A Paradigm Shift Towards Sustainable Low-Carbon Transport: Financing the Vision ASAP
Institute for Transportation & Development Policy | August 24, 2010
By K. Sakamoto, H. Dalkmann, and D. Palmer
FROM THE EXECUTIVE SUMMARY
The rapid growth in transport activity, based primarily on private motorized vehicles, generates social, environmental and economic costs. Transport already accounts for more than half of global liquid fossil fuel consumption and nearly a quarter of the world’s energy related carbon dioxide (CO2) emissions (IEA, 2009). If current trends continue, transport related CO2 emissions are expected to increase by 57 percent worldwide between 2005 and 2030, mainly as a result of rapid motorization in developing countries.
The need for a paradigm shift: Leapfrogging towards a low-carbon, sustainable transport system
Developing countries can benefit from "leapfrogging" to a new sustainable and low-carbon paradigm that avoids the costly, unsustainable levels of motorization seen in the developed world, in particular North America. By investing in sustainable low carbon transport systems today, developing countries would reap various economic, social and environmental benefits during the next half century and beyond.
Current financing practices: Not fit for purpose
Much of the observed failures in transport are due to the financial framework from which policies, programs and projects draw resources. While notable exceptions exist, the financing framework is often skewed towards supporting the motorization model as follows:
- Domestic public finance is mainly used to build and maintain infrastructure to cater to increasing levels of motorized traffic. Budgets are often rigid and difficult to reform due to the prevalence of earmarks. Project appraisal frameworks usually follow the mainstream practice of valuing time and vehicle cost savings—the two main benefits of transport schemes—whereas climate and other environmental effects are generally given lower priority. Furthermore, a significant amount of public finance is spent on environmentally harmful subsidies, most notably on fossil fuels.
- Official Development Assistance (ODA) flows are directed towards development based on the motorization model, reflecting both the requests of recipient countries as well as the menu of technical assistance provided by donor organizations. Financing is particularly directed towards construction as a result of strategic planning, the current appraisal framework which generally only values time and vehicle operating cost savings, and the inadequate safeguards to halt environmentally harmful projects from being implemented.
- Private flows are also directed towards the development of goods, services and infrastructure that support the motorization model of transport development, e.g. motor vehicle manufacturing. One reason is the exclusion of environmental and social costs in the pricing of transport services in most countries, distorting market signals. Regulatory measures, for example emission standards for new vehicles, are currently inadequate in scale and scope to provide a strong signal to the contrary.
- Carbon finance is generally limited in scale and access to these resources is further reduced by the requirements placed upon the transport sector, i.e. a narrow approach to measuring the mitigation potential of policy actions (and the associated incremental costs), together with the lack of data to allow the measurement, reporting and verification of mitigation actions. Carbon crediting mechanisms such as the Clean Development Mechanism (CDM) suffer from large transaction costs, due to the dispersed nature of transport emissions.
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