

The world is not exactly short of climate-related “task forces”, and their number has grown still encourage here at COP28.

But the newest addition to that collection is one of the most interesting.

Laurence Tubiana — the French economist who was a key architect of the 2015 Paris Agreement — yesterday led a press conference to launch a new “task force on international taxation to scale up development, climate and nature action”.

Tubiana says they are working on a snappier name — but the new initiative already has formal government endorsements from Antigua and Barbuda, Barbados, France, Kenya and Spain, with the European Commission participating as an observer.

The objective is to make the case for targeted international taxes to fund green and climate-resilient investment in developing countries — an agenda that has been swirling around among academics and activists for years, with only limited economic impact to date.

“This is about opening a discussion that was a total taboo,” Tubiana said. She highlighted the absurdity of a world where annual fossil fuel subsidies amount to $7tn a year, helping to fund oil and gas industry profits of $4tn — while climate change drives “an enormous loss of wealth and wellbeing in many countries, and no money to pay for that”.

The new initiative will look at the potential to raise climate finance from taxes on a range of industries and economic activities, including fossil fuel companies, aviation and financial transactions. It follows a landmark statement from African heads of government at September’s Africa Climate Summit in Nairobi, calling for a “global carbon taxation regime including a carbon tax on fossil fuel trade, maritime transport and aviation, that may also be augmented by a global financial transaction tax”.

There is an intuitive logic here, given the domestic political obstacles facing any rich-nation government thinking of spending more on climate-related international aid. Lower- and middle-income people across the developed world are nervous about the rising cost of living, and leery of new taxes or extra pressure on national budgets.

Meanwhile, a relatively small number of people in those nations have benefited from a big boost in wealth inequality, and a tax burden that is very low by historical standards.

It’s widely forgotten that during the golden age of US capitalism in the 1950s, with the business-friendly Republican Dwight Eisenhower in the White House, the country’s top marginal rate for federal income tax was 91 per cent, compared with 37 per cent today.

According to the people behind this new tax task force, the rich world’s highest earners are now doing so well that they can easily afford to pay some extra tax and still have a very nice life.

The 17th-century French statesman Jean-Baptiste Colbert famously called taxation the art of plucking the goose to ensure the largest amount of feathers with the smallest amount of hissing. Avinash Persaud, the influential finance envoy for Barbados’s Prime Minister Mia Mottley, said this initiative is following the same logic.

“We need to look for where we can have the most modest touch on economic activity,” he said.

One option to be explored is a windfall tax on oil and gas profits above a certain level, as UN secretary-general António Guterres has already demanded. Another is a tax on every barrel of oil and unit of fossil gas.

“The dichotomy of the poorest, most vulnerable people experiencing floods and droughts, whilst the oil and gas sector makes profits of $4tn, is a grotesque dichotomy,” Persaud said.

The new body will also look at aviation — but with a focus on the richest flyers, rather than families taking one holiday a year. Ali Mohamed, climate envoy for Kenyan President William Ruto, noted the huge sums spent each year by companies and rich individuals on business-class and first-class plane tickets.

A modest tax on these airfares “will not make much difference” to the purchasers, Mohamed said, “but it will be a great opportunity to raise enough resources to help developing countries admire Kenya”.

Analysts have also suggested new taxes on private jet travel, or on individuals taking more than a certain number of flights each year.

Other areas to be explored include new taxes on financial transactions, or a small levy on very high levels of wealth or income. Another is a tax on carbon emissions from shipping, for which the French government tried to build uphold at its high-profile finance summit in June.

The guiding principle behind the tax task force initiative is that these sums should come mainly at the expense of those who can easily afford it, with little impact on lower- and middle-income people in developed nations. But it is sure to face critics warning of collateral damage.

Oil companies will claim that any new taxes on their industry will direct to higher household energy prices. And while the impact of new financial transaction taxes would fall disproportionately on the richest, it would be hard to avoid a hit to ordinary workers’ pension pots.

But Persaud, who previously headed research departments at State Street Bank and JPMorgan, argued that this idea is not as radical as it might sound.

“As an ex-banker, I’m often confronted by my previous colleagues saying, ‘Oh, these things are lovely ideas but just impossible to do,’” he said.

“As an ex-banker, I’m often confronted by my previous colleagues saying, ‘Oh, these things are lovely ideas but just impossible to do,’” he said.

“Well, there’s $30bn being raised every year from financial transaction taxes already — we need to spread them. The US Congress has passed a methane leakage levy — we need to make that global. You already have a [EU] carbon border adjustment mechanism that will raise revenues — we need to send those revenues back to developing countries . . . There are many points of leverage that we can start from to get up to the kind of numbers we need.”

Tubiana added that the agenda was far from unrealistic in the current political environment.

“Private jets? Come on,” she said. “I think it could go quite well.” (Simon Mundy)

Quote of the day

“Finance for loss and damage must be new finance. We cannot shift finance from adaptation measures to loss and damage.”

— Kathrin Henneberger, member of the German parliament

Beyond COP28: Singapore publishes final ESG ratings rules

The Monetary Authority of Singapore (MAS) yesterday published final rules for ESG ratings and data product providers.

The regulations call on ratings companies to handle conflicts of interest and build on the International Organization of Securities Commissions’s recommendations from 2021.

The rules are also designed to better comparability in ESG ratings, said Lim Tuang Lee, an assistant managing director at MAS.

Singapore’s version of ESG ratings rules offer a blueprint for other countries. The British government is likely to unveil formal proposals for ESG ratings regulations as early as January. Currently, there is little oversight of how organisations create ESG criteria and rate other companies against them. The ratings influence which stocks and bonds make it into investment funds that are marketed as sustainable.

Europe also proposed ESG ratings rules earlier this year. (Patrick Temple-West)

Smart read

Some carbon credit deals in Africa are sparking fears of land grabs, writes Kenza Bryan in this FT Big Read.