Existing climate policies make greenhouse gas emissions more costly, but investments in companies that depend on fossil fuels often remain profitable. Commissioned by Oxfam, CE Delft therefore examined the design and potential effects of a Carbon Capital Levy: a tax on fossil fuel-related business capital held by high-wealth individuals.
In the design examined, the levy applies to individuals with more than US$ 5 million in business capital. Only the share of their capital associated with fossil fuels is taxed, at an annual rate of 2.5%. The levy targets six sectors: electricity generation, oil and gas, construction, automotive, aviation and shipping.
If implemented worldwide, the levy is estimated to raise approximately US$ 109 billion annually. Implementation by a coalition of 52 countries identified by Oxfam would raise around US$ 47 billion per year. In addition, the levy could make fossil fuel-related investments less attractive, thereby redirecting capital towards non-fossil activities.
The study also examines potential unintended consequences and implementation challenges. For example, the levy could create an uneven playing field between investors who are and are not subject to it, while tax avoidance and evasion are potential risks. Effective information exchange between tax authorities is also needed. This makes implementation challenging in the short term.
This study was commissioned by Oxfam International.