Turning the Right Corner: Ensuring Development Through a Low-Carbon Transport Sector

The World Bank unveiled the conclusions of its new report, Turning the Right Corner: Ensuring Development Through A Low-Carbon Transport Sector, which argues that supply-side transportation policies need to be complemented by demand-side policies to advance development objectives. The report examines the intersection of transport, growth, and carbon emissions, compares transport sectors in developed and developing countries, and calls for broad sector reform.

Andreas Kopp of the World Bank, K.W. Axhausen of Eidgenössische Technische Hochschule, and Carnegie’s Shin-pei Tsay discussed the policy implications of the new report. Deborah Gordon moderated.

Limited Transportation Capacity to Reduce Emissions

Kopp discussed current policy options for curbing transportation’s energy emissions and how they limit the role of transportation in emission reduction.

• Technology Standards Not Enough:  Though the International Energy Agency (IEA) projects significant gains in transportation efficiency due to increasingly stringent global engine fuel efficiency standards, Kopp maintained that the rate of motorization in developing countries will offset and outweigh efficiency gains.
   
• Increased Motorization: Motorization is rampant in spite of policy efforts.  Kopp argued that accommodating individual car use will lead to higher future transportation costs due to constraints in oil supplies.
   
• Pricing Carbon: A Pacific Northwest National Laboratory study conducted for the Department of Energy found that a carbon price to limit global warming to 2 degrees Celsius would range between $1-6,000 per ton of carbon by the end of the century, depending on technological progress in the energy sector, Kopp said.
   
• Pricing Instruments Weak: Under a narrow carbon agenda, even the highest possible carbon prices of $300/ton carbon would add only 70 cents to the price of gasoline in the United States, Kopp said. Such a small price change is not enough to stimulate shifts in consumer behavior that could fundamentally change mobility patterns.
   
• Expensive Technology: Kopp pointed out that emission reduction technology in the transportation sector lags behind other sectors, making investments in transportation comparatively expensive. In addition, technology and alternative fuels remain problematic because biofuels compete with food crops for land and water resources and fuel-cell technology has failed to live up to expectations.

Expensive public investment in road systems and private investments in motor vehicles create a technological and financial “lock-in” effect which makes later changes uneconomical and difficult, Kopp warned.

• If the rate of motorization does not diminish, consumers will bear most of the cost of mitigation in the future because they must buy vehicles under increasingly stringent technology standards set by the IEA, Kopp stated. This could amount up to $100 billion annually.
   
• In spite of these huge financial needs to expand transportation development, Kopp pointed out that only 0.11 percent of Clean Development Mechanism funds go towards low-carbon transport projects.

Broadening Transportation to Meet Development Goals

Kopp argued that a broader policy platform and the implementation of fiscal measures could lead to reduction on fuel consumption and changes in mobility patterns. This would support local and regional economic growth, yield greater health benefits, reduce emissions, and lower the cost of transportation for end-users. Tsay added that this offers a framework to coordinate and accelerate the implementation of low carbon infrastructure.

• Economic Growth: Lowering the carbon intensity of the transportation sector does not necessarily conflict with economic development and income growth, Kopp said. Japan and Korea are examples of high-income countries with low-carbon transportation sectors. As Tsay pointed out, transportation is critical to achieving the development goals laid out in the Millennium Development Goals.
   
• Increased Revenue: Revenue from carbon taxes and local air pollution charges could be used to reduce the tax burden in other sectors and spur economic growth, Kopp added. He cautioned that successful fiscal measures require collaboration across jurisdictional levels and coordination at the national level, which, as Tsay pointed out, is especially important in the context of rapid, global urbanization.
   
• Numerous Benefits: Kopp argued for the need to include all negative side effects of transportation, such as local congestion and air pollution, in a broader climate change agenda. This would substantially increase the return of low-carbon investments in the transportation sector, change the relative competitiveness of emission reduction reform agendas for different sectors, and increase policy intensity to bring about changes in behavior.
   
• Lower Costs: As oil prices rise and carbon taxes are implemented, reducing fossil fuel costs today will lower transportation costs in the future, Kopp added. In addition, Tsay argued that using existing low carbon infrastructure, such as bike share or subway systems, reduces the need for costly high-carbon infrastructure investments.

Three Key Challenges

Axhausen raised three key challenges for the transportation sector:

1. Given the strong link between vehicle miles traveled and income levels, richer populations must find a way to continue to travel at adequate levels without destroying the climate.
2. Accessibility must be maintained in a world in which carbon is properly priced.
3. As accessibility improves, it is necessary to find a way to maintain appropriate, but not excessive, levels of social inequality.