COP29: New taxes planned for private aviation, cryptocurrency and the ultra-wealthy

This 29ᵉ edition, dubbed the ‘finance COP’, focuses on boosting financial resources to combat climate change, estimated to need 1,300 billion dollars by 2035, according to Euronews. The disparities in carbon emissions are striking: the wealthiest 1% produce as many emissions as the poorest 66% put together. This finding has prompted COP29 negotiators to turn their attention to the most polluting and lucrative industries, such as aviation, shipping and fossil fuel extraction.

In 2023, a working group on solidarity taxes, led by France, Kenya, and Barbados, was launched to study the potential of taxes on these sectors. These taxes would not only make it possible to finance climate actions but also limit polluting practices by creating economic incentives to reduce CO2 emissions.

The working group's initial ‘assessment of the current situation and options for consideration’ were set out in a report published on Thursday 14 November. Aviation, which currently benefits from substantial tax exemptions, particularly on paraffin, is in the firing line. A draft tax proposal includes: A paraffin charge for global and private aviation (33 euro cents per litre). An optional tax on economy class tickets (30 dollars per seat) and a compulsory tax on ‘luxury’ flights (120 dollars per seat). A tax on frequent flights (9 dollars on the second flight and 177 dollars on the twentieth trip made in the same year). These measures could bring in around 140 billion dollars a year, while encouraging airlines to reduce their CO2 emissions.

The second aspect is the taxation of the ultra-rich (UHNWI) and cryptocurrencies. At the instigation of the Brazilian Presidency, the G20 discussed the low level of taxation of the ultra-rich for the first time this year. A global minimum tax of 2% on the wealth of billionaires (around 3,000 taxpayers) could raise $5.2 billion. This tax would only affect billionaires whose current tax contributions are less than 2% of their wealth. The report mentions other tax options, including one on centi-millionaires (whose wealth is valued at a minimum of $100 million) or at a higher rate, which would generate an additional $100 million to $150 million in revenue and double this gain if the rate is increased to 3%.

The cryptocurrency, whose market is estimated to be worth $3 billion in November 2021, is particularly energy-intensive. Authenticating a Bitcoin transaction is equivalent to around three years' electricity consumption for a Ghanaian and three months for a German. Taxing cryptocurrency transactions could cost tens of billions a year, ranging from 15.8 billion for a 0.1% tax to 323 billion for a 20% tax. The other alternative of taxing the electricity consumption of cryptocurrency miners would reduce the industry's carbon emissions by around 45% and could generate €5.2 billion in revenue worldwide, according to the International Monetary Fund (IMF).

Concrete proposals accompanied by impact and implementation studies will be launched publicly at the beginning of 2025, with the aim of raising at least €100 billion a year. The coalition for solidarity funds, which now includes 17 countries, is committed to adopting an initial taxation solution by COP30 in 2025.

In a speech at COP29, Simon Stiell, Executive Secretary of UN Climate, reiterated the ‘essential role’ of the G20 in financing climate action and said that 2,000 billion would be invested in clean energy and infrastructure this year. He also warned world leaders of the potential risks of inflation: ‘The worsening effects of climate change will lead to galloping inflation unless every country takes bolder climate action’. In many countries, the effects of climate change are cutting GDP by up to 5%, he added, estimating that climate-related disasters are leading to higher costs for households and businesses.