A step towards tax – and climate – justice

The fossil fuel industry has struck a rich vein of profits even as its products continue to drive the climate crisis. The following is the executive summary of a report which calls for a surtax on the sector’s earnings to fund climate action and spur a shift away from the planet-harming fuels.

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AGAINST the backdrop of rising inequalities and the accelerating climate and environmental crisis, a report titled Make Polluters Pay and co-published by the Global Alliance for Tax Justice (GATJ) and the European Network on Debt and Development (Eurodad) proposes additional taxes – or surtaxes – on the profits of the fossil fuel industry. The purpose of these surtaxes is to speed up the transition away from fossil fuels, to increase equity and to generate additional revenue for the pursuit of sustainable development objectives and climate action. For example, if a 20% surtax had been applied on the global profits of the world’s 100 biggest oil and gas companies since the adoption of the Paris Agreement on climate change, an accumulated $1.08 trillion of additional tax revenues could have been collected.

Mainstream environmental taxation policy, such as carbon pricing, often carries a high risk of regressivity, directly or indirectly placing disproportionate burdens on consumers and the poorest. This bias can lead to social injustice and insufficient environmental protection, and contributes to opposition to climate action and environmental protection more generally. In contrast, taxing the profits of polluting companies is a progressive, supply-side strategy that aligns economic responsibility with environmental harm.

With its excessive ecological footprint, the fossil fuel industry bears particular responsibility for the escalating climate and ecological catastrophe. Record profits for the industry over the past years have yielded significant returns to shareholders, while the sector’s investments in the transition away from fossil fuels remain largely insignificant. Instead, the sector is further expanding its fossil fuel business, investing in more extraction and production. This is diametrically opposed to the need to accelerate the transformation of its business models away from fossil fuels.

The fossil fuel industry’s profits are extracted at the expense of a safe and stable climate. But this is only part of the cost borne by society. Due to structural flaws in the current international tax system – including tax havens, harmful tax practices and loopholes – multinational corporations continue to significantly reduce their tax payments, avoiding paying their fair contribution to society.

The current international corporate tax rules are particularly problematic when it comes to the taxation of extractive industries. This system creates avenues for these companies to shift their profits away from the source country and into tax havens, depriving countries of crucial domestic revenues. This has an impact on countries all around the world, but hits particularly hard in the Global South, where public tax revenues are desperately needed to improve citizens’ lives. Profit shifting in the fossil fuel sector flips the ‘polluter pays’ principle on its head, with the polluter profiting and society at large paying for the damage.

A truly historic opportunity

The coming years offer a historic opportunity to rebuild the global tax architecture and to end the exploitation of the public purse by multinational corporations and climate polluters. A new United Nations Framework Convention on International Tax Cooperation is currently being negotiated with the aim of establishing an ‘international tax system for sustainable development’. Such an agreement, which is set to be finalised by 2027, would open up an avenue towards binding global rules that can ensure equitable taxation of all multinational corporations; effective taxation of the super-rich; and international tax initiatives to promote sustainable development, including environmental protection and taxing the companies and polluters at the root of the global ecological collapse.

Effective climate action requires urgent transformation of the business models of polluting industries. At the same time, international tax rules must be reformed to become more progressive and equitable – ensuring they mobilise the financial resources needed for climate action and sustainable development. A surtax on profits from pollution offers a complementary fiscal climate policy tool that ensures payments from polluters for the damage they cause and incentivises fundamental changes to industry practices.

These kinds of fossil fuel profit surtaxes have already been introduced and implemented in Europe. For example, the so-called ‘EU solidarity contribution’ – the European Union’s fossil fuel industry windfall profit tax levied in the fiscal years 2022 and 2023 – generated €28.66 billion in additional tax revenues. Profit surtaxes on the fossil fuel industry in Norway and the UK are other examples that show such taxes are feasible and effective.

Make Polluters Pay proposes a three-level approach to fossil fuel profit surtaxes, covering the global, regional and national levels.

Key recommendations:

•           As a part of the UN Framework Convention on International Tax Cooperation, governments should introduce a ‘polluter pays’ surtax applied to the global profits of fossil fuel companies. The GATJ–Eurodad report illustrates a surtax of 20%, which – if it had been levied in the fiscal years 2022, 2023 and 2024 and applied on the world’s 100 biggest oil and gas companies – would have generated an estimated $236 billion, $184 billion and $147 billion respectively. If the 20% surtax had been applied since the adoption of the Paris Agreement in 2015, an accumulated $1.08 trillion of additional tax revenues could have been collected. These revenues should form additional contributions complementing the currently highly inadequate international climate finance commitments. The report also argues that in line with the international objective to transition away from fossil fuels and accelerate action, the global tax should be gradually increased over time, and set to reach 100% by 2050.

•           While the international rules are being negotiated at the UN level, governments around the world should immediately apply profit surtaxes on fossil fuel companies taxable in their own country. These taxes should be designed to coexist with the global-level surtax once this has been introduced.

•           At the regional level, governments could determine a minimum surtax rate and coordinate its implementation. For the EU, that means continuing its ‘EU solidarity contribution’ with a minimum tax rate of 33% and a modified tax design, while integrating provisions for the future global-level surtax.

The full report, Make Polluters Pay: Proposal for a Surtax on Fossil Fuel Industries’ Profits written by Markus Trilling, is available here.                      

*Third World Resurgence No. 368, 2026/3, pp 26-27