122. **Nonetheless, there may be a need to provide adequate assurance of no net incidence on developing countries by providing explicit compensation** . Significant challenges arise in designing such a scheme because of the potential jurisdictional disconnect between the points at which a charge is levied and the resulting economic impacts—especially for maritime transport. Practicable compensation schemes require some verifiable proxy for the economic impact as a key for compensation. While more work is needed to identify good (i.e. reasonably accurate and acceptably verifiable) proxies, enough has been done to give confidence that they can be found. Fuel take-up provides a good initial basis in aviation, and simple measures of trade values may have a role in relation to maritime. The prior and in some respects deeper issue is to understand the extent of compensation required.

123. **Fully rebating aviation fuel taxes to tourist destinations in developing countries (or giving them free allowance allocations) may be over-compensation** —that is, would make them better off by participating in such an international tax agreement (prior to even receiving any climate finance). Most of the incidence of taxes paid on jet fuel disbursed in developing countries is likely borne by passengers from other countries. Developing countries—including tourist destinations—might then receive more than adequate recompense if revenues collected in those countries were fully passed to them. However, additional analysis is required to arrive at a fully confident assessment of the overall economic impact on developing countries and how this may vary between tourist and other destinations.

124. **In contrast, rebating maritime fuel taxes to developing countries may not provide adequate compensation** . Unlike airlines, shipping companies cannot be expected normally to tank up when they reach their destination. Some countries—hub ports like Singapore—disperse a disproportionately large amount of bunker fuel relative to their imports, while the converse applies in importing countries that supply little or no bunker fuel, including landlocked countries.<sup>68</sup> Revenues from charges on international maritime fuels could instead be passed to or retained in developing countries in proportions that reflect the extent and perhaps nature of their trade activities.<sup>69</sup> 125. **More generally, compensation could also be linked to relative per capita income; and could be larger for low-income countries in which higher fuel prices are a particular concern** . Much detailed work remains to be done to design compensation schemes, but practicable approaches can surely be found.

> 68 In principle, this problem can be addressed if hub ports only claimed fuel tax rebates when ships unload, or if importing countries could claim rebates for fuel purchases by unloading ships associated with that trip. But this approach is administratively complex when one shipping voyage has multiple country destinations.

> 69 As for instance in the import-based rebate mechanism proposed by IUCN (2010) and WWF (2011). Stochniol (2011) also provides country-specific estimates of the compensation implied by this scheme based on a country‘s share of imports by sea and air. For instance, Ethiopia‘s annual rebate would be $6 million if the revenue raised by carbon pricing for international maritime transport were $10 billion (i.e. 0.06 percent of $10 billion). The rebate and attribution keys for all countries have been submitted to the IMO in WWF (2011).

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