TURNING THE RIGHT CORNER

ENSURING DEVELOPMENT

THROUGH A LOW-CARBON TRANSPORT SECTOR

Andreas Kopp

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Transport is crucial for development

• There is not necessarily a conflict between low carbon intensity and income growth (fast growing Asian countries)

• Low-carbon transport is not only a matter of progressive engine technologies

• Affordability, low transport costs depend on adaptation and mitigation policies now.

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Figure 1. Countries have a choice: energy consumption in road transport can be low at high per capita incomes

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Outline 1/2

• A narrow climate change agenda limits the chances for reform in transport

– Technical change is not the solution to high emissions

– Deeper cuts in emissions depend on changing behavior and mobility patterns

– Deeper cuts depend on early action in infrastructure policies

• Financing costs of adaptation and mitigation are high

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Outline 2/2

• Financing schemes of a narrow climate agenda have failed in transport

• Inclusion of “co-benefits” reduces the costs of change

• Fiscal measures to correct for external costs self-finance reform

• Fiscal measures make a change in the long-run

• A broad reform agenda requires policy coordination

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Technical change is not the solution to high emissions

• Even under optimistic assumptions on technical change of engine technologies, emissions will not be drastically reduced

• Deep cuts in emissions depend on breakthroughs in biofuel technologies and fuel cell technologies (and CCS in energy)

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Figure 2. Business as usual will make transport the dominant consumer of oil

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Oil consumption increases in the medium term… and in the long

Source: IEA (2009). Source: Clarke (2007).

Figure 4. The optimistic view: reductions in transport related CO2 emissions by technical standards

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IPCC Deep cuts only after 2030

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Carbon pricing induces behavioral change…

Carbon price paths depend on biofuels and CCS

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Figure 6. …and still transport becomes the main emitter, even with carbon pricing leading to a greenhouse gas concentration of 450 ppm

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Source: Clarke and Calvin (2008).

Figure 7. The pessimistic view: transport remains a major CO2 emitter, even with carbon capture and storage

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With CCS Without CCS

Source: Luckow and others (2010).

Deeper cuts in emissions depend on changing behaviors and the pattern of mobility

• Inertia due to slow changes in infrastructure stocks requires early action

• Demand for modal attributes of transport services leads to inertia in consumer behavior

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Deeper cuts need a broad reform agenda: Long lifetimes of infrastructure require early action

– Early stages of infrastructure development create a technological “lock-in”.

– Early emphasis on individual car use leads to dependency on technical change in engine technologies:• Infrastructure investment is sunk: existing

infrastructure has no opportunity costs• To reduce emissions, costs of changing

engine technologies is compared to costs of building up alternative modes

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Deeper cuts need a broad reform agenda:Supply measures alone are not enough

• Energy intensity by mode, USA 1970 – 2005

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Financial needs for adaptation and mitigation are high

Narrow mitigation agendas are costly

• Financing requirements for green transport will add to often existing funding deficits

– Incremental costs for the adaptation to climate change estimated $ 1.6 to 26 billion annually, substantially higher with accounting for closing for infrastructure gap and maintenance deficits in DCs

– Mitigation costs are estimated to be $ 100 billion annually between 2010 and 2020, reaching $ 300 billion in 2030 (IEA), with no change in mobility patterns

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Financing mechanisms based on a narrow climate change agenda have failed in transport

• Transport has been neglected by carbon finance

– CDM: 3 of more than 2200 registered projects are in transport, investment share 0.11 percent

– GEF approved 28 transport projects in 20 years, attracting 6.4 percent of all resources

– Country programs of Clean Technology Fund have 16.7 percent investment in transport on average

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Financing mechanisms on a narrow climate change agenda have failed in transport

• Reasons for underinvestment in greening transport

– Mitigation outcomes are more expensive in transport than in other sectors when focusing on one dimension of external costs

– Success of supply side measures, infrastructure and operations depends on change in demand

– Implementation of complementary demand side measures is uncertain

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Incentives based on narrow climate change agenda are insufficient to induce modal shift

• Incentives of a narrow climate change agenda will not change mobility patterns

• High carbon prices lead to small changes at the gas pump

• A broad reform agenda in the sense of the World Bank transport business strategy changes the picture.

• With a broad reform agenda the transition to a low-carbon sector is no longer more expensive than in other sectors.

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Inclusion of “co-benefits” changes the story of the relative costs of a transition to a sustainable sector

• Neglected external costs:

– Congestion costs– Health costs of local air pollution– Accident costs, road safety– On top of Climate change effects

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Inclusion of “co-benefits” changes the story of the relative costs of a transition to a sustainable sector• Empirically external costs of climate change are

not dominant form of external costs of transport , US 2000

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Fiscal measures to correct for the external costs of transport help financing the transition to green transport

• Implementation of fiscal incentives will lead to fiscal surplus: GHG emissions

– Removal of subsidies for fossil fuel use in transport is happening in some countries, Iran could save $ 20 billion annually

– Implementing a carbon tax could yield $ 10, 24 or 145 billion with a carbon price

of $ 20, 30, 300 per ton of carbon in the US.

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Fiscal measures to correct for the external costs of transport help finance the transition to green transport

• Implementation of fiscal incentives equivalent to accounting prices will lead to fiscal surplus: local air pollution

– Local air pollution charge for Los Angeles area (district 7 of Caltrans) of 8 cents per mile would lead to $ 40 billion annually for the district

– Health costs are not lower in cities of developing countries, estimated $ 3.5 billion for Beijing.

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Fiscal measures lead to change in the long-run

• North Americans consume 4 to 6 times more fuel per head in transport than Europeans.

• Had all OECD countries had the fuel prices of North America fuel consumption and emissions would have been 30 percent higher throughout.

• Had all countries had the taxation level of UK or NL, fuel consumption would have been 44 percent lower on average

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Summary

• Mobility is essential for economic development.

• Reducing fossil fuel use now will ensure low transport costs in the long run.

• Greening of the sector will contribute to funding deficits of the sector in many countries

• Implementing fiscal measures based on charges for external costs generates fiscal surplus and avoids mismatch of supply and demand

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Summary

• Consequences for project work

– National plans for low-emission transportExample of Georgia– New evaluation framework

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Thank you!

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