Bloomberg has reported that Azerbaijan, which plays host to this November’s COP29 United Nations Climate Summit, is to propose a levy on oil, gas and coal production, as a means of funding climate action in developing nations.
Εarly-stage discussions about the so-called “North-South Financial Mechanism” are expected to take place shortly between Azeri officials and the UN. In what Bloomberg has described as “confidential information”, countries who are likely to back the levy plan aren’t going to be named.
Under the proposal, a share of fossil fuel revenues would be put into a fund dedicated to financing climate initiatives. Those fossil fuel producing countries agreeing to participate would be incentivised as shareholders, with the likelihood that a certain level of profit would be returned to them from projects in which the fund had invested.
Bloomberg said they had seen a presentation showing how a $0.20 per barrel of oil levy, if applied to Azerbaijan’s annual output, would raise $40 million a year. With worldwide daily oil production averaging 80 million barrels, a $0.20 levy on each one would equate to annual revenues of around $6 billion going into the fund.
The financial news agency said it wasn’t clear whether the levy idea would gain support but, if implemented, would demonstrate that fossil fuel producers were lining up behind the cause.
Full proposal details are expected to be made public before COP29 convenes in Baku. However, it was reported that the plan had already been met with a sceptical and cautious response from some countries. These included the United States, the world’s largest oil and gas producer.
Neither the US State Department climate office nor the COP29 team were prepared to comment to Bloomberg, who predicted that climate finance would be COP29’s dominate theme.
Rich nations falling short of promises
The host country would be “judged on its ability to find a breakthrough after years of rich nations falling short of promises to help developing countries cut emissions and deal with more extreme weather,” the report said, further stating that countries had first agreed to transition away from fossil fuels at last year’s COP28 Summit in Dubai. Since then, Saudi Arabia had “pushed back” on the deal’s wording.
Those who have been briefed about the North-South Financial Mechanism were said to be worried that it would give carte blanche to oil-producing countries “to keep volumes high, under the guise that sales would boost climate finance.”
Insiders were also concerned over the distribution of the fund’s profits, on the basis that it would be just as likely to line the pockets of shareholders, as to encourage new climate action projects.
Negotiators would have to work out what level of funding should go towards clean-energy projects, like solar and wind farms, as opposed to climate adaptation schemes, such as sea wall construction and putting emergency warning systems in place.
Whilst sounding innovative, this wasn’t the first time the fossil fuel levy idea had been raised, said Bloomberg. At Egypt’s COP27 held in 2022, small island states had first suggested something similar. Their proposal was more along the lines of a compensation scheme for countries vulnerable to climate change, resulting from damages they had incurred through extreme weather events, but for which they weren’t responsible.
According to the strategic research provider BloombergNEF, in 2023, global spending on the clean-energy transition hit $1.8 trillion. But this figure would have to increase annually to $2.7 trillion, in order to keep on track with the Paris Agreement goals. Much of the financing shortfall was blamed on “a lack of investment in emerging markets.”
