Carbon value added tax

One way to accelerate the transition away from fossil carbon fuels with their greenhouse gas emissions would be to create a global mechanism to regulate, tax and if necessary fine the extraction, processing, distribution and sale of fossil fuels by entities and corporations, whether public or private, based on science and equity, to protect the global commons. This could, for example, be assigned to an upgraded UNEP as a Global Environment Agency with its UN Environment Assembly, or given to the OECD. The UN Framework Convention on Climate Change is limited by its consensus rule, which would certainly block such a proposition.

In applying the polluter-pays principle, the logical and most direct approach would be to establish a global fossil carbon value added tax (CVAT). This would be a fixed percentage of the value added, or profit created, by each step in the geological extraction, processing, trade/transport, and sale of all forms of fossil carbon and derivatives therefrom. It would be imposed on the institutions, entities and corporations, public or private, directly involved and responsible for benefiting from the process or transaction, including the owners of mines, wells and other fossil fuel extraction, the processors of intermediate and final products, the traders and transporters of the products, and the wholesalers and final sellers of the products to consumers. It would apply to fossil carbon used as fuel, and for other products such as plastics, agricultural chemicals and other petrochemicals. Each step in the process generates profits which can be subject to a value-added tax, much as is done in funding the European Union.

Creating a common global CVAT would maintain a level playing field with respect to competitive advantages and national priorities, unlike a carbon border tax.

This would both raise the cost of products from fossil carbon to incentivise their replacement, and generate significant funds to be devoted to mitigation, adaptation, loss and damage from climate change, and investment in renewable alternatives. It could also address transitional issues of justice, such as finding alternatives for workers and communities impacted by closing down the fossil fuel industry, and the poor who might be hit by a temporary rise in the cost of energy. The receipts could be used both nationally and internationally with mutually-beneficial sharing of the proceeds of the tax, including covering the cost of collecting the tax.