New Extreme Weather Levy Can Give Chancellor £6.5bn BOOST
Levied when extreme weather triggers are met
Charged on UK’s £326bn fossil fuel investments
Raises £6.5bn in extreme weather year
In the wake of Storms Austen and Boelo, which left over 800,000 properties without power across the UK, Verdant today urges the Chancellor to introduce a first-of-its-kind “Extreme Weather Levy” to raise billions that can help cover the rising costs of climate change.
At a time where fiscal pressures on the UK government are rising, including the costs of climate change itself, the Extreme Weather Levy would be a much-needed new revenue stream.
Levied against investments in fossil fuel assets, the annual levy would rise to 2% in every year that either extreme heat or flood are so bad they meet a pre-defined trigger threshold. Event triggers like this are increasingly used in the design of insurance and similar policies, but this is the first time it has been applied to government revenue measures.
How the levy works
It charges 0.25 per cent a year on the £326bn of fossil fuel shares, bonds and bank loans of UK residents and institutions. This currently raises £0.8bn per year with no trigger.
It charges 2 per cent in a year of extreme weather. One of three objective tests triggers the charge: a Met Office index of rainfall and summer heat; or at least 18,000 properties flooded; or 2,400 heat-associated deaths. This removes political control of the trigger.
Levy charged on the investor, not the company, so producers cannot escape it by moving abroad.
The Extreme Weather Levy is designed to link the costs of climate change back to those overwhelmingly responsible for them: the fossil fuel investments that have driven soaring carbon emissions. We recommend government hypothecate its revenues, forecast to be £57bn by 2050-51, to help cover the costs of climate damage and adaptation to climate change.
By creating real costs from extreme weather events, over time Verdant expect investors to move out of these assets and so accelerate decarbonisation. Our revenue forecasts take account of this behavioural impact over time.
“The rising costs of climate change are creating a pressing need for new revenue sources. The Extreme Weather Levy is a first-of-its-kind proposal to objectively link those soaring costs back to their ultimate source – the fossil fuel investments that cause climate change.”
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