Rebate Mechanism (add-on option)
In order to comply with the principles of the UNFCCC, the application of a maritime MBM should be differentiated.
We propose that developing countries could be compensated cost burden of the MBM through an agreed rebate mechanism (RM), thus ensuring a positive net benefit to each developing country. Furthermore, the most vulnerable should benefit most through additional means, such as disbursement of net financing raised.
RM in 30 words
All ships pay for their emissions. A developing country obtains an annual rebate in relation to its share of global imports. Remaining revenue - from developed countries - goes to climate change action.
The following outlines the proposed rebate mechanism (RM):
- Each developing country would be entitled to obtain an unconditional payment (rebate) equal to the burden of its participation in the maritime MBM.
- The amount of rebate would be calculated annually in a top-down manner. The global MBM costs and a simple attribution key will be used, country-by-country. The proposed key is a country’s share of global imports by value. Other alternatives are discussed later.
- A developing country could decide to forego its rebate, or a part of it, and be internationally recognized for such action. This provides additional flexibility to reflect the differentiated national circumstances of developing countries.
- Developed countries are not entitled to any rebates, and are automatically credited for the amount of financing raised through the MBM, based on the same attribution key.
The mechanism does not specify how the net revenue raised should be used. Given however that it is generated from international activity, it should be used in its entirety for international purposes rather than to contribute to national budgets. The net revenue could be split between supporting developing countries in implementing climate change action, and assisting the global shipping sector in accelerating reductions of its growing emissions through technological advances.
The disbursement of this net revenue could be managed by the operating entity of the financial mechanism of the UNFCCC, according to relevant rules and provisions (this ultimately will be agreed by the UNFCCC Parties, or similar). Thus, developing countries would be beneficiaries of the MBM, with the most vulnerable countries to benefit most from the net revenue. The shipping sector should also benefit from the net revenue, potentially through a new global Maritime Technology Fund, or similar
RM add-on application
The rebate mechanism (RM) can apply, in principle, to any maritime MBM, which generates revenue, such as a contribution/levy on fuel or an emission trading scheme. We call this option RM integrated.
The mechanism cannot apply to an MBM that does not generate revenue, such as an efficiency-based scheme.
In summary, disbursement of the MBM revenue is proposed to comprise two steps.
- In the first step, cost burden on a developing country participating in the MBM is paid (rebated) to it, unconditionally.
- In the second step, the remaining revenue (net revenue), is disbursed through the operating entity of the financial mechanism of the UNFCCC.
Based on our extensive research, there is no other practical alternative for a global differentiated scheme.
Rebate Mechanism, as an add-on option, can generally apply to any revenue raising Market-Based Measure to address greenhouse gas (GHG) emissions from international shipping (such as levy or emissions trading).
Furthermore, it may be used to calculate a country's usage of international shipping.
Follow the navigation links below to read about various RM aspects.