Global Climate Tax Proposal Targets Major Oil Companies

UN Considers Global Tax Collaboration Targeting Oil and Gas for Climate Funding

The United Nations is currently evaluating a new framework for international tax cooperation, which includes proposals to raise funds from the oil and gas sector to address climate change. While this is not the first initiative to hold the industry financially accountable, its prospects remain uncertain.

This initiative falls under the Framework Convention on International Tax Cooperation, a draft agreement being negotiated at the UN headquarters in New York. The goal is to enhance global tax collection and increase contributions from the world’s wealthiest entities. Sustainability is a central theme in these talks, with many member states advocating for oil giants to help cover the costs of climate-related disasters. However, some nations are hesitant to impose such obligations on the industry or to levy additional taxes on the ultra-rich.

Recent reports from the negotiations reveal suggestions to tie oil company profits to climate compensation payments. Yet, these proposals have faced criticism for lacking specificity and strength. Proponents argue that such measures could have generated up to $1 trillion since the 2015 Paris Agreement, but consensus remains elusive.

If a global tax on oil companies for their perceived role in climate change is enacted, it is likely to provoke legal challenges from the industry. Previous lawsuits brought by environmental groups have produced mixed outcomes in holding oil firms financially responsible for climate impacts.

Related: Marathon Petroleum Surpasses Earnings Forecasts as Refining Margins Climb

Legal Actions Against Oil Companies in the U.S.

In 2024, California initiated legal proceedings against major oil corporations, alleging that they downplayed the environmental risks associated with fossil fuels. The lawsuit targeted companies such as Exxon, Chevron, BP, and ConocoPhillips. Later, Attorney General Rob Bonta introduced a provision requiring any party profiting from illegal or wrongful acts to forfeit those gains, aiming to deter misconduct and prevent unjust enrichment.

The outcome of this case is still pending. Recently, California officials have moderated their stance towards oil companies, seeking to maintain refinery operations and prevent further increases in fuel prices, even as the state pursues electrification in transportation.

Other States Join the Fight

Maine has also filed a lawsuit against major oil firms, accusing them of misleading the public about the dangers of fossil fuels. A federal judge allowed the case to proceed, with plaintiffs claiming that several oil companies and the American Petroleum Institute concealed critical information about the harmful effects of fossil fuel use on Maine’s people, economy, and environment.

Taxation as an Alternative to Legal Battles

Legal strategies—often referred to as “climate lawfare”—have become a favored approach for activists seeking to hold the oil industry accountable for climate change. However, given the uncertain success of litigation, taxation is emerging as an alternative means to secure funding for the costly energy transition. As the expenses of shifting to cleaner energy sources continue to rise, finding new revenue streams has become increasingly urgent.

The oil sector, given its substantial profits from essential energy commodities, is a primary target for these new taxes. While these commodities are vital, they are also blamed for contributing to climate change, leading to calls for the industry to help finance mitigation efforts. Whether the UN negotiations will ultimately result in a global tax on oil companies remains to be seen. Even if such a measure is adopted, countries hoping for immediate revenue may need to be patient, as the industry is expected to resist vigorously.

By Irina Slav for Oilprice.com

Further Reading from Oilprice.com

• Oil Tanker Rates Surge Amid Shipping Constraints and Middle East Unrest
• Kuwait Looks to International Partners for Offshore Oil Development
• BP Investors Seek Evidence That Transition Away from Fossil Fuels Will Deliver Returns

Get Ahead with Oilprice Intelligence

Oilprice Intelligence offers you expert insights before they make headlines. Trusted by seasoned traders and policy advisors, this resource provides twice-weekly updates so you’re always informed about market movements.

Gain access to geopolitical analysis, exclusive inventory data, and insider market trends that influence billions in capital. Subscribe now and receive $389 worth of premium energy intelligence at no cost. Join over 400,000 readers—click here to get started instantly.