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Economic Research

Central to any discussion of the Pacific’s transport decarbonization agenda is the question of the economics – what does the transition cost and how will it be funded and who will pay to implement? Our lack of  in-country and in-region transport economists is alarming.

Pacific island states have the highest per capita transport costs globally. Pacific-centric transport economics is poorly studied and understood.  The transition to decarbonized transport is primarily an economic as much as a technology challenge and will require significant external investment to achieve. MCST, with our research partners, will continue to develop our capacity to deliver Pacific and Ocean-centric high-quality economic analysis and research tools to RMI and other climate vulnerable states.

It is important we understand the interface between transport, trade, and its ramifications on all aspects of Pacific wellbeing, resilience and development.  Transport costs and availability of services are linked to all aspects of social and economic activity.  Access to adequate and appropriate financing is the primary barrier to establishing and maintaining transport connectivity.  Climate financing provides a unique opportunity to resource climate vulnerable states to transition their domestic transport systems away from fossil fuel dependency. RMI is leading, with other high ambition Pacific states, development of market-based measures at IMO and negotiations on the use of the significant revenues generated.

Historically, even in times of cheap and plentiful fossil fuel supplies, most Pacific transport services are, at best, marginal commercial ventures and often economically unviable without subsidization. This remains the case and is becoming increasingly relevant as shown in the post-Covid industry volatility and carbon pricing debate. The Covid pandemic has highlighted our critical and fragile dependency on shipping connectivity, especially as almost all air transport has ceased. Currently, governments and communities end up subsidizing transport services directly or indirectly in order to maintain connectivity for social, political and economic needs.  The increasing effects of the climate crisis will inevitably result in increasing costs for maintaining all transport infrastructure and assets, with outer island being the most vulnerable. Strong economic analysis and advice is essential for making decisions over prioritizing future transport investment priorities.

There is very limited transport economic expertise currently available at national or regional level. MCST has been working since its inception to close the large gaps identified in the region’s collective understanding of the role of transport in Pacific Island economies. Through our research partnerships, MCST has provided the design support for the IMO GHG levy on international shipping proposed by RMI and Solomon Islands and is now heavily involved in leading global research on carbon pricing. This measure, the most ambitious for any sector globally, has strong potential to generate significant revenues for national adaptation and mitigation processes in climate vulnerable states and RMI is well established as a world leader in such negotiations.

We have also worked with leading legal experts to understand the international legal and economic principles which must guide the adoption of a Market-Based Mechanism for GHG emissions from shipping.

All trade and economic development is inherently tied to the availability, security and cost of transport. With a narrow and limited natural resource base, RMI’s internal and export options are highly limited. Food security, disaster response capacity and climate adaptation planning are all heavily constrained by the availability of adequate, affordable and appropriate transport.  While detailed analysis is available for global trade, the unique economic profile of many small island states, means very little analysis is available at Pacific country scale. MCST works closely with agencies such as UNCTAD, WFP and UNESCAP as they develop tools and economic understanding around connectivity and logistics supply networks at the scale of climate vulnerable states like RMI.  RMI and other states continue to negotiate how any disproportionate negative impact from international transport decarbonisation measures on states will be addressed. While it is agreed that the climate vulnerable states will be the most affected states by from such measures, a true economic cost of these requires far better data and analysis than currently available.

At national and regional levels, sustainable transport investment has thus far lagged well behind other energy sectors, particularly electricity generation. [1] Achieving the targets set by the NDC means investment in transport must now be accelerated, well above current spending. Such investment is simply beyond any Pacific state’s economic capacity to deliver. The speed of transition needed means that a full coordinated program of work is needed at scale, requiring a range of international and country partnerships to achieve, with support from regional agencies.

RMI cannot undertake its planned transport transition without adequate investment or in isolation to its neighbors.  MCST has been working with partners at UNSW and UCL to support the RMI and Fiji co-chairs of the Pacific Blue Shipping Partnership, a multi-country call for an initial $500million blended finance investment in domestic shipping transition over the next decade.  PBSP will provide grant funding for research and proof of concept trialing in government fleets and secure low interest loans for private sector uptake. RMI, a leading ship registry, and Fiji, the transshipment hub for much of the Pacific, makes them the logical leaders in this country-owned and driven initiative.  A multi-country approach allows for lessons learnt, skills and expertise to be exchanged between the countries.

While we can achieve the short-term targets for initial transport decarbonisation using existing known technologies, full decarbonisation will require use of new fuels. At the international scale there is fast accelerating research and commercial development of leading contenders, including battery stored electricity, electro-fuels such as hydrogen, methane and ammonia. Biofuels are also potentially available. Almost no work has been done at scale to identify what the future fuels choices might be for RMI and other Pacific states, whether there is any potential for these to be produced in region or whether our current fossil fuel dependency will be simply switched to depend on new fuels imports. The cost implications for any future bunkering infrastructure has not yet been considered but must be assumed to require extremely high capital and future maintenance costs. MCST is building a partnership with leading research centers in Europe and Asia to initiate a long-term research program to inform RMI and Pacific transport planners in this field. Building our capacity to undertake the economic analysis at island scale is our highest priority.

Going forward it essential that now look to upskill and develop long term in-country capacity through postgraduate exchange programs with leading transport economic research institutions MCST will continue to provide training tools and courses for current planners, managers, and decision makers in both public and private sector.

Priority Actions:

MCST will:

  1. Work with national and international academies to develop specialist training and education options for strengthening and retaining long term research capacity to provide high quality economic analysis to RMI and other Pacific states on all aspects of transport decarbonisation.
  2. Work to ensure a consistent program for assessing the national cost-benefits of the various projects of all partners contributing to RMI’s transport decarbonisation agenda.
  3. Provide support RMI and Fiji as co-chairs in the development and implementation of the Pacific Blue Shipping Partnership through collaborative research with other specialist transport economist experts.
  4. Provide high quality economic research and analysis to support negotiations of market-based measures and mitigation for disproportionate negative impacts in International fora, including IMO and ICAO.
  5. Build our research relationships with specialist UN agencies, such as UNCTAD, ESCAP, WFP, OECD and industry research agencies, such as the GMF, ICCT, SLOCAT to increase understanding of the economic implications of transport decarbonisation on RMI and Pacific economies and local, regional and international trade and connectivity.
  6. Develop a specialist research program in partnership with leading alternative fuel researchers to understand, characterize and communicate to Pacific transport and energy planners and policy makers the economic implications of a fuel transition in the context of Pacific states.
  7. Seek to build collaborative partnerships with other climate vulnerable states to share and enhance understanding of the nexus between climate emergency response and adaptation and transport economics, especially as it impacts communities and private sector operators.

[1] In 2019 we calculated that approx. USD2billion dollars was invested in renewable electricity across the region since 2012 but less than USD20million had been spent on decarbonizing transport. Of this, about 80% was from MCST designed projects.