A guide to what it is and how it works.

Executive Summary

Introduction

There is a price for heating up the planet. Currently it is borne to a vast extent by the populations affected by ever-intensifying climate impacts. To date, the fossil fuel producers have gotten away with not paying. Yet their products are the root cause of the crisis. The Climate Damages Tax (CDT) proposal, underpinned by the ‘Polluter Pays’ principle, makes the case that it is high time for the producers to bear a substantial proportion of the costs for losses and damages that result from the burning of fossil fuels.

At the heart of the CDT proposition is the demand for redistributive justice. Those with the greatest historical responsibility for causing climate change, now need to pay for its consequences. At the UN conference, COP27, in November 2022, the demands of loss and damage-impacted communities were finally recognized in the historic agreement to establish a Loss and Damage Fund (LDF). This was followed in quick succession by the landmark agreement to operationalize the Fund at COP28. It is our contention that developed countries can raise a considerable part of the amount that needs to be contributed to the LDF through greater taxation of the fossil fuel industry by implementing measures such as the CDT.

Loss and Damage

By way of example, we consider the devastating floods in Pakistan in 2022, which were attributed to human-induced climate change. These floods resulted in significant loss and damage, with estimated damages exceeding $14.9 billion and economic losses of $15.2 billion. The floods affected 33 million people, caused over 1,700 deaths, and had a disproportionate impact on the poorest and most vulnerable districts. In response, Pakistan launched a pledging drive, but 90% of the funds raised were in the form of loans, increasing the economic burden on the country at the worst possible time. Had the LDF been in existence and sufficiently funded, Pakistan could have applied for no-cost funds for the reconstruction and recovery of their severely impacted communities in a timely manner with a considerably better qualitative outcome for much of the population.

Responsibilities and Respective Capabilities (CBDR-RC) are seen as most able to provide finance to the LDF – to help pay for their contributions, without unfairly costing their citizens. Secondly, it will generate a significant ‘domestic dividend’ that can be channeled to climate action nationally, helping to pay for the necessary support for workers and communities to transition away from fossil fuels, towards green energy and transport.