Boosting and Balancing Adaptation Finance: Is IAPAL an Opportunity or Risk for LDCs?

1. Boosting and balancing adaptation finance Is IAPAL an opportunity or risk for LDCs Policy insights

2. Adaptation finance status • Adaptation cost: Could be more than $100 billion annually • Total disbursements for adaptation by November 2010: $298 million • Adaptation share in funds dedicated to climate change: 8% • Dominant sources: ODA • Reliability (promises/pledges not being fulfilled) • What are the implications for LDC adaptation?

3. Available Options • Innovative mechanisms • IAPAL (proposal stage) • Taxes on emissions from shipping (proposal stage) • Taxes on international money transfers (proposal stage) • CDM levy (operational) • Annex 1 pledges (Copenhagen Accord) • Others?

4. IAPAL Proposition • A solidarity levy imposed on all international air passengers to support adaptation in developing countries • Differentiated by class of travel to reflect capability • Mandatory instead of voluntary for all international travel to maximize revenue • Levy size: $6 economy and $62 business • Annual adaptation revenue: $8-10 billion

5. Key issues for developing countries • Impact on tourist arrivals • Transferring responsibility from developed to developing countries (fairness) • Implementation complexity

6. Learning from similar initiatives • French solidarity levy • Similar to IAPAL in principle, application and levy size • Target: all international passengers (developed and developing) • Beneficiaries: Vulnerable people • No impacts on tourism observed • Some developing countries implementing it without negative effects • Overall assessment: Success

7. Learning from similar initiatives • UK Air passenger duty • Distance related tax with travellers to far destinations paying more • Target: All air passengers (developed and developing) • Beneficiaries: UK government • Levy size: • Economy class: $19-$136 depending on distance • Business class: $38-$272 depending on distance • No impacts on tourism observed • Overall assessment: Success

8. Learning from similar initiatives • German aviation tax • Distance related tax with travellers to far destinations paying more • Target: All international passengers (to developed and developing destinations) • Beneficiaries: German government • Impacts: • No impacts on tourism observed • Intra-European distortions as it is implemented in only one country

9. Emerging evidence • Impact of levy on Caribbean (highly dependent on tourist arrivals) • Economic model shows no significant impact of IAPAL • Africa and South Asia tourist arrival trends: • Increased 6-6.6% while oil prices have been increasing • Maldives hotel occupancy 2007 • 96.4% despite costs caused by oil prices

10. Likely sources of opposition to IAPAL • Developed countries (even though they are already taxing all international passengers for domestic benefit) • IATA (International Air Transport Association) • Air Transport Association of America • Aviation industry (dominated by developed countries) obviously wants to protect itself at expense of the vulnerable

11. Where does the balance lie for LDCs? • Economic arguments • Not significant regarding impacts on developing country economies • Not proved when applied to other similar schemes championed by developed countries • Only partial application would distort competition

12. Where does the balance lie for LDCs? • Ethical arguments • Should passengers from developing countries pay? • Capability and solidarity principle • Should aviation be used as a source of adaptation finance? • Aviation has been used for health and developed country budgets • Feasibility arguments • Will it generate the funds it promises? • Complexity of implementation

13. Going forward • What are the potential benefits from IAPAL for developing countries • Choices: • Discard IAPAL • Adopt IAPAL • Modify IAPAL • Short term implementation while other funding sources are developing • Exempt developing countries • Undertake more research • Suggest specific areas of investigation