financing for sustainable low carbon transport systems
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Financing for Sustainable Low Carbon Transport Systems
Ko SakamotoJanuary 2009
Contents
Why financing and pricing?
Assessing the current situation on financing and pricing
A direction for change
Thoughts on next steps
Suggestions
Why financing and pricing?
To finance is to provide the money needed for something to happen*
Effective financing can help enact the various aspects of the sustainable transport puzzle:- Policies- Institutions- Infrastructure- Operations- Technology
Effective pricing can support:- Behavioural change- Sound investment decisions - Revenue generation for sustainable transport
programmes and projects
(* Cambridge Advanced Learner’s Dictionary)
Assessing the current situation
Current pricing practices
Transport prices that do not reflect costs to society:
- Taxes and levies not linked to externalities
- Subsidised / underpriced fuel
- Difficulty in implementing full cost pricing (e.g. road pricing)
- Political constraints
0
0.1
0.2
0.3
0.4
0.5
0.6
Kual
a Lu
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Sing
apor
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Toky
o
Bang
kok
Seou
l
Jaka
rta
Man
ila
Hon
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Beiji
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Cope
nhag
en
USD
(PPP
adj
uste
d, 1
990)
Fuel tax/kmOwnership tax/kmAcquisition tax/km
Source: Hirota and Minato (2003)
Taxes on motor vehicles per kilometre
Current transport-oriented financing
International level: - Preference by donors for the road/highway sector
- (Rightly) focusing on poverty reduction through infrastructure provision – but what kind?
- Lack of long-term consideration on land and energy use
- Close link with appraisal framework
0% 20% 40% 60% 80% 100%
WB (1996–2000)
WB (2001–06)
ADB Public (as of 2007)
ADB Private (as of 2007) RoadsRailwaysPortsAviationGeneral transport
Source: ADB (2008) and World Bank (2008)
Transport lending by ADB and WB by subsector
Current transport-oriented financing
National level:
- Majority of transport financing decisions made at this level
- Typically 1-2% of GDP spent on transport investments
- Most investment goes into hard infrastructure
- Many lessons learnt to ensure financial stability (e.g. Road Funds)
0%10%
20%30%
40%50%60%
70%80%
90%100%
Chin
a Fiji
Indo
nesi
a
Mon
golia
Thai
land
Azer
baija
n
Tajik
ista
n
Indi
a UK
US
National
Sub-national
(Source: IMF/WB)
Split of public spending on transport and communication by level of government
Current transport-oriented financing
Local level: - Revenue generated through various instruments, e.g. parking
charges, Octroi tax
- Can provide fiscal autonomy with link to local objectives
- Often undermined by lack of institutional capacity at local level
Private sector: Infrastructure provision (e.g. BOT)
Operation of urban public transport (e.g. through franchising)
Vehicle manufacturing and other technological investments
Current climate-oriented financing
Kyoto instruments
- CDM: - Only two projects in transport sector
- Discussions regarding reform currently taking place (see Sanchez, 2008)- Using “first of its kind” approach
- Programmatic/sectoral approaches
- Emissions Trading- Difficulty in covering transport
- EU-ETS to incorporate aviation
Current climate-oriented financing
Multilateral instruments- Global Environment Facility (GEF)
- Coverage of sustainable transport objectives
- Lessons learnt in practical implementation (e.g. approval process)
- Transport pie is growing (82 million USD, or 10% of total under 3rd replenishment)
- WB Clean Technology Fund (CTF) - Proposed 5-10 billion USD (total)
- Scope includes transport, e.g. clean vehicles, BRT
- ADB Clean Energy Financing Partnership Facility (CEFPF)- Launched last year to promote renewable energy and energy efficiency
- Target of 250 million USD
- So far one transport project in China has been funded
Current climate-oriented financing
Bilateral instruments
- Japan “Cool Earth Partnership” - Mention of application to transport (including urban planning)
- Details still unclear
Summary of current situation
Current prices for transport activity do not reflect their true costs to society
Conventional, transport-oriented financing is skewed towards carbon-intensive modes
Climate-oriented financing mechanisms are still inadequate in scale, scope and detail
A Direction for Change
Reform subsidies
Implement full cost pricing
Shift priorities
Provide additional funding
Policy
Institutions
Technology
Infrastructure
Operation
Optimise usage
What does funding need to cover?
Policy
Institutions
Technology
Infrastructure
Operation
• Development and implementation of policies and programmes
• Strengthening institutional capacity• Investing in human capital
• Operation of public transport• Non-motorised transport services
• Transport infrastructure that takes into account long-term effects of land/energy use
• Vehicles• Infrastructure• Fuels
Ensuring full coverage of a low carbon transport strategy
Policy
Institutions
Technology
Infrastructure
Operation
Adapted from:GTZ/TRL (2007)
What next?
Global Climate Negotiations
Regional Transport Policy/Technical
Forums
National Level Transport Policy
Local Level Transport Programs
and Projects
Influence
SupportInitiate
InfluenceFund
Adapted from Huizenga (2008/09)
Regional “Sustainable Transport Funds”?
Sectoral / programmatic CDM?
Global ETS for aviation?
Wider applications of GEF/CIF etc?
A “Green Road Fund”?
Support fund for local initiatives?
What next?
In any case, need to recognise that:- Carbon finance is only small part of the transport pie
- Pricing and other financial flows need to be reformed
Other objectives and constraints also exist:- Efficiency (including transaction/administrative costs)
- Financial stability
- Equity (both horizontal and vertical)
- Political feasibility and importance of “packaging”
- Institutional capacity
- Practicalities of implementation, monitoring and evaluation
Suggestions for the future
Keep proportions in perspective - Whilst pursuing a unique financing mechanism for transport in the Post Kyoto framework is important, this needs to be matched by efforts to reform mainstream investments and financial flows into transport, including (traditional) ODA and private investments which dwarf the former in size and scope.
Ensure a holistic and integrated package of reforms - consisting of financing and pricing mechanisms that collectively allow the funding of the various aspects of sustainable transport (not just technology).
Be realistic – Although the need for drastic reform remains, an overly-ambitious top-down framework that discounts local concerns may not be plausible. Learn from the GEF and CDM experience to see what works and what doesn’t.
Suggestions for the future
Re-examine decision making processes - Better integrate carbon generating consequences into the decision making process for funding projects and programmes. Re-examine the current appraisal framework for transport infrastructure. Ensure coverage of sustainability in financial documents and statements.
Move towards Social Marginal Cost pricing. Where first-best solutions are impossible to implement, consider the use of fuel taxation and other proxy measures which may also act as revenue for supporting low-carbon transport strategies.
Establish and share data - on transport financing, pricing and investments in the Asian region to help identify funding gaps, good/bad practice and monitor progress.
Page 20
Thank you – Any Questions?
Ko Sakamoto
Senior ConsultantTransport Research Laboratory
Tel: +44(0)1344770709Fax: +44(0)1344770356
Email: ksakamoto@trl.co.uk
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