Paris finance meet: Momentum builds for polluter taxes to fund green transition

Paris finance meet: Momentum builds for polluter taxes to fund green transition

Subject: International Relations

Section: International Events

Context:

• The Summit for a New Global Financial Pact was held in Paris to discuss the transformation of global financial architecture. The overarching aim of the summit is to identify financial system reforms for climate and development.

Details:

• At a side event titled How to make polluters pay: Climate finance to support global equity, discussions focused on using the ‘polluter pays principle’ to raise more climate finance for global equity.
• The principle essentially says that those who pollute should also be liable to bear the costs of managing the pollution and compensate affected parties for the damage caused to the environment and human health.
• An estimated $2.4 trillion (Rs 1,96,85,160 crore) per year until 2030 is needed by the developing countries to achieve the tasks set by the Paris climate summit.
• Panellists discussed instruments such as shipping levies, financial transaction taxes, fossil fuel taxes, levies on the export of oil, gas and coal and airline levies.
  • The shipping industry emits 2.9 per cent of the total global GHG emissions currently. However, the industry has managed to escape taxation as the high seas do not fall under the jurisdiction of any single country’s government.
  • There is a high chance that the IMO will introduce a shipping levy of $100 per tonne of carbon dioxide, which will raise approximately $60-70 billion per year, a part of these revenues must go towards the loss and damage fund.
• Airline levy can be applied also.
  • It would be similar to the airline levy that France instituted in 2006, which raised proceeds for an HIV/AIDS fund.
• Fossil fuel companies should be taxed as part of the polluter pays principle.
• Research estimates that climate damage caused by fossil fuel companies is around $209 billion.

Climate financing by Multilateral Development Bank (MDB):

• Multilateral development banks like the World Bank are expected to find $200 billion in extra firepower for low-income economies by taking on more risk.
• China – the world’s largest bilateral creditor – has been pushing for lenders like the World Bank or the IMF to absorb some of the losses, which the institutions and Western countries oppose.
• Bridgetown initiative:
  • The Bridgetown Initiative is a proposal to reform the world of development finance, particularly how rich countries help poor countries cope with and adapt to climate change.
  • Barbados sets out three key steps in the Bridgetown Initiative.
    • The first involves changing some of the terms around how funding is loaned and repaid. The aim is to stop developing nations from spiralling into a debt crisis when their borrowing is forced up by successive disasters like floods, droughts and storms.
    • Secondly, Barbados asks for development banks to lend an additional $1 trillion to developing nations for climate resilience.
    • The third step is to set up a new mechanism – with private-sector backing – to fund climate mitigation and reconstruction after a climate disaster.