Reclaiming tax sovereignty to transform global climate finance – Tax Justice Network

Executive Summary

Climate finance is often framed as a search for new money. Our analysis and the climate finance slider released with this report, shows that the real issue is not scarcity but capture. Extreme wealth and undertaxed multinational profits are plentiful; what is missing is countries’ ability and willingness to tax them. This ability, tax sovereignty, has been weakened both by global rules that favour profit shifting and by domestic policies shaped by those who benefit most from the status quo.

We offer a blueprint for a global climate finance pool funded through progressive reforms. This report makes a critical contribution to the fight for fair and sufficient climate finance by:

• Exposing false scarcity: Applying a moderate wealth tax and implementing measures to end cross-border tax abuse across 187 countries could raise sums that dwarf today’s climate finance gap, with money left to spend domestically.
• Laying bare the tax sovereignty gap: Two thirds of countries could become net recipients of this pool while still adding domestic revenue, providing evidence that when governments regain and fairly exercise taxing rights, resources flow in rather than out.
• Showing scale is achievable: The reforms must match or exceed most existing proposals for climate finance funds.

Two case studies illustrate two very different tales of tax sovereignty, and the devastating linkages to climate justice and public finance. In Tanzania, we showcase how taxing rights are diluted by profit-based mining agreements, long-life stabilisation clauses that lock in tax breaks, and treaty rules that shift taxing rights abroad, all compounded by limited capacity to audit and litigate with multinational corporations. In the United Kingdom, tax sovereignty is self-restricted by successive cuts to top rates and lack of a net wealth tax, a patchwork of incentives (such as the non-dom regime) that invite underpayment, and the City’s influence over policy. The UK also incentivises profit shifting through its overseas territories, weakening its own and other countries’ tax bases.

Together, our findings demonstrate that claims of “no fiscal space” are convenient narratives, not economic facts. The report recommends the following:

Priority actions for civil society coalitions and allies

• Challenge the false narrative of fiscal scarcity by making the scale of untapped domestic revenue visible and politically salient.
• Build cross-movement alliances linking tax justice, climate justice and debt justice movements to challenge elite capture and reclaim public control over global tax and climate finance systems.
• Centre tax sovereignty as a climate justice issue and highlight how tax abuse by elites and multinationals undermines public finance for climate action.
• Expose the role of financial secrecy, tax abuse and corporate lobbying in blocking progress on climate finance.

Technical actions for governments

• Support negotiations for a United Nations Framework Convention on International Tax Cooperation (UNFCTC) and embed standards that guarantee equal rule-setting power for all countries. This includes a fair dispute resolution mechanisms that lowers the threat of existing Investor State Dispute Settlements (ISDS).
• Reclaim taxing rights for source countries by reallocating profit taxation and enforcing minimum effective corporate tax rates, especially in high-emitting sectors, and ensuring the necessary transparency and cooperation to enable effective wealth taxes in each country.
• End the race to the bottom by eliminating harmful tax incentives and introducing progressive wealth and capital taxes targeting elites and carbon-intensive industries.
• Redirect tax revenues into national climate transition plans and contribute fairly to global climate finance through transparent and accountable mechanisms.

Reclaiming tax sovereignty through these steps would not merely fill a funding gap. It would reshape global taxation to serve climate justice and restore democratic control over public finances. Revenue can be raised fairly and reliably from those most able to pay and directed to where they are most urgently needed.

1. The climate finance crisis is a crisis of power, not of resources

Countries have systematically failed to meet even the modest US$100 billion per year climate finance pledge made by developed countries at COP15 in 2009. Yet estimates now suggest that the annual cost of addressing the climate crisis around the world may reach US$9 trillion by 2030[1]. Every moment of inaction drives this figure higher. The chronic failure to mobilise and institutionalise adequate and fair climate finance is not simply a question of broken promises. It reflects political and economic power dynamics within an unjust global system.

To date, climate finance strategies have relied heavily on three pillars: voluntary contributions through public pledges, such as the US$100 billion goal for adaptation and mitigation agreed at COP15; market-based mechanisms, such as carbon trading and green bonds; and blended finance approaches designed to leverage private capital. But all three have fallen short. Voluntary pledges remain unmet, carbon markets have struggled with credibility and equity[2] issues, and private investment continues to prioritise profit over long-term resilience and justice.

By contrast, tax revenue, especially when raised through progressive and redistributive measures, offers a reliable, sovereign and equitable means of financing climate action. Taxes can be designed to reflect responsibility and ability to pay, while also strengthening democratic mandates and public trust. In the face of escalating climate costs, fiscal policy must become a central tool in delivering both national and global climate finance commitments. Financing climate action sooner rather than later is critical. This includes reparative finance for loss and damage to compensate countries harmed by a crisis they did not cause, as well as funding for adaptation and mitigation.

1.1 Why this report, and why now

Governments across the globe continue to claim that resources are scarce or unavailable. However, in reality, trillions in untapped tax revenue exist within the current global financial architecture[3]. What is missing is not money, but political will. Taxation is not merely a budgetary tool—it is a survival mechanism.

This report starts from the recognition that the climate crisis is not fundamentally a crisis of resources. It is a crisis of power, political capture and imagination. As others have noted[4], the real obstacle to change is not an absolute lack of revenue, but a failure to reimagine what progress looks like in a warming, deeply unequal world. Fossil-fuelled development paths are assumed to be inevitable or necessary, even when they are economically inefficient, environmentally devastating and politically unjust. We argue that tax, often seen as too technical or divisive, is central to breaking through this stalemate.

Specifically, we must revisit how tax sovereignty is understood and exercised in the face of the climate emergency. Tax sovereignty, the ability of states to set and enforce their own tax policies in the sovereign interest of their own people and without external interference, is often invoked by governments as a shield to protect their freedom not to tax. But in a world on fire, that freedom is no longer neutral. When the costs of the climate crisis are rising rapidly and falling most heavily on those who did least to cause it, the decision not to mobilise available tax revenues, particularly from extreme wealth or polluting profits, is no longer simply a domestic prerogative. It becomes a crisis of power, not of resources.

Today, many governments still misuse or underuse their tax sovereignty, upholding the right not to tax in ways that prevent urgently needed public finance from being raised. Many other governments are limited in their ability to exercise their tax sovereignty. This, in turn, creates a race to the bottom, making it more difficult for other countries to maximise revenue raising. Additionally, many governments have made choices to be tied down in international tax and investment protection treaties, many of which were signed before the climate emergency escalated. Undoing these choices is difficult and curtails the exercise of full tax sovereignty needed to address present climate challenges.

In this report, we focus on two specific trends:

In the Global North, governments have failed to harness the full potential of progressive taxation. Wealth taxes, which can raise trillions of US dollars annually, remain almost entirely absent, even as extreme wealth concentration and carbon-intensive capital accumulation violate the polluter pays principle. Generous subsidies and incentives[5] to polluting industries, along with sustained tax cuts, further undermine the fiscal base for climate action.

In the Global South, tax sovereignty is actively undermined, either through past decisions to be bound by outdated international treaties or through external political pressure that prevents a country from exercising its sovereignty.

Collectively, countries lose hundreds of billions of US dollars each year through corporate profit shifting and tax abuse. International tax rules, largely shaped by the OECD and wealthy countries, limit the taxing rights of developing nations. Illicit financial flows, often channelled through secrecy jurisdictions that enable opacity in financial systems to facilitate tax abuse and are hosted by the Global North, rob (all) governments of urgently needed revenue to finance their own transitions as well as promoting wasteful corruption. This is compounded by the failure of international climate finance mechanisms to deliver timely and sufficient support.

To address the climate crisis at the scale required, we must abandon the prevailing narrative of scarcity. Climate finance is too often framed as a matter of limited fiscal space, best addressed, it is claimed, through voluntary contributions, carbon markets or private investment flows. This narrative obscures the deeper issue: a refusal to tax existing wealth and profit in ways that would fund a just transition. Taxation must be reframed as a cornerstone of climate justice.  So must tax sovereignty, not as a shield for inaction, but as a tool for survival.

1.2 Tax sovereignty, human rights and reparations

This report rests on a set of core principles[6]:

• The polluter pays principle: Climate finance must go beyond national borders to address global responsibilities. Those who have contributed most to the crisis must pay their fair share, not only for local mitigation, but for adaptation and irreversible loss and damage elsewhere.
• Common but differentiated responsibilities (CBDR): All countries must act on climate, but richer, higher emitting nations must contribute more. Climate finance frameworks, and tax reforms to fund them, must reflect historic emissions and unequal capacities.
• Tax as a social superpower: Taxes do more than fund public services. They redistribute wealth, disincentivise harmful behaviour, and forge accountability between states and citizens. They are uniquely powerful in delivering just and lasting change.
• International cooperation with equity at the centre: Climate finance decisions must align with human rights, democratic participation, and UN principles. No fair climate finance regime can be built on rules that exclude the voices of those most affected, particularly Global South countries and frontline communities.

Climate finance must be understood not as charity but as a matter of global justice and legal obligation. The Maastricht Principles on the Extraterritorial Obligations of States affirm that governments have responsibilities to avoid harm and to promote equity beyond their borders. This legal framework aligns with the Common but Differentiated Responsibilities and polluter pays principles, which recognise the disproportionate role of wealthy nations and polluters in causing the crisis, and their duty to finance its solutions.

A reparations-based approach to climate finance affirms that countries in the Global South have a right to access adequate, fair and reliable funding, not because of goodwill but because of ecological debt owed. Taxation is central to delivering this finance. Properly designed progressive tax policy, such as wealth taxes and rules to stop cross- border tax abuse, can not only mobilise the required revenue but also reduce inequality and limit the excess consumption of the very wealthy. Tax is both a fiscal and behavioural tool.

To make this argument tangible, this report introduces a new interactive tool: the climate finance slider. Based on original Tax Justice Network country level data, the tool allows users to explore how much revenue could be generated through two key tax justice reforms: introducing wealth taxes and curbing cross-border tax abuse. Crucially, it allows users to allocate this revenue between domestic spending and global climate finance contributions. This illustrates a key argument: it is a false choice to pit national spending priorities against global obligations.

The climate finance slider demonstrates that countries, including those in the Global South, can simultaneously raise public finance at home and contribute to international climate finance, provided tax sovereignty is reclaimed and fairly exercised. Most countries, in fact, are likely to be net recipients under a progressive system. What stands in the way is not technical feasibility. It is entrenched inequality and political resistance.

This report places tax sovereignty at the heart of climate justice. Many countries want to implement tax reforms to raise public revenue and finance domestic transitions but cannot do so because their sovereignty is constrained. Other countries are better able to act but choose not to implement such measures because they are perceived not to be in the national interest. Through case studies, policy recommendations, and data derived from our work on wealth taxation and longstanding research on tax abuse, we show how rethinking taxation, both globally and domestically, can help close the climate finance gap and build fairer societies in the process.

2. Inequality in a warming world: Climate breakdown and fiscal power

This section unpacks the core injustices embedded in the climate finance crisis, including what is needed, who is paying and who is not. It illustrates how entrenched global inequalities, including in taxing rights and fiscal capacity, undermine just responses to a warming world, and how wealthy nations and multinational corporations continue to benefit from existing frameworks.

2.1 The climate finance gap: costs, needs and broken promises

The global community is failing to deliver on even its most modest climate finance pledges. The US$100 billion annual target, first committed to at COP15 in 2009, has repeatedly been missed[7]. Current pledges for the Loss and Damage fund are far below the hundreds of billions of dollars that frontline communities will need. Financial needs are ballooning. By 2030, the combined cost of climate adaptation, mitigation and loss and damage may reach US$9 trillion annually[8].

These costs are not abstract: they translate into lives lost, livelihoods destroyed, and entire regions rendered uninhabitable. Climate-vulnerable countries need at least US$1.3 trillion a year by 2030 just for mitigation and adaptation[9]. Global climate finance remains severely underfunded, especially the loss and damage fund, which to date relies on inadequate, ad hoc and discretionary pledges from some rich countries rather than enforceable, fairly quantified contributions.

Meanwhile,

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