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Oil Refinery at Oxymoron. Photo: Wyatt Wellman via Flickr (CC BY-SA).
Oil Refinery at Oxymoron. Photo: Wyatt Wellman via Flickr (CC BY-SA).
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COP21: 'fossil fuel giants must pay carbon tax'

Henner Weithoener

11th December 2015

Campaigners at COP21 in Paris are calling for a new 'upstream' carbon tax to be levied on fossil fuel producers, writes Henner Weithoener, and so send a clear market signal and finance poor countries' compensation for 'loss and damage' caused by climate change.

Climate finance is already inadequate - with a huge gap between what is needed and what is being offered. A new levy on Big Oil, Coal and Gas could unlock some of the objections by rich countries to including loss and damage in a new Paris agreement.

The COP21 (UNFCCC) summit here in Paris is in its final hours. An agreement was meant to be struck today, but now it's only expected tomorrow after a mammoth overnight session - and only if key problems can be resolved.

But now a new idea is circulating that could help break the rich / poor country logjam by unlocking a new source of finance - making Big Oil, King Coal and Gas Giants pay a new global tax on the carbon embodied in the fuel they produce.

One strong point in favour of the tax is that it will be very easy to raise due to the small number of camponies involved. A 2013 report revealed that 63% of the main greenhouse gas going into the atmosphere, carbon dioxide, came from the fuels produced by a mere 90 companies.

Those 90 fossil fuel companies are a roll call of household names, including Chevron, ExxonMobil, Saudi Aramco, BP, Gazprom and Shell. Pressure is growing to work out if and how they, and other smaller fossil fuel producers, can be held financially responsible for the damage their products are causing.

Now the Climate Justice Programme and the Heinrich Boell Foundation are urging that producers should pay a carbon levy on all fossil fuel extraction and mining, with the proceeds going to help pay poorer countries for adapting to climate change and meeting the costs of its impacts.

The idea is attracting widespread interest and support is coming from some unexpected quarters, as reported on The Conversation today. Oleg Deripaska, president of the world's largest aluminium producer Rusal, put the issue in stronger terms, describing the idea of voluntary national emissions commitments (upon which the Paris agreement largely hinges) as "balderdash".

Asked what success would look like from the Paris negotiations, Deripaska replied: "A success [for most people] would be lunch at a nice French banquette with foie gras and oysters. But no, seriously, it is carbon tax or die."

Making fossil fuel producers fund 'loss and damage'

The levy would be applied to both the exploitation and the burning of fossil fuels. If a company was involved in both, it would have to pay the levy only once.

"We propose that a global fossil fuel extraction levy be established and paid into the international Loss and Damage Mechanism", said Julie-Anne Richards of the Climate Justice Programme. "This funding would be used to assist the poorest and most vulnerable communities suffering the worst impacts of climate change. This levy needs to be part of a general phase-out of fossil fuels."

As proposed, carbon majors wouild have to pay US$2 for every tonne of carbon dioxide their products release into the atmosphere. That's much too low to send a strong market signal - economists believe that $20-$30 is needed for that. But even at $2 per tonne, the tax would - based on 2014 production figures - raise $50 billion a year.

The levy is based on a calculation of how much CO2 is released on average from burning a barrel of crude oil (or a tonne of coal, or a cubic metre of natural gas). The CO2 footprint of the drilling or mining itself would not be taken into account.

Compensation to poor, climate vulnerable countries of loss and damage related to climate change is one of the key sticking points at COP21, with rich countries with a long history of carbon pollution

Clear precedents show we can do it

The UNFCCC's Loss and Damage Mechanism emerged from the 2013 climate summit in Warsaw. It is a way to address those climate impacts to which it is impossible to adapt,  including extreme events.

"Climate finance is already inadequate - with a huge gap between what is needed and what is being offered", said Lili Fuhr from the Heinrich Boell Foundation. "A new source of finance from a levy on Big Oil, Coal and Gas could unlock some of the objections by rich countries to including loss and damage in a new Paris agreement."

The Climate Justice Programme is convinced that existing international law, in particular the polluter pays principle, the no harm rule and the right to compensation support such a system.

"Our proposal draws from precedents such as the International Oil Pollution Compensation Funds, the oil spill compensation regime which collects levies from companies that ship oil internationally which are used as compensation after oil spills", said Julie-Anne Richards.

The fossil fuel industry has so far given no reaction to the levy proposal.



Henner Weithöner is a Berlin-based freelance journalist specialising in renewable energy and climate change. He is also a tutor for advanced journalism training, focusing on environmental reporting and online journalism, especially in developing countries.He originally wrote this article for Climate News Network.

Twitter: @weithoener


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