Market-based instruments for international aviation and shipping as a source of climate finance

The international aviation and maritime sectors today enjoy relatively favorable tax treatment, as their fuels are not taxed and the sectors are not subject to any value-added tax or turnover tax. Nor are these fuel uses subject to any global measures to reduce their associated CO2 emissions, even though they represent at least 5 percent of the global greenhouse gas emissions. A carbon charge on fuels for international aviation and shipping equal to $25 per tonne of emitted CO2 could raise about $12 billion from aviation and about $26 billion from shipping by 2020. Market-based instruments ought to be used to raise such revenue, preferably charges based on the carbon contents of fuels. Such charges would also scale back emissions by at least 5-10 percent. Developing countries ought to be able to keep their own tax revenue, and additional compensation to them for the economic burdens of these carbon charges may be warranted. Such compensation would constitute at most 40 percent of the raised global revenue. Implementing these charges can be a challenge, especially for aviation, where a large number of bilateral air-service agreements would need to be rewritten

This paper responds to the request from the G20 to explore the potential for raising climate finance from charges on fuels used in international aviation and maritime transport—with a particular focus on minimizing the impact on low-income countries and on issues of implementation. The paper makes but does not linger on the case for introducing some form of carbon pricing in these sectors. This is widely recognized, given their growing share of emissions and their exclusion from both national fuel tax regimes and from the quantified country-level emissions targets under the 1997 Kyoto Protocol.1 In part, this reflects the difficulty of allocating emissions from sources that are internationally mobile and, moreover, arise largely in international waters and airspace.2 The focus here, instead, is on the consequences of, and possibilities for, introducing such charges.

In doing so, the paper extends the analysis of such charges by the High-level Advisory Group on Climate Change Financing to the U.N. Secretary General (AGF, 2010a and b). That analysis was focused on the revenue potential of these charges. The analysis here, consistent with the request from the G20, takes forward the debate in three main ways.

First, the paper clarifies and, where possible quantifies, the key issue of ‗incidence,‘ paying particular attention to the impact on lower income countries. Specifically, it examines whether reasonably practicable compensation rules can be found that would be sufficient to ensure that developing countries are made no worse off by the global adoption of such charges.

Second, the paper examines key challenges to implementation and reaches broad conclusions on how these might best be addressed. These range from fundamental issues of sovereignty and governance that can be no more than raised here through to questions of routine administration and legal frameworks, on which clearer views can be reached.

Third, the analysis places these charges in the context of the wider circumstances and characteristics of these sectors. It stresses that, while the sectors are commonly grouped together and do indeed have important similarities relevant to carbon pricing issues, they also have important differences, including their treatment under national tax systems.

The focus is entirely on MBIs, whether in the form of carbon taxes or emissions trading schemes (ETSs). Under the auspices of the ICAO and the IMO, and as will be summarized below, efforts are underway to reduce CO2 emissions through technical and operational measures; by, for example, efficiency improvements to new planes and ships. While constructive and important, such efforts can—as in other sectors—have only limited environmental effectiveness, and will need to be supported by carbon pricing schemes. More

World Bank. Author: Keen, Michael; Parry, Ian;Strand,Jon. Document Date: 2012/01/01.Document Type: Policy Research Working Paper. Report Number: WPS5950

Market-based instruments for international aviation and shipping as a source of climate financex

The remittance market in India:opportunities,challenges,and policy options

Millions of migrants worldwide send billions of dollars in remittances each year to their families or communities of origin. In many developing countries, remittances are an important source of family and national income and also are the largest source of external financing. Remittances are better targeted at the needs of the poor than foreign aid or foreign direct investment (FDI), as recipients often depend on remittances to cover daily living expenses, to provide a cushion against emergencies, or to make small investments in business or education. Therefore, remittance services should be safe, efficient, and reliable. This can be achieved by increasing competition, enhancing access to payment system infrastructure, improving transparency, and ensuring a sound and predictable legal and regulatory framework.

With an estimated US$49 billion in remittance inflows in 2009, India is the world’s foremost remittance destination. The size and potential impact of these inflows is large. Despite substantial progress over the past 15 years, the provision of accessible, efficient, safe, and cost-effective remittance services in India could be improved. This report undertakes a broad, detailed diagnostic of the Indian remittance market and analyze its characteristics based on the General Principles for International Remittance Services (GPs). It identifies some of the key actions and public policy

measures (especially in the areas of consumer protection, transparency, retail payments, competition, and risk management) for the improvement and future development of this market that would make it more contestable, transparent, accessible, and sound. Migration from India Understanding migration patterns and characteristics of migrants is crucial for identifying important remittance channels and designing policy interventions to enhance the remittance market. According to the Ministry of Overseas Indian Affairs (MOIA), India has the second largest Diaspora in the world, with around 25 million people living in

some 110 countries. Overseas Indians are divided into Nonresident Indians (NRIs) and People of Indian Origin (PIOs). Migration from India has had three distinct phases: (a) early migration of unskilled labor to work on mines and plantations in British colonies, (b) the late- 20th-century migration of unskilled and semiskilled workers to Gulf countries, and (c) the recent migration of high-skilled professional workers to industrial countries.

In chapter one, this report maps the patterns and characteristics of migration flows from India; in chapter two, it provides a detailed discussion of remittance flows to India in terms of their importance, sources, uses, trends, costs, and links to financial access.

In chapter three, the report describes the remittance market (the players, the regulatory framework, as well as the existing operational schemes), setting the stage for chapter four, which presents a diagnostic of the remittance market based on the General Principles for International Remittance Services (GPs). The diagnostic covers the legal and regulatory framework, payment system infrastructure, market transparency and level of consumer protection, market structure, level of competition among remittance service providers, as well as market governance.

It analyzes the existing situation in India and provides detailed recommendations (including lessons learned from international best practices) that are aimed at increasing competition in the remittance industry, providing broader access to payment system infrastructure, enhancing transparency, and ensuring a sound and predictable legal and regulatory framework. Several of the actions could set a basis for leveraging remittances to achieve other important public policy goals such as broadening financial access, expanding financial inclusion, and both strengthening and deepening the financial sector.

The report was prepared through (a) background research (data research and mining, literature review, collection of relevant material and information, and background research), (b) a field visit in 2009 (a team of experts visited India and conducted interviews and focus groups with all relevant stakeholders and major institutions active in the remittance market), and (c) surveys of both the authorities and the market players.

World Bank .Author: Afram, Gabi G.Document Date: 2012/01/01.Document Type: Publication. Report Number: 66235

The remittance market in India:opportunities,challenges,and policy options

For more information about Projects in  India see Southern Asia Projects

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Reducing distortions in international commodity markets:an agenda for multilateral cooperation

Global commodity markets are affected by a variety of government policies that may expand or lower overall supply and as a result affect world prices for the specific products concerned. Market failures and market structures (market power along the value chain) also affect supply. This paper briefly reviews a number of factors that may distort international commodity markets with a view to identifying elements of an agenda for multilateral cooperation to reduce such distortions. Much of the policy agenda that arises is domestic and requires action by national governments. But numerous policies -- or absence of policy -- generate international spillovers that call for the negotiation of international policy disciplines. Independent of whether distortions are local or international in scope, the complexity of prevailing market structures and their impacts on efficiency call for much greater monitoring and analysis by the international community.

World commodity markets—and particularly the markets for agricultural commodities—remain highly distorted despite the wave of liberalization that has swept world trade since the 1980s. These markets are distorted on both the export and the import side, with serious implications for world prices and their volatility. Market failures abound in the production of many commodities. These include inadequate pricing of many common-pool resources, externalities associated with the extraction and use of commodities such as fossil fuels, and massive externalities associated with the production of many agricultural, forestry and fish products. Very few of the price distortions found in commodity markets can be justified as dealing with such market failures, although ex post justifications along these lines are sometimes offered. Rather, most of these distortions are designed to achieve redistributions of income by raising or lowering prices in a way that will transfer resources to favored groups. To the extent that they do contribute to reducing any of the problems of market failure, this is typically coincidental.

There remains much that can be done at national, regional and global levels to reduce the existing distortions and improve outcomes worldwide—ideally in conjunction with introducing policies to reduce the adverse consequences of the profound market failures existing in many markets. However, without an understanding of the forms, objectives and effects of the various interventions by governments, it will be very difficult to secure reform that will enhance world welfare. The objectives of these national policies are frequently quite complex and nontransparent. In many cases, there are multiple objectives, such as raising or lowering the average level of a commodity price, but also reducing its variability. Tracing through the effects can also be complex, with ultimate impacts frequently quite different than they might at first appear. Since the effects of various measures are often interdependent and instruments may be strongly substitutable, we take a broad approach in inventorying the policies used. Reform efforts require a good understanding of the objectives and political economy forces influencing policies in a particular area, or reform is likely to encounter unexpected resistance. The same applies to efforts to design and negotiate new international disciplines that aim to reduce the negative cross-border pecuniary spillovers created by national policies.

In this paper, we first provide a description of the broad types of intervention prevailing in and affecting global commodity markets. We begin in Section 1 with a discussion of the most common type of intervention in commodity markets: actions designed to affect the domestic price of a commodity relative to its international price. Most attention with this type of measure has focused on interventions designed to increase the level of the domestic price relative to the international price using instruments such as tariffs. However, there are also many types of intervention designed to reduce domestic prices relative to international prices in order, for example, to lower the price of an input used in a politically powerful industry. In Section 2 we discuss another politically-important type of intervention: measures aimed at reducing the volatility of domestic prices relative to world prices. In Section 3 we turn to a discussion of the implications for multilateral cooperation and rule-making efforts. Section 4 concludes.

Author: Hoekman, Bernard ; Martin, Will.Document Date: 2012/01/01.Document Type:Policy Research Working Paper.Report Number: WPS5928

Reducing distortions in international commodity markets: an agenda for multilateral cooperation

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