Polluter Pays Taxes

In June, I delivered an oral statement at the United Nations Human Rights Council’s Panel on the Adverse Impacts of Climate Change on behalf of Just Atonement Inc. The panel’s concept note named progressive taxation measures as “one of the most effective ways to mobilize resources.” Yet the United Nations Framework Convention on International Tax Cooperation (“the Convention”) remains an underexplored mechanism for aligning global tax policy with climate action.

This article argues that climate policymakers must recognize the Convention’s potential to facilitate a meaningful increase in climate finance. Tax practitioners should likewise consider changes to the tax treatment of the fossil fuel industry as a mechanism for advancing tax policy objectives, such as the promotion of sustainable development. As the costs of climate change continue to rise, the two fields must closely collaborate to expand available climate finance, advance tax policy goals, and facilitate a just transition.

Background: A Brief History of the Convention

In 2022, the African Group at the United Nations proposed a draft resolution for a new United Nations convention on tax, which was scheduled for discussion under an agenda item titled “Promotion of inclusive and effective international tax cooperation at the United Nations.” The United Nations General Assembly (“UNGA”) subsequently established an Intergovernmental Negotiating Committee to develop the United Nations Framework Convention on International Tax Cooperation, with negotiations running from 2025 to 2027.

On 24 December 2024, UNGA adopted the terms of reference for the Convention, which outline its structure and objectives. Along with calling for a more inclusive international tax regime, the terms of reference include a commitment “to the achievement of sustainable development in its three dimensions, economic, social, and environmental, in a balanced and integrated manner.”

Since negotiations for the Convention began, at least seventeen countries have called for greater detail on the issue of sustainable development. In the aftermath of Hurricane Melissa, the main delegate for Jamaica argued that “it is time that the draft template text on sustainable development gets fleshed out.” Specifically, she called for “a much clearer link… to be made to environmental taxation and climate change, with clearer agreements on actions that must be taken…” During the third session of negotiations, the United Kingdom, the Bahamas, the European Youth Forum, and others proposed referencing the “polluter pays” principle; the Alternative Information and Development Centre argued that applying the principle to Article 8 of the Convention, which addresses harmful tax practices, could better align Article 8 with the goals of international climate commitments.

Despite these efforts, the drafting language has remained largely “non-committal” regarding the addition of detail on the issue of sustainable development. Neither of the publicly released Co-Leads’ Draft Framework Convention Templates from October 2025 and January 2026 contains the phrases “fossil fuels” or “climate change.” An explicit reference to these concepts could facilitate the international coordination necessary to address harmful tax practices in the fossil fuel industry and help increase the amount of climate finance available globally.

Looking to Tax to Raise Climate Finance

Elisa Morgera, the United Nations Special Rapporteur on the promotion and protection of human rights in the context of climate change, has emphasized the direct implications of tax avoidance for climate action. In her June 2025 report to the United Nations Human Rights Council, Morgera noted that fossil fuel companies have profited by engaging in tax avoidance and receiving sizable subsidies. She specifically called upon States involved in the Convention negotiations to agree to “prevent and combat illicit financial flows, corruption, money-laundering, tax evasion and tax avoidance that benefit fossil fuel companies.” Underlying these tax losses is base erosion and profit shifting (“BEPS”), which describes the practice of shifting profits away from the jurisdictions where a corporation’s economic activity actually takes place and into low- or no-tax jurisdictions. The OECD estimates that governments worldwide lose USD 100 billion to USD 240 billion in corporate income tax revenue each year due to BEPS by multinational enterprises; these actors include enterprises operating in the fossil fuel industry. Even a portion of this revenue could meaningfully expand available climate finance, especially in less wealthy countries.

Revenue raised as a result of international tax cooperation could advance crucial mitigation and adaptation efforts in the face of climate change by strengthening the Fund for Responding to Loss and Damage and contributing to a variety of multilateral funds associated with the United Nations Framework Convention on Climate Change (UNFCCC). The United Nations Development Programme emphasizes that adaptation efforts are particularly underfunded, with ninety percent of climate finance directed toward mitigation.

International climate negotiations are also beginning to acknowledge the Convention’s potential. The New Collective Quantified Goal that emerged from COP29 in 2024 called on actors to “work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035.” In November 2025, the Baku to Belém Roadmap to 1.3T was released, setting out a “coherent reference framework” for expanding climate finance in line with the New Collective Quantified Goal. That document names the Convention as an example of potential “innovative sources of concessional finance.” The Global Mutirão decision at COP30 subsequently took note of the Baku to Belém Roadmap to 1.3T.

Citing discussions at Belém as highlighting “the need for a complementary process to advance action among countries and stakeholders,” Colombia and the Netherlands organized the first Conference on Transitioning Away from Fossil Fuels in Santa Marta, Colombia, in April 2026. In contrast to the COP documents, the Santa Marta report mentions tax cooperation multiple times, explicitly emphasizes the importance of addressing tax abuse and evasion, and names the Convention as a mechanism for “strengthening international tax cooperation.” The Santa Marta conference indicates that policymakers are beginning to recognize the relevance of tax cooperation for raising climate finance.

Looking to Climate to Improve Tax Policy

Coordinated international taxation efforts on fossil fuel companies have the potential to substantially increase the availability of public finance in the international community. Eurodad and the Global Alliance for Tax Justice calculate that, since the adoption of the Paris Agreement, a 20 percent surtax on the global profits of the world’s one hundred largest oil and gas companies could have raised USD 1.08 trillion of additional tax revenue between 2016 and 2024. Similar efforts could help fulfill the Convention’s commitment to engage in approaches that will “contribute to the achievement of sustainable development… in a balanced and integrated manner.” The Convention presents an opportunity to facilitate the taxation of fossil fuel companies, thereby contributing to raising funds at the scale envisioned by these projections.

The international tax regime has already taken industry-specific approaches to policymaking — its response to the digitization of the global economy is particularly illustrative. At its 2021 session, the Committee of Experts on International Cooperation in Tax Matters added Article 12B of the United Nations Model Tax Convention in response to “new business models based on digital technologies.” Moreover, the Convention’s Intergovernmental Negotiating Committee itself has responded to “an increasingly digitalized and globalized economy” by developing the First Protocol on the Taxation of Income from Cross-Border Services under Workstream II of the Convention. Just as the expansion of the digital economy has prompted novel tax rules, the energy transition warrants industry-specific attention. The analogy is particularly apt in that there is a mismatch between where digital services occur and where the resulting profits are taxed, just as there is often a disparity between where fossil fuels are extracted and where profits are ultimately taxed. Although the United Nations Tax Committee has previously addressed questions arising from the extractive industry, the Convention’s publicly released drafts have not included an industry-specific approach addressing these issues.

Looking Beyond Climate Finance: Can Tax Policy Help Facilitate the Just Transition?

Raising climate finance is just one component of a larger and more daunting project: transitioning the economy away from a reliance on fossil fuels without undermining human rights. Key to achieving a just transition is reducing the market distortions created by fossil fuel subsidies, which lead to prices that “fail to adequately charge for both the supply and environmental costs of fuel use.” Artificially low prices reduce economic incentives for the energy transition. Additionally, since wealthier households consume more energy, they generally benefit more from subsidized energy prices. By facilitating cooperation and reforming the preferential tax treatment of fossil fuels, the Convention could help States set prices that better reflect the social and environmental costs of fossil fuel extraction.

Another concern is that an energy transition may have unjust effects on vulnerable communities. Economic modeling of stranded fossil fuel assets in Europe and the United States suggests that financial losses from the energy transition would fall largely on the top ten percent of wealth holders, with roughly half of that share borne by the top one percent. These losses would make up less than one percent of net wealth for the top one percent under the paper’s benchmark scenario. Low-income households would face losses that represent a larger share of their much smaller net worth, but those losses would be small in absolute terms. The study argues that those smaller losses could be compensated using money raised from carbon taxes and wealth taxes.

This article has identified several ways in which tax policy objectives and climate change goals are mutually reinforcing. However, the dynamic between the two fields is not without its tensions. The “global corporate tax competition” from 2005 to 2016, in which countries raced to decrease their corporate tax rates, provides one example. A 2024 policy brief finds that this strategy for attracting international capital “leads to a shift of more emissions towards developing economies…” A different tension arises with regard to the design of climate-fiscal policy. A 2024 International Monetary Fund working paper warns that, while mitigation through carbon pricing would lead to an increase in fiscal revenues, base erosion of existing fuel taxes may lead to significant revenue loss “for almost all countries” under an approach that relies on non-pricing instruments. The OECD emphasizes that carbon pricing policies must be designed pragmatically to avoid compromising energy affordability or disproportionately burdening low-income households.

Despite these challenges, the two fields have many shared objectives. The Framework Convention on International Tax Cooperation offers a promising forum for international policymakers to cautiously bridge the gap between tax and climate policy. International tax lawyers should direct efforts toward addressing novel challenges raised by the climate crisis, while climate practitioners should look beyond traditional climate institutions and more intentionally engage with the international tax regime. A failure to seize the opportunity posed by the Convention risks missing a chance to raise substantial climate finance and advance a just transition away from fossil fuels.