Behind the billionaire climate tax
A man drinks from a bottle of water as temperatures hit 38°C (100°F) on Saturday in New Delhi, India. Climate models show that by 2100, India will suffer disproportionately from extreme heat. Source: Raj K Raj/Hindustan Times via Getty Images
One economist explains why taxing the rich and paying the poor actually has a chance of becoming a reality.
The climate crisis is extremely unaffordable. That’s the conclusion of a new study published in Nature last week, which found that global warming will cost $38 trillion every year by 2050. For comparison, the entire global economy is about $100 trillion per year.
But one economist has a novel idea about how to pay for at least part of the bill. At a meeting of the world’s wealthiest countries and banks last week, Esther Duflo proposed that the richest people should compensate poor people for the climate damages they disproportionately caused. That money would be raised through a climate tax on billionaires and large corporations.
Duflo is the youngest person and second woman to win the Nobel Prize in Economics. She is currently the president of the Paris School of Economics, and the co-founder and co-director of MIT’s Abdul Latif Jameel Poverty Action Lab. Duflo’s work on poverty pioneered using field experiments to test how well economic policies work in real life.
I spoke with Duflo about why she proposed these specific climate taxes; how the richest nations in the world reacted to them; and why she thinks they might actually have a shot of becoming a reality.
This interview has been edited for length and clarity.
Arielle Samuelson: Why should billionaires and large corporations be the ones to pay a climate tax?
Esther Duflo: First of all, they have the money. The taxes that are being proposed—the 2 percent tax on billionaires and increasing the minimum tax on corporations from 15 to 20 percent—are not things that are going to be very painful to them.
The second reason is that rich people and rich corporations are making their income in a very global way. They are making their income from selling their products everywhere in the world, including in poor countries. And consuming their products is a great contributor to climate change. So it is also logical, to the extent we can, to tax this revenue a bit more.
AS: In your proposal, you cite data that shows that by 2100, 6 million people a year will die from global warming. Is this fund technically to compensate poor countries for those deaths?
ED: Exactly. The moral framing is to literally compensate poor countries and poor people for those deaths. Obviously you cannot compensate people for being dead. The use of this fund is to prevent as many of these deaths as possible.
But the moral framing is literally how I arrive at the number. I started from the emissions of Europe and the U.S. This is our moral debt towards poor countries and poor people in poor countries, who are the ones who are going to make up this 6 million number.
A map of the areas of world with the greatest number of climate deaths in 2100. Source: Carleton et al. 2023
AS: How much is the moral debt?
ED: $518 billion is the need. But the tax on the super rich can raise about $250 billion, and increasing the minimum tax on corporations from 15 to 20 percent can raise another $200 billion. So that leaves you with $450 billion. That’s the easy money that I can see.
AS: You also say people should be compensated, not by going through the World Bank or their governments, but by sending money directly to them via cash transfers. People are often dubious about giving individuals money directly. Why should we directly give money to poor people who are the most vulnerable to climate change, as opposed to going through a more circuitous route?
ED: A lot of different researchers, and not just me, have looked at the impact of cash transfers and absolutely uniformly found that people who are getting direct cash transfers are making very good use of their money. They use it to buy food, and to invest in their house, and to protect themselves against climate change.
For example, this happened in Bangladesh, where they gave money in anticipation of a flood that was predicted to happen. People who got the money in advance were able to protect their animals and move themselves safely out of harm's way.
So one can have simple rules to agree on what triggers a cash transfer. For example, it could be a certain number of hot days in a region, and then everyone in the region gets a transfer.
AS: It’s very tempting to have a fund of $400 billion. What argument would you make to rich countries that they should send this money to poorer people in other countries, instead of using the tax money to help themselves?
ED: Low income countries and middle income countries are getting increasingly impatient about the fact that we are sharing problems, and not sharing solutions. This is payback for lack of leadership during COVID, the debt crisis, and the inflation crisis, where nobody really came to help them, either with money or with vaccines.
And other than it’s your moral duty, you're going to get something out of it. People are very worried about climate migration. But most people don't really want to migrate, and they only do it in the worst of crisis situations. So if you can prevent people from hitting those desperate states, then you also prevent them from migrating. The reality is people would like to stay home if they could.
A map of the projected days above 35 degrees Celsius (95°F), by end of the century. Source: Climate Impact Lab
AS: It sounds like the funds from these taxes would essentially replace the Loss and Damage fund that came out at COP27. What is problematic about that fund?
ED: The biggest problem is that right now it is empty. There is $700 million in it. And why is it empty? Because the rich countries, specifically the U.S., were against having open-ended liability. They don't want commitment, because you never know the size of the commitment. They don't want to be forced to put money in the fund.