The idea of a tax on bunker fuels (for aviation and shipping) as part of efforts to secure funding for climate change mitigation and adaptation has been doing the rounds for some time now. However, at the latest round of UN climate talks in Bonn, developing countries have finally put the idea on the table.

Predictably enough, the proposal was met with squeals of horror from the related industries with the aviation industry stating that is a non-starter.

The proposal touches on two issues: climate change funding and addressing the rising emissions from shipping and aviation.

The first issue - how to fund climate change adaptation and mitigation - has been dealt with before by this blog (see here). What is important is that not only is there a predictable and guaranteed source of funding (preferably under UN control) but also that there is an effective system in place that ensures the funds are used effectively and for the ends intended.

Funding from a bunker fuels tax could definitely contribute to this although it would lack the desired predictability. However, a credible international agreement would require industrialised countries to provide at least €100bn in climate financing by 2020, so a bunker fuels tax could at most only contribute less than 1/10 of this (based on the estimates in the latest proposal).

In the context of the second issue - addressing the rising emissions from shipping and aviation - a bunker fuels tax is clearly long overdue. The climate change impact of transport is continuing to grow, undermining progress being made across other sectors of the economy in reducing greenhouse gas emissions.

In the EU, between 1990 and 2006, transport emissions increased by 34.9% while emissions from other sectors decreased by 3.1%. Put another way, EU greenhouse gas emissions from 1990-2005 would have fallen by 14% instead of only 7.9% if the transport sector had achieved the same reductions as other sectors.

Aviation is the fastest growing source of greenhouse gas emissions: the number of flights in the EU doubled from 1990-2006 and is set to double again by 2020 and triple by 2030. On top of this, the climate impact of air transport is 2-4 times greater than the mere CO2 emissions (airplanes produce other greenhouse gases like nitrous oxide and vapour trails at altitude). The shipping sector also has a major impact: it is the second fastest growing source of emissions and accounts for 4.5% of global greenhouse gas emissions.

There is no tax on bunker fuels (the fuels used in shipping and aviation) in contrast to fuels used for other transport modes. This is one of a number of factors that give airlines and shipping an unfair competitive advantage over other transport modes. It also gives them a free ride in terms of their climate impact, which is one factor behind their continuing increase. Ending this unfair subsidisation and making sure that the full environmental cost is taken into account is crucial

A tax on bunker fuels is one crucial step that should be taken without delay but there are others that need to be taken.

There is a need to include shipping in the EU's emissions trading scheme (ETS), which the EU Commission has promised to do but has still not delivered. The terms on which aviation has been included in the ETS are also in need of serious strengthening. This will mean lowering the cap on aviation emissions and making sure airlines emissions permits are covered by auctioning (and not just handed out for free). This is one priority on which the new strengthened Green group in the European Parliament will work. However, it is compatible with a bunker fuels tax.