A TAX on the extraction of fossil fuels in the world’s richest advanced economies could raise $720 billion by the end of the decade to support the world’s most vulnerable facing climate damages, a new report has revealed.

The Climate Damages Tax report is backed by over 100 climate organisations worldwide including Greenpeace, Stamp Out Poverty, Power Shift Africa and Christian Aid. It proposes that OECD countries, in particular members of the G7, lead in introducing a fee per tonne of CO2 embedded (CO2e) within the domestic extraction of coal, oil and gas.

The report argues for the bulk of the proceeds (80 per cent) to be transferred to the newly established Loss and Damage Fund for assisting developing countries in their response to climate losses and damages. However, 20 per cent – equating to $180 billion by 2030 – could be reserved as a ‘domestic dividend’ to support communities with the climate transition in countries where the tax is imposed. The tax could be easily administered within existing systems of royalty payments or similar that fossil fuel companies already have to pay in the states where they operate.

The Loss and Damage Fund was operationalised by world leaders at COP28 in Dubai, but the $700 million pledged so far has been estimated to equate to less than 0.2 per cent of the irreversible economic and non-economic losses developing countries are facing from global heating every year. A significant proportion of global emissions can be attributed to a small number of fossil fuel producers, who have avoided paying for the rapidly growing costs of intensifying climate impacts even while their profits have rocketed.

As well as generating much-needed funds to help countries least responsible for the climate crisis to cope with the costs, the tax would help accelerate the phase-out of fossil fuels by making their production more expensive through progressively ratcheting up the proposed tax rate each year. Equally, the proposed domestic dividend would ensure that workers and communities in developed countries also benefitted from the tax to ensure a just transition towards renewable energy and other green infrastructure.

If introduced in OECD countries in 2024 at a low initial rate of $5 per tonne of CO2e and increasing by $5 per tonne each year, the tax would raise a total of $900 billion by 2030, equating to $720 billion for the Loss and Damage Fund and a $180 billion domestic dividend. By way of example, the total sum raised by 2030 could pay for rebuilding and recovery from the damage caused by Cyclone Freddy, which displaced over half a million people in Southern Africa in 2023, more than 1300 times over.

The report’s release comes as ministers gather at the G7 Climate, Energy and Environment Ministers meeting in Turin, Italy. According to the report, if introduced solely in G7 states, where a considerable number of international oil and gas companies are based, the climate damages tax could raise $540 billion for the Loss and Damage Fund by the end of the decade, with a $135 billion domestic dividend for national climate action across the G7.

David Hillman, Director of Stamp Out Poverty and co-author of the report with Dr Sindra Sharma, said: “Finally, the international community has agreed to financial support for people at the sharp end of catastrophic climate change. It would be unforgivable if they fail to deliver the money needed. The Climate Damages Tax paper shows that the funds are there. It demonstrates that the richest, most economically powerful countries, with the greatest historical responsibility for climate change, need look no further than their fossil fuel industries to collect tens of billions a year in extra income by taxing them far more rigorously. This is surely the fairest way to boost revenues for the Loss and Damage Fund to ensure that it is sufficiently financed as to be fit for purpose.”

Areeba Hamid, Joint Executive Director at Greenpeace UK, said: “From crippling drought in Southern Africa to deadly floods in Pakistan and Afghanistan, extreme weather is claiming lives and causing catastrophic damage around the world. But while communities that have contributed least to the crisis find themselves on its frontlines – and households across Europe struggle with sky high energy bills – the fossil fuel industry continues to rake in massive profits with no accountability for its historic and ongoing impact on our climate.

“Governments cannot continue to sit back and let ordinary people pick up the bill for climate change while companies like Shell and BP line their pockets and cash in on high energy prices. We need concerted global leadership to force the fossil fuel industry to stop drilling and start paying for the damage they are causing around the world. A Climate Damages Tax would be a powerful tool to help achieve both aims: unlocking hundreds of billions of funding for those at the sharp end of the climate crisis while helping accelerate a rapid and just transition away from fossil fuels around the world.”

Colin Besaans from Power Shift Africa, said: “Despite being the main cause of the climate crisis, the fossil fuel industry has avoided responsibility for decades. Most global policy has remained focused on demand-side emissions reduction efforts for end users, while leaving the concentrated power of the fossil fuel suppliers largely untouched. In fact, rather than meaningful taxation, the fossil fuel industry has continued to enjoy government subsidies to the tune of billions of dollars globally. The Climate Damage Tax proposal is a crucial effort to help turn this unsustainable tide by squarely recognising the responsibility for polluters to pay for the problem they create, perpetuate, and profit from. We need to see fossil fuels phased out completely – strong and ratcheting taxation of the industry can help us get there.”

* Read: The Climate Damages Tax: A guide to what it is and how it works here.

* Source: Greenpeace UK