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Document Abstract
Published: 2016

Making a killing: who pays the real costs of Big Oil, Coal and Gas?

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The single biggest cause of climate change is burning fossil fuels. The Carbon Majors - who include big coal, oil and gas - have extracted fossil fuels responsible for roughly two thirds of climate change pollution. This paper proposes a Carbon Levy - a global levy on all fossil fuel extraction, to be paid into an international Loss and Damage Mechanism to help the most vulnerable facing the worst impacts of climate change.
 
Climate finance is already inadequate, with a huge gap between what is needed and what is provided. The costs of climate change are currently falling upon the poorest and most vulnerable, while the fossil fuel industry makes trillions of dollars in profit.

A Carbon Levy would provide a new source of finance - additional to aid budgets - that could help to fill the climate finance gap.

The Carbon Levy proposal draws from precedents such as the IOPC, the oil spill compensation regime, which collects levies from companies that ship oil internationally to use as compensation in the incidence of oil spills.

Whilst these precedents are imperfect, they exist in other areas. The Carbon Levy proposal offers an improved version.

The Carbon Levy would apply to all coal, oil and gas extracted - regardless of who is extracting it, or whether it is a company or a state-owned corporation. This document proposes that the Levy could start at a low level of roughly $2 a tonne of CO2e, in order to raise $50bn a year initially. This would need to increase at 5-10% each year, as the costs of loss and damage increase

The funds should be transmitted directly to the international mechanism for loss and damage (or its financial body), and this body would decide how to use the funds to best support vulnerable developing countries and poor communities facing loss and damage from climate change.  It might use them to pay for insurance premiums, to fund research, or to pay for reconstruction or relocation. 

In order to ensure the application of the Carbon Levy is equitable, countries at a low level of responsibility and capability would be able to keep any levy that is applied to fossil fuels extracted within their borders for domestic climate change use. This would not necessarily rule out them applying for further funds from the international mechanism for loss and damage.

The Carbon Levy has the advantage of tapping a new source of finance that does not come from Treasuries.  Progress on loss and damage has been slow, in large part because rich countries have objected to the idea of paying for it.

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Authors

J.-A. Richards; K. Boom

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