No Net Incidence

Legal assistance paper

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Date produced: 11/10/2011

What is the meaning of the term “no net incidence”, as documented in examples of:

1.  International agreements or international fora; and

2.  In national law contexts (in EU countries or in the US)? 


The term “no net incidence” refers to the principle that a country should experience no overall adverse financial impact from a specific policy or legislative mechanism. No net incidence can occur even when the mechanism, implemented on its own, would adversely impact a country. In such an event, additional countervailing mechanisms can be implemented to reduce the adverse impact and achieve no net incidence.


Contextual Examples:

No net incidence is an established principle in international and national legal contexts. It frequently arises when policy, legislation or international responsibilities impose obligations on countries that have varying capabilities.  The concept is quite prevalent and appears frequently in discussions surrounding international GHG emission reduction mechanisms.  The following are a few concrete examples of where the concept of no net incidence appears in international and national legal contexts.

1.     International Agreements/International Fora:

–          International Maritime Organization (IMO), Greenhouse Gas Emissions (GHG) Reduction from Shipping: Delegations at the IMO Intersessional Meeting of the GHG Working group proposed a Rebate Mechanism that would be applied globally in order to achieve no net incidence on countries adversely impacted by market-based mechanisms for reducing GHG emissions from shipping.  A Rebate Mechanism is a compensation scheme tailored to adequately reimburse an adversely impacted country its costs of implementing a market based mechanism for reducing GHG emissions from shipping. This is particularly valuable in achieving no net incidence for developing countries because they are most vulnerable to adverse impacts from GHG reduction market based mechanisms.[1]

2.      National Law:

–          United States, Collective Bargaining: No net incidence in the national context refers to the financial impact of national policy or legislative mechanisms within the domestic system. For instance, collective bargaining mechanisms in the U.S. may create adverse impacts for consumers who will have to absorb the increased transaction costs faced by producers implementing the collective bargaining mechanisms. Countervailing mechanisms may be necessary to reduce the adverse financial impact of the collective bargaining mechanism and achieve no net incidence on consumers.[2]

–          United Kingdom, Emissions and Climate Change: The UK Parliament issued a memorandum stating that the EU and the UK should support policies that would compensate developing countries most affected by carbon pricing mechanisms for reducing shipping emissions. The memorandum suggested a Rebate Mechanism, similar to the IMO proposal discussed above, to compensate developing countries. As in the letter from Diakonia discussed above, the UK Parliament memorandum also emphasised that compliance with the no net incidence principle will ensure that global agreement on aviation and shipping will be consistent with the international principle of Common but Differentiated Responsibilities.[3]

[1] International Maritime Reduction Scheme, available at

[2] See Martin Bronfenbrenner, The Incidence of Collective Bargaining, 44.2 American Economic Review 203, 303 (May, 1954), available at

[3] UK Parliament website, Energy and Climate Change, Memo Submitted by CAFOD (ETS 22), available at