From Oil and Gas Superprofits to Climate Action: Bridging the Gap at COP29

Written by Anushruti Kukreja

A Step Forward, But Not Enough

The 29th Conference of the Parties (COP29) in Baku, Azerbaijan, ended with climate finance taking center stage. With developing nations facing the dual challenges of climate-related disasters and the urgent transition to renewable energy, the debate over financial commitments has never been more critical. The $300 billion annually by 2035 pledge from developed nations represents a step forward from the previous $100 billion target. However, when adjusting for US inflation, the 2024 value of the $100 billion pledge would be much higher. Using the US inflation rate (approximately 2.5% annually) (US Inflation Calculator, 2024), the 2024 equivalent of $100 billion is closer to $140 billion, meaning that the $300 billion target falls short of even tripling the 2009 pledge, and it still doesn’t account for the increased climate-related needs of developing countries (Abnett et al., 2024).

Many developing nations, including India and Brazil, voiced their dissatisfaction with the deal, calling it "optical illusions" and "breadcrumbs." These countries argue that, given the scale of their needs, $1.3 trillion per year by 2030 is the minimum required to meet the adaptation and mitigation challenges they face (Jazeera, 2024). Hence, COP29 points to the need for innovative funding mechanisms to meet the funding gap.

In the context of these discussions, COP29 President Ilham Aliyev described oil and gas as “a gift from God” (Rannard, 2024). While this statement highlights the deep-rooted importance of fossil fuels in many economies, it also raises a crucial question: if oil and gas are indeed a "gift," shouldn't the oil and gas industry—which profits immensely from these resources—be required to pay its fair share in addressing the climate crisis it has helped create?

Superprofits: The Missing Link in Climate Finance

The paper "Harnessing Oil and Gas Superprofits for Climate Action" proposes a compelling solution to this shortfall by redirecting the massive superprofits earned by the oil and gas industry. In 2022, due to geopolitical tensions, fossil fuel companies made over $490 billion in superprofits, far surpassing expectations. While retroactive taxation on these profits is not feasible, the surge in profits presents a golden opportunity to implement future taxation to reallocate this wealth into global climate finance, helping address the urgent needs of developing countries (Egli et al., 2024).

Both state-controlled giants like Saudi Aramco and Petrobras, and privately-owned corporations based in G20 nations have amassed enormous wealth from oil and gas. Since these countries are also the largest contributors to climate finance, they stand to benefit from such a proposal. Redirecting these profits could go a long way in addressing the climate finance gap (Egli et al., 2024).

The G20, which has already negotiated successful tax reforms (such as minimum corporate tax rates), could leverage its platform to implement a global windfall tax on fossil fuel profits (Welle, 2021). This would ensure that oil and gas companies—primary beneficiaries of climate-damaging industries—pay their fair share toward financing solutions to the climate crisis .

A Proposal for Taxing Superprofits

The paper by Egli et al. (2024) states that implementing a 30% tax on these superprofits could raise $147 billion in one year alone—enough to cover the shortfall in international climate finance commitments. When we adjust the $100 billion annual pledge made in 2009 for US inflation, this figure rises to approximately $147 billion in 2024, meaning the funds generated by this tax could nearly close the inflation-adjusted funding gap for climate finance.

This proposal aligns with calls from civil society groups at COP29 for wealthy nations to take stronger action, especially in the context of rising Loss and Damage Fund demands. The Loss and Damage Fund is crucial for supporting countries suffering the immediate impacts of climate change, such as extreme weather events, crop failures, and displacement (Historic Decision in Baku: The Loss and Damage Fund Fully Operationalised, 2024). By redirecting superprofits from the oil and gas sector, this tax could provide direct funding to the Loss and Damage Fund, enabling vulnerable nations to both recover from and adapt to the climate crisis while also driving long-term solutions like renewable energy transitions.

At COP29, some key players pushed for blended finance, combining public and private investments, but many activists argue this model often falls short in addressing the core needs of developing countries (“Activists Slam COP29 Finance Deal,” 2024). By taxing oil and gas superprofits, governments could channel a significant amount of funding directly into grants, offering higher-quality finance than loans or private sector investments.

Developed Countries, China, and the Gulf States: Expanding the Donor Base

While the debate about broadening the donor base continues, one crucial point remains clear: nations heavily dependent on fossil fuels, like China and the Gulf States, must contribute to addressing the global climate crisis. They, too, benefit from oil and gas resources that have contributed to the crisis (Abnett et al., 2024). At COP29, the pressure mounted on these nations to do more for climate finance, but the question remains: If fossil fuels are so central to the economy of these nations, shouldn't they also shoulder a greater portion of the responsibility for addressing the climate crisis they have helped fuel?

From "Breadcrumbs" to Real Climate Action

By introducing taxes on oil and gas superprofits, governments—particularly those in G20 nations—could make a meaningful contribution to closing the climate finance gap. The time for action is now. World leaders must move beyond the “breadcrumbs” offered in the COP29 deal and take bold steps to harness the wealth generated by the fossil fuel sector to address the global climate crisis.

If oil and gas are truly a gift, the industry should now step up and take responsibility for addressing the climate crisis. By redirecting these superprofits into climate finance, the global community can finally provide the necessary funding to transition to a sustainable, equitable, and just climate future for all.

References:

Abnett, K., Volcovici, V., & Strohecker, K. (2024, November 24). Developing nations blast $300 billion COP29 climate deal as insufficient. Reuters. https://www.reuters.com/sustainability/sustainable-finance-reporting/wealthy-countries-back-raising-cop29-climate-deal-300-billion-sources-say-2024-11-23/

Egli, F., Grubb, M., & Stünzi, A. (2024). Harnessing oil and gas superprofits for climate action. Climate Policy, 1–8. https://doi.org/10.1080/14693062.2024.2424516

Rannard, G. (2024, November 12). COP29: Oil and gas “gift of god”, says host Azerbaijan president. https://www.bbc.com/news/articles/cpqd1rzw9r4o

US Inflation Calculator. (2024, November 13). Current US inflation rates: 2000-2024. US Inflation Calculator | Easily Calculate How the Buying Power of the U.S. Dollar Has Changed From 1913 to 2023. Get Inflation Rates and U.S. Inflation News. https://www.usinflationcalculator.com/inflation/current-inflation-rates/

Jazeera, A. (2024, November 24). ‘Optical illusion’: Key takeaways from COP29 at Baku. Al Jazeera. https://www.aljazeera.com/news/2024/11/24/optical-illusion-key-takeaways-from-cop29-at-baku

Welle, D. (2021, October 30). G20 leaders endorse global tax rate deal. dw.com. https://www.dw.com/en/g20-leaders-endorse-global-tax-rate-deal-wrangle-over-vaccines-climate-change/a-59675804

Historic Decision in Baku: The Loss and Damage Fund fully operationalised. (2024). COP29 Azerbaijan UNFCCC. https://cop29.az/en/media-hub/news/-1732385682

Activists slam COP29 finance deal. (2024, November 28). The Ecologist. https://theecologist.org/2024/nov/25/activists-slam-cop29-finance-deal