Transforming Transportation

TURNING THE RIGHT CORNER

ENSURING DEVELOPMENT

THROUGH

A LOW-CARBON TRANSPORT SECTOR

Dr. Andreas Kopp

World Bank

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Figure 1. Countries have a choice: energy consumption in road transport can be low at high per capita incomes, no obvious trade off

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Outline

• A narrow climate change agenda limits the chances for reform in transport: technical progress and weak incentives…

• … demonstrated by transport’s failure in carbon finance

• 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

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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 3. The optimistic view: containing transport related CO2 emissions by technical standards does not reduce them

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Figure 4. Transport becomes the main emitter, even with carbon pricing leading to a GHG concentration of 450 ppm, amplified by success in the energy sector

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Source: Clarke and Calvin (2008).

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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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 path-dependency on technical change in engine technologies:

‒ Infrastructure investment is sunk: existing infrastructure has no opportunity costs.

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Financial needs for adaptation and mitigation are high

• Incremental costs for adaptation to climate change estimated at $ 1.6 to 26 billion annually, substantially higher when accounting for closing the 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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Inclusion of “co-benefits” changes the story of the relative costs of a transition to a sustainable sector

• A broad reform agenda in the sense of the transport business strategy (including local air pollution, energy security, congestion and safety) changes the picture.

• 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 help financing the transition to green transport

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

Example: Implementing Stern’s carbon tax of $300 per t of carbon would yield $145 billion in US transport revenues annually.

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Fiscal measures lead to change in the long-run

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

• 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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Thank you!

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