Climate action: From pensions to global tax

A significant movement is underway among Britons to disassociate their retirement funds from the fossil fuel sector. A recent poll by DIY investment platform Tillit revealed a striking generational consensus: nearly one-third of all age groups prefer fossil fuel-free pensions. Particularly notable is the stance among the youth, with 40% of 18 to 24-year-olds and 44% of 25 to 34-year-olds actively seeking to avoid such investments. This trend reflects a growing awareness and concern over the environmental impacts linked to fossil fuels.

Despite the clear shift in public sentiment, substantial pension funds continue to be invested in the fossil fuel industry. Research from Friends of the Earth highlighted last year that UK council-run pension schemes hold around £16 billion in these sectors, including investments in new oil and gas exploration. Moreover, an analysis earlier this year pointed out that most major UK pension providers lack robust climate action plans, potentially jeopardising billions in pension savings due to inadequate divestment from fossil fuels.

Sian Sutherland, co-founder of the Plastic Health Council, emphasises the need for greater transparency: “Unknown to many, our hard-earned savings, carefully invested in pensions to protect our old age, are actually funding the destruction of our children’s future. We see it in fossil fuel investments of all kinds – petrochemicals and plastics.”

“We need extreme transparency to avoid this as to date it has been nigh impossible to ensure our savings are being used for good.”

Proposing a new fossil fuel tax to combat climate change

To address the escalating global climate crisis, a groundbreaking proposal has been outlined in the new Climate Damages Tax report. The suggested tax targets major fossil fuel companies in the wealthiest nations, potentially generating substantial funds. Specifically, the report estimates that implementing an extraction levy on these corporations could raise approximately $720 billion (£580bn) by 2030, which would significantly support vulnerable nations struggling with the adverse effects of climate change.

This initiative aligns with the outcomes of the COP28 summit in Dubai, where a new fund was established to assist countries most affected by climate catastrophes. David Hillman, director of the Stamp Out Poverty campaign and a report co-author, asserts 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.”

The proposed tax would start in 2024 within the OECD countries at $5 per tonne of CO2 equivalent, increasing annually, and could integrate smoothly into existing tax frameworks. Notably, even if limited to G7 countries, the tax could still amass over $540 billion for climate initiatives by the decade’s end.

The report is backed by dozens of climate and aid organisations such as Greenpeace, Powershift Africa and Christian Aid.

“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,” said Areeba Hamid, a joint director at Greenpeace UK.

New developments in the global climate finance framework

The Climate Damages Tax report coincides with significant developments in international climate finance. Today the first meeting of the newly-established Loss and Damage Fund Board will take place in Abu Dhabi to deliberate on financing strategies for the fund. This fund was operationalised at COP28, marking a significant achievement, particularly for the summit’s UAE hosts. It began with an initial commitment of approximately $700 million from various governments, aimed at supporting nations most impacted by severe climate-related losses.

Despite this initial success, campaigners emphasise that the current funding is minimal compared to the extensive losses already experienced by vulnerable countries. They argue that a sustainable, long-term financial mechanism is crucial to ensure that the fund can meet ongoing needs effectively.

This discussion is especially timely as Azerbaijan, the host of this year’s COP29 Climate Summit, recently highlighted the urgency of finalising agreements in Baku to enhance climate finance flows to developing economies post-2025. This step is seen as essential to support these nations in their efforts to cope with and mitigate the effects of climate change.

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