A Manifesto on an Innovative Funding Source for the new Loss and Damage Response Fund
Nearly 20 years ago, in October 2003, President Chirac appointed Jean-Pierre Landau, the French Inspector General of Finance, to chair a working group set up to “reflect upon the feasibility of new international financial contributions to reduce poverty, to promote development and to finance global public goods such as the environment, public health and rare resources”. The ensuing Landau Report on New International Financial Sources for Development considered, among others, environmental taxes and suggested in the short run to focus on sectors such as maritime and air transport.
On 1 July 2006, France began to collect a solidarity levy within its jurisdiction as a way to help finance the fight against HIV/AIDS, tuberculosis and malaria in severely affected countries. The levy is a surcharge of €1 on economy class flights within Europe, €4 on long-haul economy class, €10 on business class within Europe and €40 on long-haul business class.
The levy is collected by the Directorate General for Civil Aviation which transfers it not to the general budget, but to a dedicated ‘Solidarity Fund for Development’ managed by the French Development Agency earmarked for funding organisations working in global health such as UNITAID, a drug-purchasing organization created by Brazil, Chile, France, Norway and the United Kingdom and hosted by the World Health Organization. By 2012, the levy has been raising between €162 million and €175 million per year, totalling one billion euros since its creation. According to the French government, “no impact has been observed on French air traffic or on tourism following the establishment of the airline-ticket levy.”
Following their successful implementation in France, the idea of Climate Solidarity Levies was taken up as potential innovative climate change financing mechanism. In October 2006 the concept of an International Air Travel Adaptation Levy based on the French Solidarity Levy (FSL), was launched in a technical report by Benito Müller and Cameron Hepburn (University of Oxford). A global mandatory application at the time was estimated to have a revenue potential of US$8-10 billion annually, which were meant to be contributed to the Kyoto Protocol Adaptation Fund to support concrete adaptation project in the most vulnerable countries. In 2008, the Least Developed Country Group submitted the idea as International Air Passenger Adaptation Levy to the UNFCCC AWC-LCA in Poznan.
In 2021, Saleemul Huq and Mizan Khan (ICCCAD) decided to look into re-launching the idea as an innovative source of funding for Loss and Damage inflicted by un-avoided climate change impacts. Following the establishment of a new Loss & Damage Response Fund at COP 27 in December 2022, they decided this should be the recipient of the re-launched levies and were joined by Benito Müller (OCP) and Robert Filipp (IFF) to develop and promote this idea.
As regards developing the idea, it was decided to follow the Landau Report in considering not only the aviation sector but also maritime transport. This would not only widen the resource base, but also enable those countries with an existing air ticket levy to participate in the CSL idea.
It was also decided that a single global levy, as submitted to the UNFCCC in 2008 would not work, not only because the UNFCCC, and for that matter the Paris Agreement does not have the mandate to take decisions that are binding on the airline sector, but also because global levies are deeply unpopular among most national treasuries. Instead, it was decided to fall back on the French UNITAID model and propose an International Climate Solidarity Alliance of countries with a CSL at the national level (hence “Climate Solidarity Levies” and not “Levy“).
As to revenue potentials, air ticket levies adopted, say, across the EU, would have raised around €1 billion in 2019, while – following the proposal by the International Maritime Emission Reduction Scheme – a levy of €10 per maritime TEU (container) across the same jurisdictions would in 2021 have generated €924 million (according to OECD container transport data).
Given the urgency to provide financial support to the poorest and most vulnerable countries to respond to loss and damage from climate change and given the current global economic and fiscal situation, it is difficult to see how the new Loss & Damage Response Fund could get adequately capitalized without diverting funds from other existing multilateral climate funds. This is why Climate Solidarity Levies should be used as a proven way to mobilize new, additional and predictable innovative resources so as to avoid fund diversions from other climate funds. We call on governments to give Climate Solidarity Levies for the Loss and Damage Response Fund due consideration.
20 April 2023, on behalf of the CSL Consortium:
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Paris Postscript 1
Clea Caulcutt, Giorgio Leali and Paul de Villepin, Politico, 23 June 2023
“France already has in place two types of taxes that have been suggested: one on plane tickets, another on financial transactions,” [President Macron] said adding that he was going to “make others follow us and mobilize” around these issues.
During his closing remarks at the summit, Macron also said the OECD club would be an appropriate framework for negotiations, noting that countries had previously used the Paris-based Organisation for Economic Co-operation and Development as a vehicle to reach a deal on reforming global taxation for large multinationals.
“There has been a great deal of discussion on the idea of international taxation, over and above what countries and institutions are doing. Whether it’s on financial transactions, maritime transport or certain other models, it will only work if it’s truly international, and so it presupposes an agreement, as we’ve been able to do on international taxation,” he said during the closing ceremony of the summit.
Paris Postscript 2
At a seminar on Innovative Sources of Climate Finance held at SciencesPo in Paris on 26 September 2023, Prof. Müller proposed that in order to incentivise developing countries to participate in a Climate Solidarity Alliance (CAS) as a source for grant funding for the new Loss and Damage Fund (LADF), they could be paid-back a multiple of their LADF contribution by the ICSA. More precisely he proposed the following differentiated limits on domestic use of CSL revenue and LADF pay-backs: