The Arab Group wants developed countries to put a 5% sales tax on their technology, fashion and defence firms to fund green spending
Developing countries want rich nations to give them hundreds of billions of dollars for climate action, suggesting this could be raised by taxing defence, technology and fashion companies, as well as financial transactions.
At UN talks on a new post-2025 climate finance goal in the German city of Bonn, the umbrella group for 134 developing countries said wealthy governments could raise $1.1 trillion a year, needed by poorer nations to curb emissions, adapt to climate change and deal with the damage it causes.
An unpublished position paper by the G77+China, seen by Climate Home, maintains that rich countries would “only” need to spend 0.8% of their GDP per year to raise $441 billion. That would mobilise enough private finance to reach $1.1 trillion a year, it adds.
It notes that 0.8% of GDP is much less than the 6.9% of GDP developing countries currently spend paying interest on their debt.
The paper says developed countries can raise $441 billion “without compromising spending on other priorities entirely by adopting targeted domestic measures” such as a “financial transaction tax”, a defence company tax, a fashion tax and a “Big Tech Monopoly Tax”.
It argues that “the matter in question is not whether the resources exist, it is whether there is political will to prioritise climate change”.
Bolivian negotiator Diego Pacheco, who often speaks for the influential Like-Minded Developing Countries group, told Climate Home that rich countries were trying to pass their responsibility to provide climate finance onto the private sector and development banks that mainly offer loans.
“The [argument of a] lack of public finance is not true,” he said. “There is a lot of finance available and political will is lacking.”
He suggested that developed countries should shift military budgets towards tackling climate change or tax luxury products “because luxurious patterns of consumption are also a driver of the climate crisis”.
Innovative sources
Referring to the document in talks on the new finance goal yesterday, Saudi Arabia’s negotiator justified a tax on arms manufacturers by saying that military emissions of planet-heating gases represent 5% of global historical emissions.
“One… potential idea is to have a tax on defence companies in developed countries,” he said, suggesting it could be put forward. “We also realise that a financial transaction tax can actually generate a lot of revenue as well.”
At the COP28 climate summit last November, France and Kenya launched a taskforce to look into innovative levies that could raise money for climate action. They said they planned to examine taxes on international shipping – which has already agreed to introduce one – aviation, fossil fuels and financial transactions but did not refer to fashion, technology or defence companies.
Global brands targeted
According to the document, a financial transaction tax would raise about $240 billion a year over a decade through a 0.5% tax on trades, 0.1% on bonds and 0.005% on derivatives “only for Wall Street”.
About $57 billion a year could be raised from a 5% tax on the annual sales of the top seven technology firms, it says. Those would include Amazon, Apple and Google. “The ‘Big Tech’ firms hold a global monopoly on technologies, upon which developing countries have been reliant,” the paper argues.
About $34 billion a year could come from a 5% tax on the annual sales of the roughly 80 top fashion firms in developed countries, it says. This would hit brands like Louis Vuitton, Dior and Nike.
The G77+China group adds that the fashion sector comes behind only fossil fuels and agriculture in the size of its emissions – “however, unlike fossil fuels and agriculture, high-end brands are not critical for food and energy security”.
Around $21 billion a year could come from a 5% tax on the annual sales of the top 80 defense firms in developed countries, the paper says. This would include US firms like Lockheed Martin, Northrop Grumman and Boeing, the UK’s BAE Systems and France’s Thales.
All these measures would result in finance flows mainly from developed to developing countries, the document notes, except for the technology tax where “flows would be mixed as consumer[s] would shoulder the cost”.
Quality – not just quantity – matters in the new climate finance goal
Pacheco said the proposals originated within the Arab Group, before winning support from the wider G77+China group. Developed countries have yet to publicly respond to the ideas.
Under the UN climate change process, the group of developed countries defined back in 1992 have so far had the sole responsibility to provide climate finance to developing nations.
Developed-country governments are now pushing hard to change this, so that wealthier and high-emitting developing countries like Saudi Arabia would also contribute towards the new post-2025 finance goal.
This is one of the divisive issues government negotiators will wrangle over this week and next in Bonn to prepare the ground for an expected agreement on the finance goal at COP29 in Baku in November.
(Reporting by Joe Lo; editing by Megan Rowling)