Pieces still missing from climate jigsaw

Since Donald Trump began his second term as President of the United States, it has become even harder to cope with the daily flood of news. There is a significant risk that, in the heat of the moment, we might lose sight of the big issues like demographic change, global warming and biodiversity loss. 

Some important progress has been made in the field of sustainable finance, from self-regulation on investment and mortgage advice to prevent greenwashing to the obligation for large corporations to report on their climate impact and transition measures. This shows that the financial sector does not lack awareness, and the capital needed is also available. The Swiss Bankers Association (SBA), for example, produced a study in conjunction with BCG back in 2021 that concluded that over 90% of the investment of around CHF 13 billion a year needed to tackle greenhouse gas emissions in Switzerland could be financed via bank loans, mortgages and the capital market.

The elephant in the room 

What, then, should be Switzerland’s next step towards actually achieving the Paris Agreement goal it has committed to? The sort of interventionist micromanagement the EU experimented with and is now having to dial back can hardly be the answer. It is time to address the elephant in the room: the need for a gradual introduction of measures to make manufacturers and consumers pay for the emissions they cause. One such instrument, the CO2 levy, has been around since 2008, but it has been restricted to fossil fuels (heating oil and natural gas) up to now. Fuels used in transportation have so far been bracketed out, even though transportation (excluding international air travel) accounts for 41% of Swiss emissions. It is understandable that this tax is unpopular among the population and politicians. No one likes higher prices. That said, who will bear the cost of the damage caused by climate change in the future? The SBA is convinced that extending the CO2 levy is the best way forward, and it is not alone. The OECD, for instance, published a joint study at the end of 2024 with the World Trade Organization (WTO), the International Monetary Fund (IMF), the United Nations Conference on Trade and Development (UNCTAD) and the World Bank. After examining various political options, the authors in fact singled out a CO2 tax as the only effective measure.

An essential prerequisite 

On reading the above study, a key point stands out that every economist learns in the first semester of microeconomics. The revenue from a tax of this kind must be redistributed fairly in order to neutralise its distribution effect. This is exactly what Switzerland’s health insurance companies do. A recent study by the German Institute for Economic Research (DIW Berlin) underscores this point. The more revenue is redistributed to the population, the more support there will be for a CO2 tax. It is therefore high time to put this topic on the political agenda!