Raising Climate Finance from International Transport Sectors

Market based instruments (MBIs) for maritime transport have the potential to reduce emissions while at the same time raising funds for climate policies in developing countries.
GHG emissions from international aviation and maritime transport accounted for approximately 5% of global anthropogenic emissions in 2005 and are rising rapidly. There is a clear need to address these emissions in order not to undermine policies for mitigating land based emissions. Developing countries need financial support to carry out climate policies, both adaptation and mitigation. The UN Framework Convention on Climate Change (UNFCCC) makes policies by developing countries conditional on climate finance. In the current economic and financial circumstances, there is a need for new sources of finance.

The governance of such MBIs should ensure that they are neither an international tax nor require hypothecation of fiscal revenues, while they should provide new and additional finance. MBIs which are in fact an international tax would not be politically feasible, and likewise hypothecation would be opposed by many states. 

This report finds that an emissions trading scheme (ETS) can satisfy these criteria, provided that: 

• It transfers a share of allowances directly to developing countries in order to ensure there is no net incidence on them; developing countries could auction these allowances in order to raise revenue.
• It transfers allowances to the Green Climate Fund to support climate policies; auctioning these allowances would provide revenues for the Fund.
• It transfers allowances to IMO or another organisation in order to finance fuel-efficiency improvements in international transport.