For the first time, the world’s most powerful countries are considering a proposal that would tax the super rich and send the money directly to the people on the front lines of the climate crisis.

The proposed climate tax is the brainchild of Nobel Prize-winning economist Esther Duflo, who presented it to the Group of 20 summit in Washington D.C. last Wednesday. Duflo suggested taxing global corporations and the world’s top billionaires to raise money for climate adaptation in countries that are most impacted by the climate crisis. The funds would be directly sent to the poorest individuals in those countries to help them prepare for climate disasters.

“Richer citizens emit much more than poorer citizens,” Duflo wrote in her proposal to the G20. But the brunt of extreme heat will be felt by poorer citizens who tend to live in hotter regions of the world. “Moreover, poverty makes it harder to adapt to warm temperatures,” she said.

This is the first time that a climate tax has been suggested on a world stage. The proposal comes amid new research that estimates that rising temperatures will cost $38 trillion per year in damages to agriculture, labor productivity, and infrastructure. The vast majority of that damage has been caused by the emissions of rich nations, including the U.S. and European countries. 

Duflo estimates that the U.S. and Europe alone inflict more than $500 billion per year in climate damages on low- and middle-income countries. That number only encompasses “mortality costs,” or the estimated cost of the number of lives lost. By 2100, experts estimate that global warming will kill 6 million people per year—all in low and middle income countries.

“Obviously, you cannot compensate people for being dead,” Duflo told HEATED in an interview. “The use of this fund is to prevent as many of these deaths as possible.” 

“This is our moral debt,” she added.

“We’re not talking about extortion.”

The climate taxes would not replace the United Nations’ loss and damage fund, which will help poorer countries recover from climate disasters. But asking rich countries to voluntarily send money to poor countries has not historically worked, said Duflo. As of this year, the loss and damage fund has just over $700 million, one-thousandth of the amount needed, according to Duflo.

Instead, Duflo proposes increasing an existing international tax on multinational corporations from 15 percent to 20 percent. There would also be a 2 percent wealth tax on the world’s top 3,000 billionaires. The two climate taxes combined could raise up to $400 billion per year for a “loss, damage, and adaptation fund.”

“We need a lot of money to protect people from dying from the climate change that is already happening,” she said. “And this is two places where there is a lot of money to be had with very little downside.”

There is growing support among economists for a tax on the super rich, who frequently avoid paying income taxes by using shell companies. Brazil, which is the president of this year’s G20 summit, has backed a wealth tax, as have France and the International Monetary Fund. 

But Duflo is the first person to suggest using those taxes to address climate inequality.

“Rich people and rich corporations are making their income from selling their products everywhere in the world, including in poor countries,” she said. “Their products also greatly contribute to climate change.” So it’s logical, she said, to tax their income and use that revenue for climate compensation. 

“We are not talking about extortion,” she added, pointing out that a 2 percent tax on billionaires is still less than the average person pays in income taxes. “We are talking about paying your fair share.”

Make cash payments, not promises

Duflo, who won the Nobel Prize for her work on eradicating poverty, says the money could be sent directly to the people in target countries via cash transfers. Those payments would be triggered by climate disasters, like a heat wave, flood, or drought.

The effectiveness of this strategy has been tested by researchers. In Bangladesh, people in the path of severe flooding from the Brahmaputra River were given the equivalent of $53 before the catastrophe happened. The recipients were able to evacuate the area, save livestock and equipment, and reported less health problems after the flood. “Researchers looking at the impact of cash transfers are absolutely uniformly finding that people who get direct cash transfers are making very good use of their money,” said Duflo.

This is a large departure from the U.N. loss and damage fund, which is currently managed by the U.S.-led World Bank—instead of being sent directly to developing countries. “There was this implicit argument that the money was not going to be managed well,” said Duflo. “By sending the money straight to people, you kind of cut right through this tension.”

While rich and poor countries alike will be impacted by climate change, rich countries have the resources to protect their citizens. But all countries have to work together on solutions to the climate crisis. So if the idea of a moral debt isn’t convincing to the richest people in the world, effective teamwork may be. “If we want collaboration of all countries, we are going to have to show that we can share solutions and not just problems,” she said.

So far, Duflo says that the American officials have been open to the idea in discussions. Brazil and France have publicly backed a climate fund paid for by taxing the richest people, while Germany has openly opposed it. But Duflo says the project is still in its early stages, and will be further discussed by world leaders and the G20 at their next meeting in July.

“It's not a sprint, it's a marathon,” she said. “But the very fact that it’s been presented to these people and that nobody thinks it's crazy is a good first step.”

Want to hear more from Esther Duflo about how the rich can pay for climate change? Later this week, we’ll publish a longer Q&A for paid subscribers where she reveals America’s commitment issues, and why Jeff Bezos should pay his taxes. If you’d like to take part, and you have the means, please upgrade to a paid subscription today.

Further reading:

• Brazil's proposal to tax super-rich gains momentum amid G20, next steps in July. Reuters, April 2024.
  “‘We need to establish new norms where the very wealthy contribute their fair share,’ Joseph Stiglitz, another Nobel Prize-winning economist, said. ‘The notion that society has to have a certain minimum level of fairness and equity is truly important for social cohesion and the functioning of democracy.’”

• To Ease the Climate Crisis, First Figure Out What Works. The New York Times, September 2022.
  “‘One big error, I think, in our thinking about climate has been to dissociate the effort to reduce climate change and the effort to reduce inequality. The two are intimately connected, because the more you consume, the more you emit, and it is with the very rich that the very big declines in emissions could take place.’”

• US billionaires have doubled their wealth since 2017 Trump tax overhaul. Salon, April 2024.
  “While everyday Americans pay taxes on this wealth and contribute to crucial programs like Social Security with every paycheck, many of these billionaires use sophisticated methods to avoid tax bills, with some paying effective rates as low as 0.1 percent in recent years despite their staggering gains.”

Catch of the day: Pompom the Papillon is pondering the problems of an overheating world, says reader Clarke.

We hope that the prospect of a billionaire tax cheers up this pup, and lets Pompom ponder playing fetch instead.

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