Download Trade in Climate Mitigation Goods and Services

Trade in
Climate Mitigation
Goods and Services :
Opportunities and Challenges
ICC Side Event
UNFCCC Conference
9 June 2008 –Bonn, Germany
Overview of presentation

Why Liberalisation of Climate Mitigation Technologies? Conceptual Issues

The Relevance of Trade: Results analysis of Climate-friendly EGS by World Bank.

Key Issues and Challenges for Environmental Goods Negotiations at the WTO and
Brief State of Play

Recognising ‘non-trade’ drivers of EGS imports-Analysis by Veena Jha and World
Bank’s ’43’ Climate-Friendly List

Dynamic Comparative Advantage

Energy-efficient Goods and Services

Negotiations on Environmental Services and EG&S Synergies

The Relevance of RTAs

Other Important Issues

Annex: Maximum and Applied Tariff Rates for the World Bank’s ’43’ ‘Climatefriendly’ List (Derived from the WTO ‘153’ List).
Why Liberalisation of Climate Change
EGS? Some Views.
• Stern Review has highlighted the potential gains from tradeliberalisation in clean technologies. IPCC report also refers to
trade liberalisation
• EGS liberalisation (with other drivers) =>expansion of markets
for climate friendly technologies and services=>incentive for
innovation.
• Diffusion of and access to EGS =>Improvement of thermal and
environmental efficiency in fossil-fuel use in industry and
households+ Use of cleaner energy=>Puts economy on lowcarbon trajectory.
• Liberalizing trade in renewables will change the Clean
Development Mechanism baseline for renewable energy projects
and could thereby facilitate more high-end and state-of-the-art
technology-transfer through CDM projects. (World Bank, 2007).
Traditional Goods vs EPPs
Traditional
Goods
EPPs
Main purpose
To address an
environmental
problem. Eg:
Carbon capture
technologies
Main purpose
Other uses
Production
Note:
For every EPP there
exists a substitute
or ‘like product’
with a similar use
that is not as
environmentally
friendly
But
environmental
benefits arise
during
E.g. Zero CO2
emitting steel
Consumption/Use
E.g. Solar
cars/panels
Disposal
E.g. Jute Bags
Why have Environmental Goods
assumed significance now?
• Environmental Goods always part of trade
agenda but subsumed within industrial or
(depending on interpretation) also agricultural
negotiations.
• Singled out for first time by Para 31 (iii) of Doha
Ministerial Declaration.
• Para 31(iii) calls for “ the reduction or as appropriate
elimination of tariff and non-tariff barriers to
environmental goods and services.”
The Relevance of Trade
• EGS Market estimated at 550 billion.
• But developing country markets growing more rapidly especially
in Asia. (EBI). This is seen as an opportunity for firms producing
these products.
• Developing countries mainly net importers but some emerging
as key players. China and India have emerged as leading
producers of wind energy as well as wind energy manufacturing
equipment, China and Indonesia in fluorescent lamps while
Brazil is a world leader in the manufacture of bio-fuel
equipment.
• In efficient lighting for instance, strong market growth in
developed countries has been fuelled by imports mostly from
developing countries.
World Bank Trade Simulation of Select ‘Climatefriendly’ products
Removal of tariffs and NTBs for four basic clean energy technologies (wind, solar,
clean coal, and efficient lighting) in 18 of the high-GHG-emitting developing
countries will result in trade gains of up to 13 percent.
Source: World Bank
The Relevance of Trade
• But challenge is not about liberalising trade. The
context in which this is done is important for
realising climate change and economic benefits.
• There is a need to identify other drivers of EGS
demand and the factors which can maximise
economic and environmental benefits for
developing countries.
Key Issues and Challenges for Environmental
Goods Negotiations at WTO
What to Liberalise? : Issues of Product Coverage
 Challenges related to the Harmonised Commodity
Coding and Description (HS)system makes it tricky to:
(i) Isolate ‘climate-friendly’ products from others for
easier trade liberalisation. ‘Dual-use’ categories includes
environmental and non-environmental products. Eg:
Efficient supercritical and ultra-supercritical boilers (and
turbines) cannot be easily tracked because there is no suitable
HS code differentiation for boilers (and turbines) by temperature
and pressure.
(ii) Deal with intrinsically ‘dual-use’ products such as pipes
and valves.
Dual Use Type 1
6-digit HS code entry
(841360) :
Pumps for liquids,
whether or not
fitted with a
measuring device; other
rotary positive
displacement pumps
Environmental Good
Ex-Out:
Pumps for Sewage
and Wastewater treatment
Non-environmental
good
Other pumps
Non-environmental
good
Other pumps
‘Dual-Use’-Type 2
Pipes
As an Environmental
Good:
Used in Solar Hot Water
Systems
As a Non-Environmental
Good:
Used in Oil and Gas
Transportation
Key Issues and Challenges for Environmental
Goods Negotiations at WTO
What to Liberalise? : Issues of Product Coverage
(iii) Present HS classification also makes it tricky to give a
trade preference to ‘relatively’ friendlier products
especially if product remains the same but embedded
technology changes. Eg: Energy efficient products.
 Greater ‘exportables’ from developing countries
Opportunities in parts and components although many
are ‘dual-use’. Developing countries net importers but
import-export ratio declining for many goods.
 Agricultural Products?-Brazil keen on bio-ethanol and
bio-fuel manufacturing equipment
How to Liberalise?: Issues of Process.
 Approaches to Liberalisation
• List: Bound, MFN permanent liberalisation on pre-determined
products. (Friends of Env Goods: Canada, the EU, Japan, Korea,
New Zealand, Norway, Chinese Taipei, Switzerland and the US).
• Project/Integrated: Temporary liberalisation of all goods and
services for designated projects. (India and Argentina).
• Request-Offer: Negotiations on the basis of bilateral or
plurilateral requests on products of interest. Offers extends on
MFN basis to all Members.(Brazil)
 Differentiated treatment among Members? Various proposals.
 Non-tariff measures will be important to address.
 Technical Assistance and access to technology important issues.
Brief State of Play
• Qatar’s submission calls for liberalising natural gas fired generation systems
and advanced gas-generation systems, citing a reference to its benefits under
the UNFCCC. (TN/TE/W/14, W/19 and W/27).
• Qatar also referred to the IPCC Assessment Reports, which have
recommended increased use of natural gas over other fossil fuels as a way to
reduce greenhouse gas emissions.
• ‘Friends’ of EGS submitted an informal list of ‘153’ product entries (at 6-digit
level). Includes climate mitigation goods within ‘renewable energy’, ‘heat and
energy management’ and ‘solid waste management.’
• Recently US-EU informal proposal to liberalise 43 climate friendly goods and
also climate friendly services on an accelerated basis. Zero tariffs on these
goods by 2013.
• Some Members have proposed a ‘review mechanism’ to identify and extend
liberalisation benefits to new technologies that would evolve. Relevant from
an eco-innovation point of view.
• Progress in other issues such as agriculture and industrial market access
(NAMA) negotiations may also affect pace of negotiations.
Drivers of Environmental Goods Imports-Some
findings by Veena Jha (ICTSD, 2008)
• Analysed drivers of trade of 153 products proposed in WTO for
liberalisation by ‘Friends of Env Goods’-(Canada, EU, Korea,
Japan, New Zealand, Norway, Taiwan, Switzerland and the US).
• Categories relevant to climate change include Heat and Energy
Management and Renewable Energy as well as Solid Waste
Management.
• In many categories of environmental goods proposed by WTO
Members variables like GDP, FDI, Enforcement of
environmental regulations (shown by Environmental
Performance Indices) more important than tariffs in expanding
trade.
• However some categories of env.goods especially those in the
category of heat and energy management and renewable energy
appear more responsive to tariff reduction.
Drivers for Technology Acquisition
• World Bank (2007) quotes research by Hakura and Jaumotte
(1999) which states that trade serves as a channel for technology
acquisition by developing countries.
• According to World Bank Report-the main driver for techtransfer is intra-industry trade which is less prevalent between
developed and developing countries than inter-industry trade.
Hence other approaches to technology access important-Eg:
investment, joint-ventures, licensing, development aid,
temporary relocation of employees etc. (OECD, 2002).
• Soft skills and ‘know-how’ important for technology absorption.
(Mytelka, ICTSD 2007). Also building domestic capacities to
manufacture and deploy these technologies is important.
Identifying ‘Climate-Friendly’ Products:
World Bank Analysis of ‘153’ List
• 43 products identified by Bank from ‘153’ products list proposed
by proponents of Env Goods liberalisation in the WTO. 43
products comprises diverse products from wind turbines to solar
panels to water saving shower.
• Global trade in these 43 products have doubled from USD 67
billion to USD 119 billion. Rapid growth in imports and exports.
• World Bank list is a starting premise- many climate relevant
technologies are not included in ‘153’ list. Eg: Wave-power
technologies.
• Maximum bound and applied tariffs higher for developing
countries.
Veena Jha’s (ICTSD, 2008) analysis
continued
• Trade in renewable energy (RE) and heat and energy
management (HEM) products more sensitive to tariff reduction
compared to other categories. But covers only 26 products in
World Bank list (43 products).
• Imports of products in renewable energy category found to be
negatively correlated with level of GDP.
• But imports of RE and HEM products also positively correlated
with general Environmental Performance Index (EPI) of
countries. Covers 26 products from Word Bank list.
• In general, high EPI ranking implies a better framework of
implementation of environmental regulations, as well as better
chances of attainment of environmental targets.
• Strong import correlation with technical assistance projects-for
30 products in World Bank list.
Dynamic Comparative advantage, (Veena
Jha, ICTSD, 2008)
• In 4 Env Goods categories developing countries have
an improving dynamic comparative advantage (20062015). This includes heat and energy management
equipment together with air-pollution control, solid
waste management and noise and vibration abatement.
• Main developing country beneficiaries are middle
income developing countries such as China, Mexico
and Indonesia.
• For RE equipment, dynamic comp. advantage in 2015
(using 2006 as base) continues to lie in industrialised
countries.
Energy-Efficient Goods and Services
• Estimated that 40 per-cent of savings needed to reach
Kyoto targets would come from ‘energy-efficiency’.
• Energy-efficient goods could be those used for energysaving in transport by firms and households. For
households-wide variety of consumer goods (but
problematic in WTO context).
• Services like designing and engineering for energyefficiency (Eg: buildings) may also be relevant as would
installation and maintenance services for energyefficient goods and technologies.
Negotiations on Environmental Services
• Carried out separately in Council for Trade in Services
• US-EU proposal covers climate friendly services
• Some existing environmental services such as ‘cleaning
services’ for exhaust gases relevant to climate change.
• But ‘climate-friendly’ services will need to be clearly
defined as in most cases they will be part of bigger
services such as engineering or consultancy rather than
a ‘stand-alone’ environmental service.
• Slow progress in WTO negotiations though many
Members including developing countries have offered
to make improved liberalisation commitments.
Environmental Goods and Services
Synergy
• According to Steenblik and Drouet, EG&S increasingly provided
commercially on an integrated basis. (OECD, 2005).
• According to Steenblik and Drouet (OECD,2005) certain goods
or categories of goods common to several services. Those of
interest to climate change mitigation include, among others, heat
exchange units and parts (HS-8419.50 and .90) and Solar cells (ex out
of 8541.40) and photo-sensitive semiconductors.
• Largest cluster of goods, used in most environmental services by
far, is laboratory equipment and glassware.
• As markets for environmental services expand so do local
suppliers and the range and sophistication of their goods on offer.
• Environmental consultancy relevant to climate change could be of
interest to developing countries.-E.g. Energy audit & saving,
carbon-asset management. Many firms already coming up in
developing countries as well driven by growth of CDM projects.
Environmental Goods and Services
Synergy
• Liberalising environmental services may require new
regulatory tools including those relating to pricing and
service standards. (Geloso Grosso, 2007).
• Extent to which environmental services will be a driver of
trade in goods will also depend crucially on successful
privatisation of a number of infrastructural sectors in
developing countries. Regulatory risks and capacities
important. (Veena Jha, 2008).
• Further analysis and data collection, especially related to
environmental services FDI, will be necessary to establish
the extent to which trade in environmental services is a
driver of environmental goods imports (Veena Jha, 2008).
The Relevance of RTAs to Trade in
Climate-Mitigation Goods
• Geography and regional dynamics important in much
of trade flows in EGs. Eg: US accounted for 60 % of
Mexican imports of water-pollution equipment. Japan
leading supplier of solid, hazardous waste-treatment
equipment in Malaysia.
• South-South trade in EGs has regional significance.
‘Hubs’ of EGS could establish presence in region
through RTAs. Eg: Malaysian firms like Sadec
Consortium active in water-treatment facility in
Vietnam. Brazil’s CETESB provided consultancy
services to other Latin American countries
The Relevance of RTAs to Trade in
Climate-Mitigation Goods
• ‘Dual-Use’ products less of a problem because of
greater ambition of liberalisation and at HS-6 digit level.
• Trade Creating and Trade Diverting Effects of RTAs
need to be considered.
• Greater ease of harmonisation and alignment of
standards for climate-mitigation goods may easier in a
regional context.
• Technical assistance provisions can be more specifically
tailored to suit participating countries needs. Bilateral
and regional aid flows through environmental
cooperation agreements possible. May need to avoid
‘tied-aid’ problem.
Other Important Issues
• WB report as well as analysis by Jha shows that ‘package’
approach will be important. Indeed can expand trade as
well as enable access to these goods and services in the
long run more than in ‘only liberalisation’ scenario.
• This means that complementary measures (financial
+technical assistance) to trade liberalisation may be
needed. Should these be reflected in a WTO outcome?
UNFCC?
• One area where WTO toolbox may readily play a role is
trade-facilitation aspect-helping countries deal with HS
codes implementation.
• WCO could also assist with HS-code development.
Other Important Issues
• IPR rules in more advanced developing countries important may
influence FDI. Extent of competition in market and IPR
flexibility or bridging licensing costs will be important for prices.
IPR flexibility will also play a role.
• ‘Working of patents’ and ‘generic imports.’
• Investment climate as for other sectors will also influence FDI,
technology flows in climate mitigation EGS.
• Developing appropriate environmental regulatory framework
essential for rapid deployment of climate mitigation goods and
services. Technical assistance to develop appropriate framework
will be important.
• Subsidies to research and eco-industries important to address as
there could be trade implications.
ANNEX: Maximum and Applied Tariff
Rates for the World Bank’s ’43’ ‘Climate-friendly’ List (Derived
from the WTO ‘153’ List).
ANNEX: Maximum and Applied Tariff
Rates for the World Bank’s ’43’ ‘Climate-friendly’ List (Derived
from the WTO ‘153’ List).
ANNEX: Maximum and Applied Tariff
Rates for the World Bank’s ’43’ ‘Climate-friendly’ List (Derived
from the WTO ‘153’ List).
Thank You