As the world prepares for COP30 in Belém, Brazil, developing countries are taking significant steps in environmental taxation and climate financing. These efforts aim to balance economic growth, social equity, and environmental sustainability—while also asserting some leadership in global climate governance.

1. The Growing Threat of the Climate Crisis

The urgency of climate action has never been greater. In 2024, the world recorded its warmest year on record, with global average temperatures exceeding 1.5°C above pre-industrial levels for the first time. Forecasts from the World Meteorological Organization (WMO) suggest that the period from 2025 to 2029 will likely continue this trend, with an 86% chance that at least one year will again surpass the 1.5°C threshold

This level of warming is already driving more frequent and intense heatwaves, droughts, floods, and sea-level rise.

But the climate crisis is not acting alone. It is deeply intertwined with four other escalating global emergencies:

• The biodiversity crisis, as ecosystems collapse under pressure from habitat loss, pollution, and warming.
• The water crisis, with droughts and contamination threatening freshwater supplies.
• The food crisis, as agricultural systems struggle with erratic weather and degraded soils.
• The public health crisis, with rising temperatures and pollution exacerbating disease, malnutrition, and displacement.

In 2024, countries reached a consensus: no solution to these crises can be isolated. Every policy or investment must address at least two of these interconnected threats. Measures that solve one problem while worsening another—such as deforestation for agriculture—are no longer considered viable. This integrated approach is now a guiding principle for climate and development strategies heading into COP30.

2. Environmental Taxation in Developing Countries

 Initiatives and Approaches

Carbon Pricing and Taxes

The number of carbon pricing instruments around the world has increased to 75, which means coverage of about 24% of global greenhouse gas emissions in 2024, up from only 7% coverage when the World Bank started tracking two decades ago
Several developing countries are implementing or exploring carbon taxes to internalize the environmental costs of fossil fuels. For example, South Africa and Colombia have introduced a carbon tax targeting emissions from the industrial and energy sectors, with revenues earmarked for green projects, and Mexico has incorporated carbon pricing mechanisms into its broader climate policy, incentivizing renewable energy investments, among others.

Capacity building
The Addis Tax Initiative (ATI) launched a 2024–2025 workshop series on environmental taxation “beyond carbon pricing”. It promotes peer learning and capacity building to address pollution, resource depletion, and biodiversity loss.

Environmental Tax Reform (ETR)
Countries like Vietnam, Thailand, Mexico, Chile, China, and Mauritius are introducing taxes on fuel, plastic, and industrial emissions to expand fiscal space and fund sustainable development.

Escalator Approach
Experts recommend starting environmental taxes at low rates and increasing them annually (indexed to inflation or GDP growth). This phased approach builds political acceptance and ensures long-term impact.

Resource and Pollution Taxes
Among others, India has implemented taxes on coal and other fossil fuels, with revenues supporting renewable energy and  Indonesia has introduced levies on plastic and waste, aligning with circular economy principles.

Eco-Taxes and Incentives
Many countries are deploying eco-taxes on plastic bags, single-use plastics, and vehicles to promote sustainable consumption.

Challenges in Implementation

• Trust and Awareness: Public skepticism, corruption concerns, and limited awareness hinder progress.
•  Balancing Objectives: Policymakers must weigh environmental goals against fiscal needs, competitiveness, and social equity.
• Stakeholder Engagement: Transparent communication and earmarking revenues for visible environmental projects can build public support.

3.  Climate Financing: Global and Developing Country Perspectives

Recent Developments and Commitments

New Collective Quantified Goal (NCQG)
At COP29 in Baku (2024), countries agreed to mobilize $300 billion annually by 2035 for developing nations, with a broader target of $1.3 trillion per year from all sources.

Multilateral Development Banks (MDBs)
Eleven MDBs pledged $120 billion annually by 2030 for low- and middle-income countries, plus $50 billion for high-income countries.

Direct Access and Adaptation Finance
The Adaptation Fund enables direct access for national entities in developing countries, emphasizing locally led adaptation and simplified procedures, and reducing barriers such as overly complex application processes.

Mobilizing Resources for Climate Resilience

• Domestic Climate Funds: Brazil has established national funds for adaptation and mitigation. Kenya’s Green Economy Trust Fund supports renewable energy and resilience projects.
• Debt-for-Climate Swaps: Countries like Ethiopia have negotiated debt relief in exchange for climate commitments.
• Green Climate Fund (GCF): Supports clean energy and sustainable agriculture across Africa, Asia, and Latin America.

The Rising Role of Developing Countries

Developing countries, despite their historically low emissions, face disproportionate climate risks. Their fiscal policies demonstrate leadership in: Reducing greenhouse gas emissions through targeted taxes and incentives (5), mobilizing domestic financial resources to complement international climate finance. Encouraging private sector investment in green technologies and increasing resilience to climate change.

4. Looking Ahead

• As COP30 approaches, developing countries are shaping the global agenda through:
  Broadening environmental taxes to address multiple sustainability challenges
• Reforming subsidies and fiscal policies to support green transitions while protecting vulnerable populations
• Advocating for equitable climate finance from developed countries and international institutions

These efforts reflect a growing recognition that environmental and fiscal policies must work together to achieve sustainable development and climate resilience.

COP30 in Brazil offers a pivotal platform for developing nations to showcase their leadership, seek increased support, and negotiate ambitious commitments. Strengthening international cooperation, ensuring equitable finance flows, and sharing innovative fiscal strategies will be vital to accelerating global climate action.

References

1. World Meteorological Organization (WMO), “State of the Global Climate 2024,” 2025. [https://wmo.int/publication-series/state-of-global-climate-2024]
2. Addis Tax Initiative, “Environmental Taxation Beyond Carbon – Workshop Series,” 2024–2025. [https://www.addistaxinitiative.net/news/environmental-taxation-beyond-carbon-ati-workshop-series]
3. UN Framework Convention on Climate Change (UNFCCC), “COP29 Outcomes: New Collective Quantified Goal,” 2024. [https://shorturl.at/z4nGp]
4. International Centre for Tax and Development (ICTD), “Environmental Taxation and Development: A Scoping Study,” 2023. [https://www.ictd.ac/publication/environmental-taxation-and-development-a-scoping-study/]
5. OECD, “Tax and Development Days 2025,” March 2025. [https://www.oecd.org/en/about/directorates/centre-for-tax-policy-and-administration.html]
6. Multilateral Development Banks, “Climate Finance Commitments,” 2024. [https://www.adb.org/news/climate-finance-multilateral-development-banks-hits-record-2023]
7. Green Climate Fund (GCF), “Annual Report 2024.” [https://unfccc.int/documents/640525]

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