A letter from 140+ economists and policy experts calls on Global North leaders to put real global financial system transformation on the agenda at the June 22-23 Paris “Summit for a New Financing Pact”—starting by redirecting funds from three parts of our economies that are driving climate change and inequality: fossil fuels, unfair colonial debts, and the super-rich. Coordinated by Oil Change International.
Emmanuel Macron, President of France
Ursula Von der Leyen, President of the European Commission
Charles Michel, President of the European Council
Olaf Scholz, Chancellor of Germany
Kristalina Georgieva, Director General of the International Monetary Fund
Ajay Banga, President of the World Bank
Mathias Cormann, Secretary General of the OECD
All OECD and G7 heads of state not in attendance at the Paris Summit
As climate disasters intensify and as more people than ever are being forced to choose between heating and eating, or transport and shelter, public pressure has pushed world leaders to hold the Paris “Summit for a New Financing Pact” in June 2023. Hosted by French President Emmanuel Macron and Indian Prime Minister Narendra Modi, the Summit is being billed as the first step in a two-year roadmap to overhaul our global financial architecture. The Summit’s stated goal is “building a new contract between the countries of the North and the South to address climate change and the global crisis.”
We, the undersigned economists and policy experts, believe that for the Summit to make progress towards this much-needed goal, the Global North leaders who hold both an outsized say in our global financial architecture and an outsized historic responsibility for climate change must come with serious proposals for public international reparations.
Unlocking and redistributing public trillions is of course only part of what is needed — our international monetary, trade, tax, and debt rules are systematically skewed towards the Global North, allowing wealthy countries to drain a net $2 trillion a year from low income peers. We need a dramatic transformation of this system to one that is rights-based, people-centred, democratic and transparent. But underpinning almost all excuses to keep the rules as-is is the notion that wealthy governments simply cannot afford to pay their fair share. Unless we burst this bubble, it will be hard to cultivate the global solidarity needed to progress in urgent multilateral climate and humanitarian negotiations.
The reality is that public finance is not scarce, especially for Global North governments. We saw them make trillions of dollars in fiscal space available for bank bailouts in 2008, for COVID-19 responses since 2020, and for militaries and police forces year after year. They have no shortage of levers to pay their fair share for the public interest climate and cost-of-living solutions that are desperately needed — both within their borders and abroad.
Unfortunately, the most prominent proposals from Global North leaders in the lead-up to the Summit show there is a risk it becomes an effort to simply rebrand existing approaches. So far, the World Bank Group Evolution Roadmap, Just Energy Transition Partnerships, and Global North country negotiating positions on the climate ‘loss and damage’ fund all rely heavily on the idea that governments can incentivize private banks and corporations to build climate solutions and spur development with only small public contributions and rule tweaks.
From the ‘Billions to Trillions’ agenda to the still-unfulfilled $100 billion year climate finance promise we have seen this approach fail again and again, with far less private money leveraged than promises and profits prioritized over climate and inequality benefits — or often even basic human rights safeguards.
We propose that Global North leaders show they are serious about charting a new path by using the Summit to begin shifting funds away from the parts of our economies that are most dramatically driving our current crises.:
(1) Stop funding fossils — instead make companies pay for their damages: While low income households around the world have been pushed further into poverty over the last few years, oil and gas companies made record profits and wealthy countries continued to heavily subsidize them. This does not just defy economic justice, but climate science too: in the International Energy Agency (IEA) scenario that maintains a 50% chance to limit global heating to 1.5°C there is a rapid phase-out of fossil fuels, and no new investments in new fossil fuel production or LNG infrastructure. Ending fossil fuel handouts in high-income G20 countries alone would raise about USD $500 billion a year. And prominent estimates of a permanent answer to fossil fuel ‘windfall’ taxes range start between $200–300 billion a year.
There is also already momentum to stop a particularly influential form of fossil fuel support, international public finance. Pledges so far would end a key $38 billion a year that plays an outsized role in enabling large fossil infrastructure lock-in in wealthy countries and shift it towards renewable solutions. If a few key laggard countries including Japan, Germany, Italy, and the United States keep their overdue promises to do this at the Summit, it will go a long way to cementing fossil free public finance as a global norm.
(2) Cancel illegitimate Global South debts: The last few years of global crises have compounded already untenable debts in many developing countries, draining public funds that are critically needed to deliver both vital social services and climate action. These debts are also unfair, having been incurred through our neo-colonial global financial system or in many cases during colonization.
Two very first steps Global North leaders can take at the Paris Summit are to unconditionally cancel public external debt for at least the next four years for all lower income countries (estimated at $300 billion a year), and to support rather than block the development of a new multilateral mechanism for sovereign debt cancellation and workout under the United Nations.
(3) Tax the rich: The wealthiest 1% have captured two-thirds of new global wealth created in the last two years, all while we are likely seeing the biggest increase in global inequality and poverty since World War II. Progressive taxes on extreme wealth starting at 2% would raise $2.5 to 3.6 trillion a year, and related proposals to crack down on tax dodging would significantly augment this.
Global North leaders can show they are serious about this by starting with an initial “1.5% for 1.5°C” tax on extreme wealth and dedicating this to the new ‘loss and damage’ fund, and by agreeing to advance a universal and intergovernmental UN Tax Convention.
Together, these modest proposals add up to $3.3 trillion a year — new research in Nature Sustainability estimates the fair climate debts of wealthy countries are double this at $7 trillion a year to 2050. But even this initial redirection of harmful economic flows would have staggering impacts — it would be enough to close the universal energy access gap ($34 billion), fill the ‘floor’ of the ‘loss and damage’ fund ($400 billion per year), meet the overdue climate finance target fully with grants ($100 billion per year), and cover emergency UN humanitarian appeals ($52 billion per year) with plenty to spare.
These commitments would also go a long way in opening the political space needed to retool our global financial architecture so that it can effectively and fairly channel the public money needed to steer us out of the polycrisis. We can’t afford anything less.