Opinion: How to raise $1 trillion for climate loss and damage funding

This September, in Derna, Libya, a wall of water taller than the palm trees ripped through the city at more than 120 kilometers per hour. More than 4,000 people died and a further 8,000 are still missing. Many survivors are crammed into crumbling buildings, facing winter without basic necessities after everything they owned was washed out to sea. In the first few weeks following the disaster, aid was relatively abundant, but now other crises have taken center stage, and there is a sense that the world has moved on. The Libya floods are just one example of the widespread destruction that is already being wrought around the world by climate change. Loss and damage from climate disasters are causing untold harm to human lives, and for those who survive, there can be a shocking lack of funding for recovery. The forthcoming loss and damage fund, agreed upon by world leaders at the United Nations Climate Change Conference, or COP 27, in 2022, is meant to plug the gap, aiming to provide financial assistance to vulnerable nations that suffer the negative effects of climate change. But after years of debate, we are yet again approaching another COP with no clear plan as to where the money will come from, while in Derna, families say that help needs to be provided “direct to the people without any middle parties.” It is worth remembering that there are solutions out there: The climate finance system known as “cap and share” offers one potential way through the deadlock. Several formulations of cap and share have been put forward. At Equal Right, our recent proposal, developed in partnership with Autonomy, centers around a fossil fuel extraction tax, with revenues placed in an international fund for green investment, and the long-term returns of the fund transferred out to the loss and damage fund and to the people of the world as cash payments. Because it targets fossil fuel firms directly, this system has the potential to provide substantial new public funding to tackle the climate crisis, without relying on governments to dig into their existing budgets. Equally importantly, cap and share is a system that could be implemented immediately by a few forward-thinking countries without the need to wait for the United Nations Framework Convention on Climate Change, or UNFCCC, process to deliver. Through bilateral or plurilateral agreements, similar to those used to govern trade, countries could establish a shared charging system that would allow them to tax fossil fuel extraction, fund green investments, and provide loss and damage support within participating countries. This creates the potential to make progress on loss and damage funding outside of the UNFCCC process, as well as within it. Central to our cap and share proposal is the idea that limits and charges should be applied to fossil fuels at the point of extraction. This extraction charge, similar to the climate damages tax proposed elsewhere, would start around the level of the world’s highest existing carbon taxes: $135 per tonne of CO2e, or carbon dioxide equivalent. According to our modeling, this charge would raise nearly $5 trillion in just the first year if applied worldwide. With some of the money invested in a green transition fund and the rest disbursed immediately, there would be enough to transfer at least $1 trillion per year to the loss and damage fund — far more than has been proposed in any other costed climate finance proposal. This would be made available as grants, not loans, enabling countries to recover from climate disasters without being forced into debt. The rest of the extraction charge money would be distributed as monthly cash payments directly to the people, supporting loss and damage recovery, adaptation, and resilience at the household level. Importantly, these transfers would be international, ensuring that people everywhere receive support and the global south sees net gains from the system. Our modeling suggests that a monthly transfer of $31 per person (so $124 for a family of four) would be possible throughout the first year. In subsequent years, as fossil fuels become more scarce and their price therefore rises, the fossil fuel charge would increase in order to capture the value of this price rise for the people. This, coupled with the growing capital, and therefore returns, of the green investment fund, would mean our cash payments would rise over time too. In 2048, these payments would break through the global extreme poverty line of $66 per person per month, and would therefore permanently eradicate extreme poverty at that level. This cap and share proposal is undoubtedly radical, yet it neatly sidesteps many of the stumbling blocks that are holding up funding for climate justice. Substantial new money would be raised for the green transition and for debt-free loss and damage compensation, but it would come from the fossil fuel industry rather than from government budgets, making it much more politically palatable in both the global north and the south. The economic impacts would be highly progressive, with smaller consumers insulated via their cash payments, and nations of the global south seeing massive net gains, in line with climate justice. Crucially, the system could be introduced by just a few proactive countries working together, creating the potential to make progress both within and outside of the UNFCCC process. As COP 28 approaches and the battles surrounding the loss and damage fund intensify, it may be useful to remember that we do in fact have viable options for funding climate justice. With its potential to sidestep political barriers, raise trillions, and end climate destitution, cap and share offers an exciting new way forward.