T URNING THE RIGHT C ORNER E NSURING D EVELOPMENT T HROUGH A L OW - CARBON T RANSPORT S ECTOR Andreas Kopp 1

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. 2

Figure 1. Countries have a choice: energy consumption in road transport can be low at high per capita incomes 3

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 4

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 5

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) 6

Figure 2. Business as usual will make transport the dominant consumer of oil 7

Figure 4. The optimistic view: reductions in transport related CO 2 emissions by technical standards 8

IPCC Deep cuts only after

Carbon pricing induces behavioral change… Carbon price paths depend on biofuels and CCS 10

Figure 6. …and still transport becomes the main emitter, even with carbon pricing leading to a greenhouse gas concentration of 450 ppm 11

Figure 7. The pessimistic view: transport remains a major CO 2 emitter, even with carbon capture and storage 12

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 13

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 14

Deeper cuts need a broad reform agenda: Supply measures alone are not enough Energy intensity by mode, USA 1970 –

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 16

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 17

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 18

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. 19

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 20

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

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. 22

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. 23

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 24

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 25

Summary Consequences for project work – National plans for low-emission transport Example of Georgia – New evaluation framework 26

Thank you! 27