As the world grapples with the escalating climate crisis, innovative financial strategies are emerging to fund the urgent transition to a greener future. Recent research and international initiatives spotlight the potential of reducing fossil fuel subsidies and introducing new levies on emerging technologies like artificial intelligence (AI) and cryptocurrencies to bolster climate action.
According to a comprehensive study by ZEW Mannheim, slashing subsidies for fossil fuels could enable countries to meet their climate targets outlined in the Paris Agreement, which aims to limit global warming to between 1.5°C and 2°C above pre-industrial levels. The agreement sets net zero emissions goals ranging from 2035 to 2070, with a majority of nations targeting 2050. The UK, for instance, has committed to achieving net zero by 2045 and reducing emissions by 69% by 2030.
Fossil fuel subsidies, both explicit and implicit, remain a significant barrier to progress. Explicit subsidies involve direct payments to fossil fuel industries, while implicit subsidies include tax breaks and failure to account for environmental and health costs associated with fossil fuel consumption. In 2022 alone, global fossil fuel subsidies reached a staggering $7 trillion. Countries like Saudi Arabia, Libya, Kazakhstan, Iran, Algeria, Venezuela, Finland, Australia, and Ireland are among the top subsidizers, as reported by Our World in Data.
In the United States, fossil fuel subsidies totaled $757 billion in 2022, with only $3 billion being explicit and a massive $754 billion implicit. Interestingly, these subsidies exceeded federal tax revenues from natural gas and petroleum by $2.1 billion. Despite former President Joe Biden's pledge to phase out fossil fuel investments abroad by 2040, recent policy shifts have seen the US withdraw from the Paris Agreement and introduce anti-ESG (environmental, social, and governance) laws, allowing fossil fuel industries to continue flourishing.
Professor Sebastian Rausch, head of the ZEW Research Unit on Environmental and Climate Economics, explains, "Many governments still help to keep fossil fuels cheap for consumers. For example, explicit subsidies are used to cover part of the supply cost, or external health costs associated with the use of fossil fuels are not included in prices because of implicit subsidies." This practice undermines the true cost of fossil fuels and hampers efforts to reduce carbon emissions.
Reducing these subsidies could have a profound impact. The International Monetary Fund (IMF) highlights that cutting fossil fuel subsidies can stimulate economic growth by correcting resource allocation, reduce pollution, and enable better social spending through tax reforms. ZEW's research suggests that about one-third of countries could meet their climate goals solely by reducing subsidies on coal, oil, and natural gas, potentially achieving emission reductions without additional policies.
Tim Kalmey, a ZEW researcher and co-author of the study, emphasizes the importance of addressing implicit subsidies: "Phasing out explicit subsidies, such as tax exemptions on kerosene or gas price ceilings, would only have a limited effect on CO2 emissions. It is crucial that also the local externalities of fossil fuels, i.e. the harmful effects on health caused by local air pollution, are factored in. We estimate that this would reduce global CO2 emissions by 32%." Eliminating implicit subsidies could enable numerous countries to surpass their climate targets, while effective energy pricing combined with carbon pricing could boost welfare by 120%.
Complementing these findings, a report from the University of Cambridge published in May 2025 underscores three essential climate actions to meet the Paris Agreement goals: transitioning energy production away from fossil fuels, reducing energy use across sectors to facilitate greenhouse gas removal, and optimizing land management through solar radiation modification. The report stresses that many countries continue to heavily subsidize fossil fuels, both explicitly and implicitly, delaying necessary progress.
In parallel, international efforts are underway to explore novel taxation methods on emerging high-energy technologies to fund climate initiatives. Laurence Tubiana, chief executive of the European Climate Foundation and a former French diplomat who co-led the 2015 COP21 conference that birthed the Paris Agreement, advocates for taxing AI and cryptocurrencies. Speaking on July 17, 2025, Tubiana noted, "That could be a first step – again, it’s the same rationale [for AI as taxing cryptocurrency], because they use a lot of energy." She highlighted that bitcoin mining alone consumes energy equivalent to Poland's annual consumption, raising concerns about its environmental footprint.
The Global Solidarity Levies Task Force, which Tubiana co-leads, is spearheading efforts to identify new sources of climate finance by taxing polluting activities, including aviation and fossil fuel extraction. The taskforce recently celebrated a milestone agreement among France, Spain, Kenya, Barbados, Somalia, Benin, Sierra Leone, and Antigua and Barbuda to impose new charges on business-class and first-class airline tickets, as well as private jets. French President Emmanuel Macron urged more countries to join, emphasizing the need for global cooperation to ensure sectors benefiting from globalization contribute fairly to climate financing.
These aviation levies could generate up to €147 billion (£127 billion) annually if major economies participate. This move comes amid a nearly 50% surge in private jet usage between 2019 and 2023, with premium class air travel rebounding faster than economy class post-pandemic. Tubiana remarked, "When you have your car, you pay tax, and when you fly you don’t pay tax, so there is an element of justice there that resonates." She also noted that countries could implement such taxes unilaterally, as aviation taxes are sovereign decisions.
Additional proposals under consideration include a carbon tax on shipping, with the International Maritime Organization agreeing on initial steps in April 2025 and a follow-up meeting scheduled for October. The taskforce is also exploring a tax on stock market share purchases, which research suggests could raise up to €105 billion annually without market disruption.
Environmental advocates like Rebecca Newsom, global political lead of Greenpeace International’s Stop Drilling Start Paying campaign, urge the taskforce to extend efforts to taxing fossil fuel production. She stated, "As fossil fuel barons rake in obscene profits, and people are battered with increasingly violent floods, storms and wildfires, it’s no surprise that eight out of 10 people support making them pay." Newsom called on taskforce members and wealthy nations to act on this widespread public mandate.
Despite these promising initiatives, Tubiana expressed concern over France's recent climate policy direction. President Macron has suggested delaying the European Commission’s proposal for a 90% greenhouse gas emissions cut by 2040, a target set for confirmation by the EU parliament and member states in September 2025 ahead of the COP30 climate summit in Brazil in November. Tubiana described this hesitation as "a very sad story," warning it could undermine the chances of a robust outcome at COP30, where countries must update emissions commitments under the Paris Agreement.
"How can we ask anybody to do something if we’re not doing it, if we’re not proving that we believe we can decarbonise the economy?" Tubiana questioned. "I hope they will wake up to the bad signals they are giving. It’s really not reasonable to think that delaying action will benefit the economy of France. We need innovation, we don’t need to delay."
The convergence of rigorous research and bold policy proposals underscores a critical truth: tackling climate change demands both cutting harmful subsidies and innovating new funding mechanisms. As nations deliberate on their next moves, the world watches closely, hopeful that these combined efforts will accelerate the journey toward a sustainable, resilient future.
