DFID Aviation and Maritime

Market measures in international transport can reduce emissions with small impacts on poorest countries

Market-based measures such as emission trading systems and carbon taxes can address the impact of aviation and international shipping on the world’s climate in a cost-effective way. When implemented wisely, the impact on the poorest countries would be minimal.

A study by Climate Strategies, Cambridge University, CE Delft, Cambridge Econometrics and TAKS finds that these measures can effectively reduce emissions from these sectors without seriously impacting on the economies of developing countries. The reductions in GDP are less than 0.01% on average and significantly less than 0.1% for all but a few of the case study countries.

Countries with a higher dependency on tourism and trade are likely to experience greater economic impacts. Market-based measures raise the costs of aviation and maritime transport and so they raise the prices for passenger travel and exported and imported goods. Some of these countries are small island states that are also vulnerable to climate change impacts.

Negative economic impacts on developing countries can be addressed effectively by a combination of measures such as exemptions of certain routes, lump sum rebates, investments in infrastructure efficiency and into the development of more efficient ships and aircraft.

The main objective of this study was to develop an evidence base for the impact of market based measures on developing countries. This has been done by:

(i) Assessing the economic impacts of selected market-based measures on 10 selected case study countries and globally; and

(ii) Determining the possible, and most effective and efficient, tools to address or reduce these impacts.

The study focuses on 10 case study countries which, based on their economic structure, were anticipated to be negatively impacted by market-based measures: Mexico, China, India, Trinidad and Tobago, Togo, Kenya, Maldives, Samoa, Cook Islands and Chile. The policy options studied were based on options discussed in the International Maritime Organisation (IMO) and the International Civil Aviation Organisation (ICAO). International shipping and aviation account for approximately 5% of annual anthropogenic CO2 emissions and this is projected to increase in the coming decades. To address these emissions, market-based measures have been proposed to IMO and ICAO.