Key Strategies for Mitigating and Adapting to Climate Change:
1. Carbon taxes
Carbon taxes have been described by the IMF as “the most powerful and efficient” tool to reduce GHG emissions. Carbon taxes aim to increase the costs of producing GHGs and by extension incentivize GHG emitters to adopt greener alternatives. A uniform tax of $75/ton of CO2, for example, is projected to cause a 43% increase in electricity prices and 14% increase in the price of gasoline over the next 10 years.
The additional benefits of a carbon tax include:
- Revenue generation
The revenue generated by carbon taxes can be leveraged by the state to finance various environmentally and socially beneficial initiatives. For example, states can use the extra revenue towards poverty alleviation programs or offset any adverse impacts on employment that come from shifting away from industries that emit high levels of GHGs.
- Relative ease of implementation
A carbon tax can be incorporated into existing taxation regimes for fossil fuels or similar extractive industries.
Nevertheless, poor public perception of carbon taxes has resulted in a low global uptake despite there being evidence that perceptions improve markedly post-implementation. Furthermore, the current global average is US $2-3 per ton of CO2 but must be raised to US $75 by 2030 if global warming is to be limited to 2˚C.
IMF projections (left) highlight the direct links between carbon taxes and an increase in CO2 reduction. For some countries such as China and South Africa, a US $25/ton tax is enough to reach the reduction targets set under the Paris Agreement (Paris pledge). For others like Australia and Brazil, a US $75/ton tax alone is insufficient. However, this is balanced out globally as seen in the G20 average.
Note: reduction pledges made by various states under the Paris Agreement differ substantially in their ambitiousness.
2. Taxing financial transactions
While primarily seen as a mechanism for stabilizing financial markets, a universal Tobin tax (also known as a Robinhood tax when used to tax transactions other than foreign currency exchange alone) is another viable mechanism with which climate change mitigation and adaptation initiatives can be funded. In its most current form, a Tobin tax refers to a generalized and uniform tax on financial transactions. In the context of climate change, this tax would be crucial for revenue generation. In 2020, over US $6.6 trillion was traded in currency markets on a daily basis. As such, proponents claim an 0.05% tax on these transactions could generate a revenue of approximately US $3.3 billion per day.
An increased revenue is also useful in reducing deficits and tackling debt levels which have continued to increase steadily since the 2007-2009 Global Financial Crisis and subsequently reached a historic high of US $226 trillion in 2020.
Increased revenue streams from Tobin taxes can also be channeled into fiscal pressures other than climate change including those posed by aging populations.
3. Green Finance and other mechanisms of change
- Green FinanceIn simple terms, green bonds and investments aim to fund financial activities that produce sustainable environmental outcomes. Green bonds for example, leverage the existing debt market to accrue and funnel profit into greener initiatives like those that aim to boost the efficacy of renewable energy, resource stewardship, and pollution control. If green finance continues to grow at its current rate, the value of green bonds traded globally could rise to a promising US $2.5 trillion by 2023. Nevertheless, green finance initiatives must attract significant capital from private and institutional investors if it is to incentivize greener financial activity that substantially limits GHG emissions and unsustainable behaviors.
- Improving taxation systems and opening other sources of revenue
It is estimated that tax havens alone result in a loss of US $500-600 billion per year in corporate tax revenue. Approximately US $200 billion of this US $500-600 billion in lost revenue belongs to low-income and developing countries. This is especially detrimental for the mitigation and adaptation strategies undertaken by these developing countries, as they typically collect only 12% of their GDP in taxes. As such, cracking down on corruption and adopting technologies such as secure electronic cash registers are two strategies that can help improve taxation systems and by extension, a state’s financial capacity to ameliorate and prevent the worst impacts of climate change. More revenue (which in turn can be used to fund green initiatives) can also be raised by taxing environmentally burdensome activities and commodities such as aviation and maritime fuel, and mineral resource extraction.
- Deepening international cooperation
All the above strategies rely on international cooperation in some form. Moreover, the global scale and multifaceted nature of climate change has meant that many climate change strategies must be applied on a universal basis. For example, Tobin taxes must be applied globally to avoid evasive behaviors and ensure crucial streams of revenue are not lost. Carbon taxes must also be applied on a global scale to make sure GHG reduction targets are reached to ensure even the more conservative goal of limiting global warming to 2˚C is met.
