Should major fossil fuel companies pay for climate damage?

Since burning oil, gas and coal generates nearly 90% of the carbon emissions driving global heating, campaigners are calling for fossil fuel producers to pay more in compensation for their part in the climate crisis. 

"Around 70% of global emissions can be traced back to roughly 100 major fossil fuel companies," said Marco Grasso, a professor of political geography at the University of Milano-Bicocca in Italy, who also writes on climate justice. 

A landmark 2023 report co-authored by Grasso calculated that 21 oil, coal and gas corporations including Saudi Aramco, ExxonMobil, Shell and BP will collectively be liable for $209 billion (€193 billion) a year in reparations between 2025 and 2050 — based on their historic emissions.

Fossil fuel companies have a "moral responsibility" to pay climate damages, said Grasso, as they have long "known about the relationship between the burning of their products and the impacts on the climate system." 

Yet he said some companies have not changed their behaviour "in any way," and have instead "funded and orchestrated" climate denial and disinformation campaigns. 

A US Congress report released in April entitled "Denial, Disinformation, and Doublespeak: Big Oil's Evolving Efforts to Avoid Accountability for Climate Change" comes to a similar conclusion. It claims that "fossil fuel companies do not dispute that they have known for more than 60 years that burning fossil fuels causes climate change — yet have worked for decades to undermine public understanding and to deny the underlying science."

Getting polluters to pay

Debate is increasing about the legal or regulatory mechanisms that could force oil, gas and coal majors to help fund communities dealing with extreme climate impacts.

The record Pakistan floods of 2022, for example, which World Weather Attribution (WWA) data said were likely worsened by climate change, killed at least 1,700 people and cost around $30 billion both in damages and economic losses. The WWA is an initiative of scientists investigating whether and to what extent human-induced climate change has played a role in recent extreme weather events.

Recent research led by over 100 campaigners, researchers and government officials has proposed a Climate Damages Tax on oil or gas production in the world's biggest economies. The tax would be a charge of $5 per ton of CO2 that coal, oil and gas companies would bear when extracting fossil fuels. 

The goal is to generate $720 billion by 2030 to support climate vulnerable communities, which would be transferred to the loss and damage fund launched at last year's UN climate conference in Dubai, to help countries recover and rebuild following climate disasters.

A "small tax" on seven of the world's largest fossil fuel majors "would grow" the loss and damage fund by more than 2000%, according to a new analysis by environment NGO Greenpeace. The organization called for a long-term tax on oil and gas extraction that would increase over time, alongside taxes on excess profits.
 
In the analysis, it looked at the costs of damage caused by several extreme weather events attributed to climate change. Taxing Shell's 2023 extraction, for instance, "could cover much of Typhoon Carina's damages."

The typhoon hit the Philippines, China, Taiwan and North Korea in July 2024, causing $2.49 billion worth of harm.

So far, major oil companies are making "a very minor contribution" to existing climate funds that rely on public or state funding, said Carl-Friedrich Schleussner, a science advisor to Berlin-based think tank, Climate Analytics.

Schleussner co-authored a 2023 Climate Analytics study that estimates 25 oil and gas majors made a $30 trillion profit between 1985 and 2018. The study says that emission from burning these fuels have contributed to climate damages — such as the loss of homes and infrastructure, but also of biodiversity — of around $20 trillion. 

The authors argue that the fossil fuel companies could afford to pay this amount in compensation and still register a $10 trillion profit.

"They have the money," said Schleussner, adding that recent record fossil fuel profits made in the wake of Russia's 2022 invasion of Ukraine are being reinvested in fossil fuel projects, he added. 

Some believe that the removal of state fossil fuel subsidies would better redistribute profits from major fossil fuel companies to help pay for climate damage.

According to the International Monetary Fund, global fossil fuel subsidies amounted to $7 trillion in 2022, which is 7.1 % of the world's GDP. This is an increase of $2 trillion over 2020 due to government support from increasing energy costs.

Reducing such subsidies, and redirecting them into loss and damage funds, would be more effective than laws compelling big oil companies to pay for reparations, Grasso said.

Oil companies quiet on climate compensation

DW contacted fossil fuel majors BP and Shell for comment on their intention to pay climate compensation for damages resulting from rising temperatures linked to the burning of oil and gas.

"We agree the world needs urgent climate action," said Netherlands-based Shell in a statement. 

"Shell is playing an important role in the energy transition by providing the energy needed today while helping to build the low-carbon energy system of the future," the statement added. 

Though the company said it was investing $10-15 billion between 2023 and the end of 2025 in "low-carbon energy solutions," Shell includes liquified natural gas as a "critical fuel" in the energy transition. 

Only around 1.5% of Shell's total expenditure in 2021 was invested in renewable energy such as wind and solar, according to reporting by environmental campaigners Global Witness.

At the time of publication, Shell had not replied to a request to comment on this expenditure claim. And UK-based BP declined to comment on its intention to pay climate damages. 

New COP29 climate fund may be 'falling way short'

Meanwhile this summer, the US state of Vermont voted to force oil and gas companies to pay reparations for their historical emissions of climate-wrecking greenhouse gases. 

A month later, Azerbaijan, the host of the COP29 climate talks, launched a Climate Finance Action Fund that will potentially solicit annual contributions from big oil companies. 

"This will be the first fund with both fossil fuel producing countries and companies across oil, gas and coal," noted COP29 Chief Negotiator Yalchin Rafiyev. The fund will finance mitigation and adaptation procedures and address the consequences of climate-related natural disasters, he added. 

But the initiative, which relies on voluntary contributions, is short on detail about how fossil fuel companies will be convinced to pay into the fund and is "falling way short " in terms of scale, Schleussner said.

Rafiyev acknowledged at a preliminary COP29 meeting in October that the fund will realistically only generate "hundreds of billions" to combat the causes and impacts of climate change, even though trillions of dollars will be needed annually. 

To raise the necessary funds to help pay for climate damages, calls are also growing from the likes of UN Secretary-General Antonio Guterres for a windfall tax on Big Oil profits.

International NGO Actionaid calculated that for the two years until June 2023, 36 companies, including 14 fossil fuel majors, had made $424 billion in windfall profits above and beyond their normal gains. 

A 90% tax on these windfalls would raise near US$382 billion, which the report says is nearly 20 times more than that spent globally on climate adaptation in 2021.

A compulsion to pay climate reparations, including via a windfall tax, could also be a disincentive for Big Oil to invest in the fossil fuels that amplify climate damage, according to Schleussner.

"If they pay, it might change the equation," he said.

Edited by: Tamsin Walker