COP29 Host Azerbaijan Working on Proposal to Levy Fossil Fuels

(Bloomberg) -- Azerbaijan, which will host this year’s United Nations climate summit, is working on a proposal to place a levy on oil, gas and coal production in order to fund climate action in developing countries.

Azeri officials leading preparations for November’s COP29 gathering will talk about the initiative at a UN meeting next week, according to people familiar with the matter who asked not be named discussing confidential information. They’re unlikely to list countries in support of the levy at this early stage, they said.

Called the “North-South Financial Mechanism,” the program would put some share of fossil fuel revenues into a fund that would finance climate projects. Fossil-fuel producing nations that participate would be shareholders and likely receive some of the profits from any ventures the fund invests in. 

A presentation seen by Bloomberg laid out an example of a $0.20 levy per barrel of oil being applied to Azerbaijan's annual output, which would raise $40 million a year. Based on an average 80 million barrels of oil produced daily around the world, that would equate to about $6 billion a year.

It’s not clear if the idea will gain traction. Even if it does, the end result could look quite different from what the Azerbaijan presidency is advancing now. The proposal has already drawn a skeptical and cautious response from some countries, including the US, the world’s largest producer of oil and gas, people familiar said. Spokespeople for the US State Department climate office and COP29 team declined to comment. 

Climate finance is set to dominate the debate at COP29, which will be held in Baku, and the host country will be judged on its ability to find a breakthrough after years of rich nations falling short of promises to help developing countries cut emissions and deal with more extreme weather. The proposed levy could be a way of showing that fossil fuel producers are stepping up. 

Still, people briefed on the plan said that they were concerned it could provide oil-producing countries with a green light to keep volumes high, under the guise that sales would boost climate finance. Countries agreed to transition away from fossil fuels for the first time at last year’s summit in Dubai, though Saudi Arabia has pushed back on the wording in the deal.

The people were also concerned over how profits from the fund would be distributed: Would they be used to spur fresh climate action or simply reward shareholders? Negotiators will have to hash out is how much is apportioned to clean-energy projects, such as solar and wind farms, and how much will go to climate adaptation, such as building sea walls and setting up emergency warning systems.

Full details of the proposal are unlikely to be announced before COP29, the people said. 

A fossil fuel levy isn’t a new idea. Small island nations first raised the prospect at COP27 in Egypt in 2022. But their proposal was to use the proceeds to fill a fund that would compensate climate-vulnerable countries — those that have contributed little to the climate crisis but bear the brunt of its consequences — for damages caused by more extreme weather.

Global spend on the clean-energy transition reached $1.8 trillion last year, according to BloombergNEF. That sum will have to rise to $2.7 trillion annually to be on track to meet the Paris Agreement goals. Much of that deficit is due to a lack of investment in emerging markets.

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