How polluter pays taxes can fund a bold and fair climate plan

The government needs to significantly increase its spending on climate action. Inaction would cost more and investment in climate solutions will bring multiple benefits.

In the 2025 Comprehensive Spending Review, the government did commit additional funding for climate action, including £13.2 billion over 5 years to upgrade homes (eg with insulation and heat pumps) and £2.6 billion to decarbonise transport. But in our view there’s still a big gap to be filled. These are some illustrative examples of where extra money is needed:

• £2.2 billion a year for warmer and greener homes.
• £3 billion a year for better buses, enabling people to access jobs, services and social networks without needing a car.
• £1.8 billion a year for peat restoration and tree planting to reduce flooding and draw down carbon.
• £3 billion a year for farmers to farm in environmentally friendly ways.
• £1.8 billion a year for cycling, wheeling and walking.
• £0.6 billion a year for adaptation to extreme heat.

Although this may seem like a lot of money, inaction would cost more. The Office for Budget Responsibility (OBR) has concluded that “the most recent data and updated modelling suggest that the damage to UK GDP from climate change is likely to be more severe than previously thought”. And of course, the damaging consequences of inaction aren’t only economic, with significant impacts on people and nature already evident as extreme weather increases.

Spending on climate action is an investment in the future. The OBR, the Bank of England and the Climate Change Committee all say that the long-term economic benefits of meeting climate targets outweigh the upfront costs. Climate action also brings multiple other benefits, including cheap and reliable energy, good-quality green jobs and health benefits that cut costs for the NHS.

The government needs to prioritise investment in the most effective actions (rather than false solutions) that will tackle climate change, contribute to economic growth and address inequalities. And it could raise additional revenue by introducing polluter pays and wealth taxes.

The Climate Change Committee says that the private sector can provide the majority of investment needed for mitigation measures between 2025 and 2045, but public investment will still be needed. As explained in question 1, spending on climate action will also save money in the long term. 

What’s more, a fully-funded, robust climate plan can help the government deliver the economic growth it’s striving for. As the Chancellor of the Exchequer said in her speech in January 2025: “There is no trade-off between economic growth and net zero. Quite the opposite. Net zero is the industrial opportunity of the 21st century, and Britain must lead the way.”

Despite this acknowledgement, climate solutions seem to fall foul of the government claim that there’s not enough money due to a “black hole” in public finances. Yet the government seems able to find money to spend on false solutions.

For example, in December 2024 it committed long-term public funding of £21.7 billion over 25 years to subsidise the fossil fuel industry’s unproven Carbon Capture and Storage projects. It’s also committed public subsidies of £1.8 billion for 2027-31 – albeit at half the previous level – to support the Drax biomass power station. This is in addition to £7 billion in public funding already paid to Drax since 2012. The biomass burnt by Drax includes wood chips sourced from felling trees in nature-rich forests in Canada and the US, which produces electricity that’s more expensive and polluting than wind and solar power.

Friends of the Earth and other civil society groups believe it’s time for those companies and individuals that cause the most emissions to pay their fair share – towards both UK and global action. This would mean the costs don’t fall on ordinary people. There’s momentum building for polluter pays and wealth taxes, with growing public support (see question 10) and a new Climate Finance Bill introduced by Labour MP Richard Burgon currently going through parliament.

We believe fossil fuel companies and the wealthiest individuals should pay more. They’re much more responsible for emissions than ordinary people and they can afford higher taxes on their profits and assets.

1. Fossil fuel companies

According to the Carbon Disclosure Project, Royal Dutch Shell plc, BP plc and Total SA are among the biggest global emitters of greenhouse gases. These are international companies operating in the UK. Harbour Energy plc is the biggest UK-based oil company and a major emitter in the North Sea.

Fossil fuel companies can afford to pay more. According to Global Witness, in 2021 BP made £3.7 billion in after-tax profits from its UK production over the previous 3 years, Shell UK made £2.7 billion and TotalEnergies UK made £4.8 billion. Meanwhile, people across the country were struggling with rising energy bills.

Although Shell and BP reported reduced global profits in 2024, they’re still profiting from their damaging activities. Shell posted global earnings of $23.72 billion for 2024 and although this was down 16% on the previous year, it was still able to increase dividends by 4%.

2. The wealthiest individuals who pollute the most

Research for Oxfam found that the richest 1% of the world’s population are responsible for as many emissions as two-thirds of humanity. Even within the UK, where the wealth disparity is comparatively smaller (although growing1), research shows the household emissions of the richest 10% are 3 times that of the poorest 10%. Wealthier sections of society are also hugely overrepresented in consumption of air travel and other luxuries.

Evidence from the US suggests that the financial investments of the wealthiest individuals contribute even more to climate emissions than their personal consumption. But there will be exceptions to the rule, with some wealthy individuals careful to avoid investments in fossil fuels (see question 4).

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  Wealth inequality is increasing in the UK and the Equality Trust recently calculated that the UK’s richest 50 families hold more wealth than the poorest half of the population.

Of course there are always exceptions to the rule, but evidence shows that the wealthiest people contribute far more emissions than others. And many wealthy people themselves support the introduction of wealth taxes to fund public services.

There’s strong evidence that the wealthiest people across the globe are responsible for a disproportionate amount of climate emissions (see question 3). Friends of the Earth thinks it’s fair to expect that individuals contributing most to the problem and most able to pay should pay. Equally, it’s unfair for disproportionate taxation to fall on low-income households that are much less responsible for emissions and tend to suffer more from climate impacts. 

Of course, some wealthy individuals may choose to avoid investments in high-carbon activities and live a low-carbon lifestyle so may find it unfair to be taxed in the same way as high emitters. But many millionaires support wealth taxes if they fund positive environmental and social outcomes.

Patriotic Millionaires is a movement of UK millionaires calling for higher taxation to pay for public services. Their polling found that 65% of UK millionaires want the wealthiest to pay more and are more likely to vote for a political party that commits to this.

A wealth tax set at a high threshold of £10 million in assets (see question 6) would ensure that only a tiny proportion of the population is impacted – just 0.04%, or around 20,000 people.

Yes, the government already uses polluter pays taxes to raise money, but it doesn’t use the money specifically on climate solutions. This is out of step with public opinion (see question 10).

The polluter pays principle has been around in international and EU policy making since the 1970s and was enshrined in UK law in the Environment Act 2021 following Brexit. But it’s not being used effectively to fund climate solutions.

For example, Vehicle Excise Duty (VED) is used to influence behaviour by taxing more polluting vehicles at a higher rate. The government is updating VED rates in 2025 to strengthen incentives to purchase zero-emission and electric vehicles (EVs). But it’s still not using the revenue to help the shift by, for example, funding EV charging or making the purchase of EVs more affordable.

There’s also an existing (but temporary) Energy Profits Levy (EPL) on oil and gas companies, known as the windfall tax, which was introduced after companies made record profits due to the sharp rise in energy prices caused by the war in Ukraine. The government is consulting on a permanent mechanism for responding to oil and gas price shocks. Although the government refers to the EPL as helping low-income households and the green transition, the levy isn’t legally pledged to this purpose so it’s not actually targeted at funding these solutions.

The revenue raised from both these levies could and should help fund climate solutions. For example:

• The OBR estimates that VED will raise £9.1 billion in 2025-26.
• The EPL is expected to contribute £19 billion between now and 2030.

New forms of polluter pays taxes will also be needed to raise revenue on the scale that’s needed (see questions 1 and 6). This is partly because, over time, the revenue from existing levies will decrease as we shift to EVs and renewable energy.

The money raised will depend on which taxes the government is willing to introduce and how they’re designed. We’ve set out some illustrative examples of how polluter pays taxes could raise significant funding for a bold and fair climate plan.

We’ve drawn on the work of our partners that have made proposals for new forms of polluter pays taxes to illustrate what’s possible. For example:

• The New Economics Foundation has calculated that a package of taxes – including on ultra-frequent flyers, the most polluting long-distance flights and luxury seats (premium, business and first class) – could raise £6 billion a year, while also cutting emissions from aviation.
• Oxfam has calculated that increasing Air Passenger Duty tenfold on private jets could have raised £470 million in a single year.1 Additional taxes on jet fuel and landing/ departure slots as well as applying VAT to private aviation could raise up to £1.2 billion more. A new tax on the ownership of superyachts could raise a further £360 million. Oxfam found that just based on superyachts and jets, 31 of the wealthiest individuals in the EU emit 432 times more carbon per person than the average European.
• Global Witness has calculated that a Climate Damages Tax could potentially raise £400 million a year for UK action over a decade if just 20% of the total raised was allocated to national action (with 80% allocated to global contributions). This would be levied on fossil fuel companies and based on an extraction fee per tonne of carbon released. The recommended model from Greenpeace, Stamp Out Poverty and others starts at a relatively low rate in the early years, rising over the decade.
• Many organisations including Global Witness, Oxfam, Tax Justice UK and Patriotic Millionaires are supporting a 2% tax on assets over £10 million. It’s been estimated that this could raise up to £24 billion a year in the UK to fund climate action (including a just transition) and public services as well as tackle inequality. Even if only a fraction of this was used specifically for actions in the climate plan, it would make a difference. For example (referring to the costs set out in question 1), just £4 billion a year could help ensure that low-income households have warmer homes and improve walking and cycling infrastructure to benefit those without cars as well as air quality.

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  Calculations based on 2023 data. The UK government’s 2024 Budget introduced a modest increase in Air Passenger Duty for a limited subset of private jet flights, which would marginally affect future estimates.

As one of the biggest emitters historically, the UK has a responsibility to contribute its fair share to global action and support low-income countries experiencing the worst impacts of the crisis.

In addition to funding UK action, polluter pays and wealth taxes should be used to increase the UK’s contribution to international climate finance. We therefore need to assume that some of the new money raised is used for this purpose. Given the UK’s huge historical contribution to the emissions that are driving climate change, we’re calling for the government to increase international climate finance to £9.4 billion a year, up from the current £2.3 billion a year.

The UK also needs to play its part in contributing to the UN’s Loss and Damage Fund to cover the severe climate impacts on low-income countries. This will be a focus at the 2025 international climate talks in Brazil (COP30), especially as wealthier nations have so far committed only a tiny proportion of the funding needed. This isn’t explicitly linked to the UK’s forthcoming climate plan, but Friends of the Earth supports calls for polluter pays taxes to help raise the UK’s contribution to the Loss and Damage Fund.

Yes, there are several examples of where polluter pays and wealth taxes are being used to raise money around the world.

Oil and gas companies

Norway taxes oil and gas companies' profits at a higher rate (78%) than the UK. Although the UK’s Energy Profits Levy (see question 5) has temporarily raised taxation to a comparable level, it’ll fall behind again if the EPL ends in 2030.

Other countries already tax oil and gas production. For example, under the Biden administration, the US federal government received a minimum royalty rate of 18.75% on the revenue from offshore wells. The Trump administration has legislated to reduce the minimum royalties to 12.5%. But it’s still higher than the UK, which abolished production-based oil and gas royalties in 2002.

UK oil and gas production in the North Sea has been in decline since the turn of the millennium, and it’s expected to decline even further. To cut emissions, the government must end new oil and gas licences and developments, while ensuring workers are supported to move into other industries. As a result, tax revenues from the oil and gas industry will decline in the long run, but they can still contribute over the next decade.

Private jets

The UK has much lower taxes on private jets than France. Even after recent rises in Air Passenger Duty for private jets in the UK (which will take effect in April 2026), the French taxes per passenger are set to be at least 256% higher than the UK for short-haul flights and 58% higher for long-haul flights. France’s higher tax rates on private jets came into effect in March 2025 so we don’t know yet exactly how much they’ll raise, but the French government projected they’ll raise €150 million.

Superyachts

The UK only charges the standard VAT rate of 20% on superyacht purchases. This fails to remedy the huge negative environmental impacts that superyachts impose on the rest of society. In contrast, Spain, in addition to charging the standard VAT rate of 21%, levies a 12% matriculation tax rate on private yachts over 8 metres in length (with exemptions for commercial charters).

Wealth taxes

Two of the world’s most prosperous countries per person, Switzerland and Norway, have successfully operated wealth taxes for over a century. In 2023, Swiss wealth taxes generated 10.8 billion Swiss Francs (equivalent to over £10 billion).  

No they won’t as long as they’re applied fairly. That means taxing frequent flyers and luxury seats, while also offering discounts for ordinary people going on their annual family holiday.

We think that taxes on aviation need to be designed fairly so that those who pollute the most pay the most. That’s why we support the New Economics Foundation’s (NEF) proposals (see question 6), which include a “first-flight” discount for all UK residents, applied as a discount on flights departing the UK. This discount would protect the family holiday and lower income households from price rises.

NEF’s analysis shows that recent growth in aviation derives from “more frequent flyers, flying more frequently”. These ultra-frequent flyers, who fly 6 or more times each year, make up less than 3% of the UK population but take almost a third of all UK departures. NEF found that, “contrary to popular belief, the majority of the flights taken by this group are taken for leisure, not business. The group are more likely than average to take shorter-haul flights replaceable by train journeys and much more likely to travel in business or first class.” 

NEF’s proposals would tax frequent flyers and also raise the price of luxury class seats, with just under 2% of the UK population flying in luxury classes. These measures would be in addition to higher emissions charges and a carbon tax on flights beyond the EU. NEF has calculated that its proposed measures would deliver up to a 28% reduction in UK aviation CO₂ emissions by 2030.

Public support for polluter pays taxes is strong and widespread.

Opinion polls show that there’s public support for making polluters pay:

• In June 2025, a YouGov poll for Friends of the Earth asked whether people would support “Requiring those who produce the most pollution – such as fossil fuel companies – to pay more to fund environmental improvements”. 78% of respondents were in support of this.
• By August 2025, 245,000 people had signed the Polluters Pay Pact, which calls on governments around the world to make oil, coal and gas corporations pay their fair share for the damage they cause.
• In a consumer panel organised by the Climate Change Committee when it was drawing up the 7th carbon budget, members most strongly supported a frequent flyer levy or an emissions/ distance-based tax to manage aviation demand (see question 6).