* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download E Economic and Social Commission for Asia and the Pacific /ESCAP/CDR(2)/INF/7
Climate change feedback wikipedia , lookup
Climate change mitigation wikipedia , lookup
Climate engineering wikipedia , lookup
Media coverage of global warming wikipedia , lookup
German Climate Action Plan 2050 wikipedia , lookup
Climate change and agriculture wikipedia , lookup
Climate change in Tuvalu wikipedia , lookup
Scientific opinion on climate change wikipedia , lookup
Solar radiation management wikipedia , lookup
Climate governance wikipedia , lookup
2009 United Nations Climate Change Conference wikipedia , lookup
Climate change adaptation wikipedia , lookup
Effects of global warming on humans wikipedia , lookup
Views on the Kyoto Protocol wikipedia , lookup
Economics of global warming wikipedia , lookup
Climate change in the United States wikipedia , lookup
Effects of global warming on Australia wikipedia , lookup
Mitigation of global warming in Australia wikipedia , lookup
Surveys of scientists' views on climate change wikipedia , lookup
Citizens' Climate Lobby wikipedia , lookup
Low-carbon economy wikipedia , lookup
Climate change, industry and society wikipedia , lookup
Public opinion on global warming wikipedia , lookup
Climate change in Canada wikipedia , lookup
Climate change and poverty wikipedia , lookup
Economics of climate change mitigation wikipedia , lookup
Politics of global warming wikipedia , lookup
Business action on climate change wikipedia , lookup
E/ESCAP/CDR(2)/INF/7 Distr.: For participants only 19 May 2011 English only Economic and Social Commission for Asia and the Pacific Committee on Disaster Risk Reduction Second session Bangkok, 29 June-1 July 2011 Item 4 of the provisional agenda Recent trends in disasters and their socio-economic and environmental aspects Climate change and disaster risk reduction: the role of trade and investment * Note by the secretariat Summary While it has been widely recognized that climate change will lead to an increased incidence of natural disasters in the course of this century, an international consensus on the reduction of emissions of greenhouse gases responsible for climate change has proved elusive so far. This is a key concern as such disasters severely disrupt trade and investment, which are wide acknowledged to be the engines of growth and development. This paper, while recognizing the costs associated with climate change mitigation and adaptation efforts, argues that trade and investment in climate-smart goods, technologies and services are also part of the solution and can contribute to a triple win solution where trade and development, climate and disaster risk reduction all benefit. The paper identifies opportunities to promote trade and investment in those goods and services in the region and briefly presents a policy framework to capture those opportunities. The paper makes a strong case for regional cooperation and suggests a regional partnership or agreement on the mitigation of and adaptation to climate change including a regional trade and investment agreement in this area. The paper proposes that ESCAP could take the lead in such initiative. * The present document has been issued without formal editing. DMR A2011-000207 TP020611 CDR2_INF7 E/ESCAP/CDR(2)/INF/7 Contents Page I. Introduction................................................................................................. 2 II. Trade, investment, and climate change: Linkage, impacts and concerns of developing countries ............................................................................... 2 III. Opportunities for trade and investment in climate smart goods and services........................................................................................................ 5 IV. Policies to promote trade and investment in climate-smart goods and services...................................................................................................... 10 V. Regional cooperation and the role of ESCAP........................................... 13 I. Introduction 1. There is universal consensus that the world’s climate is changing beyond the normal fluctuations in weather patterns. The changes in climate foreseen towards the end of the century involve a gradual warming of the planet, with a temperature increase ranging from 1.1 to 6.4°C over preindustrial levels during the twenty-first century. If these temperature increases are not slowed or stopped, sea levels will rise, and coastal communities and other low lying areas may be flooded while others will experience severe drought. In other words, global warming will lead to natural disasters which will affect the livelihood of millions of people, most of whom are living in poor countries. There is compelling evidence that global greenhouse gas (GHG) emissions cause climate change and that most 1 GHG emissions are due to anthropogenic factors. Consensus is therefore growing among scientists and policy makers that in order to reduce the risk of natural disasters, actions need to be taken to curb global GHG emissions and drastically reduce the unsustainable use of so-called carbon sinks, such as the world’s forests and oceans, to prevent global temperatures from rising by more than 2°C, which is the rate at which climate change can still be managed. This requires reductions in GHG emissions to a concentration level of 450 ppm CO2e. This information note reviews the role of trade and investment in mitigating climate change and makes the case for regional cooperation in promoting trade and investment in climate-smart goods, services and technologies. The note is based on a larger ESCAP study on Trade, Investment and Climate Change: Working Together towards a Triple Win Outcome, forthcoming (2011). II. Trade, investment and climate change: Linkages, impacts and concerns of developing countries 2. The linkages between trade, investment and environmental issues with a particular focus on the impact of trade and trade liberalization on 1 2 According to the International Panel on Climate Change (IPPC), there is less than 5 per cent chance that climate change is the result of only natural climatic processes. IPCC (2007). Climate change (2007). Synthesis Report. Contribution of Working Groups I, II, III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva. E/ESCAP/CDR(2)/INF/7 2 climate change have been comprehensive explored in the literature. It is generally acknowledged that trade and investment contribute to GHG emissions as the associated production and transportation processes depend excessively on fossil-fuels, which are the principal contributors to GHG emissions. However, the carbon intensity of trade is not always higher than that of local production (see below). In addition, trade and investment are essential for economic development and growth and achieving the Millennium Development Goals, in particular poverty reduction. A reduction or elimination of trade and investment is therefore not a practical solution. When production and transportation can take place on the basis of renewable energy sources and technologies, trade and investment become major solutions to climate change. In particular, investment is needed to develop and commercialize viable and cost-efficient low-carbon or climatesmart goods and technologies, while trade and aid for trade are needed to make these products and technologies widely available to all countries, including least developed countries. Under such a scenario, trade, environment and development all benefit while the risks of natural disasters from climate change are reduced (figure 1). Figure 1 An integrated climate-smart trade and investment policy model Climate-smart (low carbon) trade and investment policy Renewable energy and climate smart technologies Sustainable construction, production and transportation Mitigation of and adaptation to climate change/reduced or zero GHG emissions Disaster risk reduction Afforestation and reforestation 3. Some of the world’s fastest growing economies are from the AsiaPacific region. Their growth has been triggered and sustained by high levels 3 of trade and investment. They are also among the largest carbon emitters in the world. According to the most recent available date from the World Resources Institute Climate Analysis Indicators Tool (CAIT), GHG 4 emissions from the region have grown faster than the world average. 2 For a comprehensive overview, see for instance: World Trade Organization (WTO)-United Nations Environmental Programme (UNEP) (2009). Trade and climate change. Geneva. WTO Publications. 3 Economic Commission for Asia and the Pacific (2009), Asia-Pacific Trade and Investment Report 2009: Trade-led recovery and beyond. New York. Sales No. E.09.II.F.19; ST/ESCAP/2549. United Nations. 4 http://cait.wri.org. 3 E/ESCAP/CDR(2)/INF/7 China surpassed the United States to become the world’s largest emitter of GHGs in 2005, the latest year for which data are available for all 5 greenhouse gases for 185 countries and economies. India was ranked fifth and Indonesia twelfth. However, measured in terms of CO2e per capita, China ranked at no. 71 and India at no. 123. In 2007, these ranks were 66 6 and 122 respectively. Also worth noting is that the CO2 emission intensities (the level of CO2 emissions per economic output or CO2/GDP) dropped for most Asian economies in the period 1992-2006 as their economies grew faster than their CO2 emissions. Energy, agriculture, and land use change and forestry were the largest sectors contributing to GHG emissions accounting for 64 per cent, 14 per cent and 11 per cent of all GHG emissions from the ESCAP region in 2005. 4. The Asia-Pacific region is prone to a relatively high incidence of natural disasters. While not all these disasters can be linked to climate change, it is recognized that in the course of this century and most certainly beyond, climate change will lead to increasingly fluctuating weather patterns and rising sea levels, which, in turn, will increasingly affect production and transportation and hence, indirectly, trade and investment (see table 1). Table 1 Some likely impacts of climate change on trade and investment 4 Direct effect of climate change Derived impact on trade and investment Severe weather patterns: floods, droughts, desertification Loss of productivity, in particular agriculture in (sub)tropical areas; potential increase in agricultural productivity in temperate areas; decrease/increase in food production depending on locations; increase in forest fires affects wood-based industries Rising sea levels: inundation of coastal communities Loss of coastal production and loss or damage of infrastructure necessary for trade (i.e. ports); loss of recreational beach tourism; possible disappearance of whole island developing countries Other damages to eco-systems: loss of biodiversity and glaciers; coral bleaching Loss of products and local livelihoods (i.e. medicines based on traditional knowledge); coral bleaching leading to loss of fisheries products; disappearance of glaciers leads to shortages of fresh water for both agriculture and industry Increase in diseases and injuries due to storms and increased air pollution Lower labour productivity 5 GHG emissions include land use change and international bunkers and covers the 6 most common GHGs: carbondioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbon gases (HFC), perfluorocarbons (PFC) and sulphurhexafluoride (SF6). The 185 countries and economies in the CAIT 8.0 database include the European Union as one and Taiwan Province of China. 6 While GHG emission data are available only for 2005, CAIT 8.0 provides data on CO2 emissions for 2007. E/ESCAP/CDR(2)/INF/7 5. For this reason collective action to mitigate climate change through drastic reductions in GHG emissions is called for. However, to date no consensus has been possible to conclude an international climate change treaty which would strengthening the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change and commit all countries to emission reduction targets when the first commitment period of Annex I (developed) countries’ GHG emission reductions will end at the end of 2012. In particular, various developing countries have expressed concerns on such a treaty though there is no unifying position among them. Clearly, those that have no or negligible emissions but are severely affected by them (i.e. island developing countries like the Maldives, Tuvalu, Vanuatu) are strongly in favour of binding emissions cuts while emerging but large carbon emitting economies like China and India or major oil and gas exporting countries (e.g. Islamic Republic of Iran, Kazakhstan) obviously are concerned that binding commitments may undermine their economic growth. However, developing countries in general are reluctant to compromise their fragile development gains through emission cuts to address a problem which was not primarily caused by them. They are also concerned that the measures put in place in the name of environment by developed countries may be protectionist measures in disguise affecting their exports. 7 6. Generally, while developed countries’ main concern in climate change negotiations is cost-effectiveness of mitigation measures, for developing countries the main concerns are equity, the costs of climate change adaptation and technology transfer. For that reason, any international treaty on climate change should have clear provisions on equitable cost sharing, technology transfer and aid. In the meantime, negotiations continue but the outlook for a successful outcome any time soon seems bleak. However, nothing prevents countries to take measures at least voluntarily at the national and regional level. While such measures may not be sufficient in the long run they would constitute a meaningful beginning to seriously address the problem of climate change. There is at least consensus that the “business-as-usual” scenario is not acceptable. III. Opportunities for trade and investment in climate goods and services A. Opportunities for trade There is a misperception that a good imported would always have a 7. larger carbon footprint than when that good would be produced at home in because of the transportation factor. However, the carbon intensity of a good produced at home may be higher than that of an imported good. Thus, 8 an ESCAP study revealed that using so-called emission intensity indices of 7 See, for instance: Evenett, Simon .J.; Whalley, John. (2009). Resist green protectionism –or pay the price at Copenhagen. In: Baldwin, Richard and Evenett Simon J. (eds.). The collapse of global trade, murky protectionism, and the crisis: Recommendations for the G20. VoxEU.org Publication. 8 Truong, P. Truong; Mikic, Mia (2010). Trade and Climate Change: Development of Emission Intensity indices. ARTNeT Alerts on Emerging Policy Challenges No.6. August. 5 E/ESCAP/CDR(2)/INF/7 9 exports and imports, it appears that China, Indonesia, and Viet Nam import commodities which are produced (overseas) with lower emissions than if they were produced locally, while the reverse holds true for Bangladesh, India and Thailand. Similarly, countries like Bangladesh, China, India, Indonesia, Thailand and Viet Nam export commodities which are locally produced with more emissions than the emissions which would have resulted from production locally in the destination countries. It is therefore important to make a detailed carbon intensity analysis of the trade structure of each country and make adaptations based on the results of such analysis. In other words, the concept of traditional comparative advantage needs to be refined to include a measurement of carbon footprint to ensure that such comparative advantage is also sustainable. Table 2 Top 10 traders of CSGT in 2008 (ranked by the percentage share in total exports and imports of CSGT of ESCAP) Rank Economy 1 2 3 4 5 6 7 8 9 10 China Japan Republic of Korea Hong Kong, China Singapore Malaysia India Thailand Turkey Indonesia Exports (%) 36.1 30.9 7.4 7.2 4.2 3.1 2.6 2.5 1.4 1.2 Economy China Republic of Korea Japan Hong Kong, China Russian Federation Singapore Thailand India Australia Turkey Imports (%) 30 13.2 10.2 7.5 5.7 5.1 4.3 4.1 3.8 3.5 Source: From Comtrade data downloaded from WITS 8. It follows therefore that not all trade is damaging to climate change. However, among the most important voluntary measures countries could implement are policies to promote trade and investment in low-carbon or climate-smart goods and technologies (CSGT), in particular renewable energy technologies, and climate-smart services. Such goods and technologies are climate-smart in that they not only contribute to GHG emission reductions but have otherwise no harmful environmental effect. Based on an analysis of a list of 64 of such goods and technologies, ESCAP research has revealed that global and regional trade in climate smart goods is rising but is still only around three per cent of total global and regional 10 trade respectively. The Asia-Pacific region is emerging as the most dynamic region with regard to trade in climate smart goods with China and Japan the top two exporting countries (table 2). In 2008, the ESCAP region 6 9 The values of these indices range from 0 to infinite, but the important benchmark is a value of equal to 1. For example, if the emission intensity index of import is larger than one, emissions embodied in goods produced overseas and transported to a destination are larger than the emissions that would have been caused by local production in that destination of the same amount of goods. The index value of 1 indicates that emissions associated with imports of goods are the same as those associated with local production replacing trade. 10 ESCAP (forthcoming). Trade, investment and climate change in Asia and the Pacific: Working together towards a triple win outcome. E/ESCAP/CDR(2)/INF/7 accounted for about 31.9% of world trade in CSGT. The value of CSGT exports and imports tripled during the period 2002-2008. ESCAP’s intraregional trade in climate smart goods is about 50 per cent of their total trade in these goods. The ESCAP region’s intraregional trade in climate smart goods is about 50 per cent of their total trade in these goods. 9. ESCAP analysis using trade indices such as the Competitiveness Index (CI), Revealed Comparative Advantage (RCA) index, and Regional 11 Orientation index (ROI) and analysis of prevailing applied tariffs in selected countries of the region on climate-smart technologies based on the 12 ESCAP list revealed that there are considerable opportunities to expand international and regional trade and investment in CSGT. Based on RCA analysis alone, it appears that China; Hong Kong, China; and Japan have emerged as the region’s most competitive countries in CSGT. Thanks to their strong positions, the RCA index of the ESCAP region as a whole remains just above one, indicating that the region has a comparative advantage in CSGT. An analysis of the ROI indicates also potential for intraregional trade in CSGT. Tariffs on the import of renewable energy technologies have come down in many cases though some countries with high emissions and comparative advantages in these goods still maintain relatively high tariffs. For instance, average effectively applied tariffs on solar PV in the Islamic Republic of Iran (33.19%), Pakistan (19.39%), Viet Nam (14.91%), and Cambodia (18.59%) were especially high in both absolute terms and relative to their corresponding industrial goods average 13 (table 3). However, a simple gravity model analysis has revealed that tariffs 10. play a minor role in explaining trade in CSGT. A higher level of income in any given country seems to be more associated with a higher level of import of CSGT than the tariff level. In addition, non-tariff barriers such as standards appear to be a major impediment to trade in CSGT. Gravity analysis has further found that based on 2008 data, the estimated export potential of climate smart goods in Asia-Pacific was around $30 to $35 billion in that year. If Asian and Pacific economies were able to utilize this potential, their exports of CSGT would have been higher by nearly $7.34 billion. With increasing awareness of climate change and rising trade in CSGT, an increase in trade in climate-smart services would also follow though data on such trade are not readily available and, hence, an analysis of such trade is more difficult. B. Opportunities for investment 11. It is difficult to measure the extent of investment in CSGT. Figures for FDI in CSGT are particularly hard to assess. However, with focus on renewable energy technologies, it appears that the Asia-Pacific region is emerging as a global leader in overall investment. In sharp contrast to the decline in investment in the Americas and Europe, and in spite of the economic downturn, sustainable energy investment in Asia and the Pacific 11 For a definition of these indices, see http://www.unescap.org/tid/artnet/ artnet_app/iti_aptiad.aspx. 12 The following categories of CSTs were used: solar photovoltaic (PV) systems, wind power, clean coal, efficient lighting, and other CSTs. 13 These rates were calculated by the ESCAP secretariat based on on Comtrade data extracted from the World Integrated Trade Solutions (WITS) Database. 7 E/ESCAP/CDR(2)/INF/7 increased by 37 per cent in 2009. This compares to drops of 33 per cent in the Americas 16 per cent in Europe. Table 3 Average effectively applied tariffs on climate smart energy technologies in the top 20 GHG emitting countries of ESCAP GHG emissions regional rank (2005) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year Country China Indonesia Russian Federation India Japan Republic of Korea Australia Islamic Republic of Iran Turkey Thailand Malaysia Myanmar Pakistan Philippines Kazakhstan Viet Nam Bangladesh Singapore Cambodia* Turkmenistan* AVERAGE (most recent year available) All industrial goods average (%) Solar PV (%) Wind power Clean coal (%) (%) 2008 2007 2008 2008 2008 2007 2008 8.57 5.84 8.19 9.74 2.61 8.29 3.93 4.16 5.93 4.33 5.41 0.00 4.64 1.91 7.65 4.81 4.14 7.28 0.00 5.50 6.88 8.03 0.00 8.85 7.25 0.00 5.35 0.69 8.03 7.63 0.00 9.39 0.00 6.98 3.97 2008 2008 2006 2007 2007 2008 2007 2008 2007 2007 2008 2007 2002 24.78 2.41 10.97 5.91 4.12 14.04 5.00 3.91 11.68 14.52 0.00 12.45 5.43 33.19 0.47 6.82 7.51 2.69 19.39 4.97 1.27 14.91 11.13 0.00 18.59 3.62 5.78 0.47 6.59 4.39 1.00 31.80 0.84 4.60 11.80 5.00 0.00 12.65 0.00 6.38 0.46 0.89 0.00 1.00 4.63 2.07 0.00 0.00 5.00 0.00 7.00 0.00 29.80 0.52 17.00 25.11 1.00 19.97 9.88 0.00 32.22 18.24 0.00 6.27 0.00 8.12 7.55 6.06 2.88 9.80 Source: calculated based on Comtrade data extracted from the WITS Database Note: Ranking of countries by GHG emissions is based on 2005 data from Climate Analysis Indicators Tool (CAIT) Version 7.0. (Washington, DC: World Resources Institute, 2010) * Cambodia and Turkmenistan are actually ranked 20th and 21st, respectively, with Democratic Republic of Korea ranked 19th. However due the lack of tariff data for the Democratic Republic of Korea, Cambodia and Turkmenistan were both moved up a rank. 12. Most sustainable energy investments in Asia and the Pacific, and all of investment growth, was China – where sustainable energy investments grew by 53 per cent, from $22 billion in 2008 to $33.7 billion in 2009. This rapid growth has now made China the clear leader in sustainable energy investments both globally and in the region, with 28 per cent of all sustainable energy investments globally or 83 per cent of investments in the Asia and the Pacific region. Other countries in Asia and the Pacific lag far behind, with India as distant second at $2.7 billion in investments in 2009, representing 2.3 per cent of global investments or 6.6 per cent of investments in the Asian and Pacific region. In addition to taking the overall 8 Energy efficient lighting (%) E/ESCAP/CDR(2)/INF/7 lead in global sustainable investments, China became the clear leader in wind energy investments, accounting for a total of 40 per cent of global wind energy investments in 2009. 13. While these figures look impressive, they fall far short of what is required to prevent global temperatures from rising by 2°C by the end of the century, the level at which climate change can still be managed. It has been estimated that reducing emissions to the required level will require additional global investments of over $1 trillion annually over the period 2010-2050. Around half of this is expected to be required for the ESCAP region, i.e. approximately US$ 600 billion per year over and above current investment levels. China is expected to make up more than half of these mitigation related investment needs in the region, followed by India and the rest of the developing countries at around 17 per cent each. According to IEA estimates, close to 50 per cent of the required 14. investments during 2010-2050 will be in the transport sector; followed by buildings at 27 per cent, and power generation, transmission and 14 distribution at a combined 21 per cent. Efficiency investments – primarily related to end-use efficiency – will form the majority of all energy related investments, followed by renewables. Finally, in the services sector, the market for energy efficiency services should be experiencing drastic increases, e.g. in relation to energy efficiency consulting services for all the above sectors, including process improvements in industry. Investment needs will rise significantly when adaptation costs are 15. included. Adaptation to climate change is important in reducing the risks from climate-change related natural disasters and as it is expected that mitigation efforts will fall short, adaptation will become increasingly important in the years and decades ahead. Understanding the costs and benefits of adaptation is important for planning and mobilizing investment. Adaptation measures can be divided into “hard” adaptation measures, i.e. structural measures aimed at building physical structures which would reduce the risk of climate-change related disasters (such as dams and levies, ocean wave barriers, water supply and irrigation systems, technologies for the development of drought and flood-resistant crops, etc.) and “soft” adaptation measures, i.e. non-structural measures not involving physical construction that uses knowledge, practice or agreement to reduce risks and impacts, in particular through policies and laws, public awareness raising, training and education, and early warning systems. Estimates of the costs associated with structural measures in all sectors in developing countries range from $9 billion to over $100 billion per year for the period 201015 2015 and much higher in the decades after that with an estimated twothirds in Asia and the Pacific. According to an ADB study, for four countries in ASEAN (Indonesia, Malaysia, Philippines and Thailand), the cost of “hard” adaptation in the agricultural sector and in coastal zones, would be about $5 billion per year by 2020 on average, and that this 14 IEA (2010). Energy technology perspectives 2010: scenarios and strategies to 2050. OECD/IEA. Paris. 15 See S. Agrawala and S. Frankhauser (eds.) (2008). Economic aspects of adaptation to climate change: costs, benefits and policy instruments. Organization for Economic Cooperation and Development (OECD), Paris. Table 2. 9 E/ESCAP/CDR(2)/INF/7 16 investment is likely to pay off in the future. UNFCCC has estimated adaptation costs in the following sectors: agriculture, forestry and fisheries; water supply; human health; coastal zones; and infrastructure under various scenarios but acknowledges that there are serious caveats regarding the findings. UNFCCC came up with investment and financial flows needed in 2030 for developing Asia ranging from $230 billion to just over $300 17 billion depending on the scenario These costs are expected to be much higher when “soft” adaptation costs are included but estimates involving all adaptation measures are not readily available.. 16. While these investment needs will imply a large cost and thus financing challenge for governments, the private sector and consumers, they simultaneously present a huge business opportunity. The exact extent of these business opportunities will naturally depend on the level of ambition of policy makers, the policy mix chosen, and the degree of enforcement. IV. Policies to promote trade and investment in climatesmart goods and services Given the opportunities for expanded trade and investment in CSGT 17. governments have a role to formulate and implement policies which are conducive to such trade and investment. Most climate-change related policies are not trade or investment policies but most have nevertheless an impact on trade and investment. Such policies may therefore be subject to international trade rules, in particular those contained in the multilateral trade agreements under the World Trade Organization. In particular, some countries have imposed or are considering imposing border carbon taxes or border tax adjustments to ensure a level playing field between imports and national products and prevent national companies with a relatively high carbon footprint to leave the country and seek “carbon havens” in other countries with less strict regulations, a process known as “carbon leakage”. However, apart from the difficulties associated with such taxes, research 18 has shown that “carbon leakage” is either non-existent or very small. 18. The design of national policies that actually create incentives for mitigation and adaptation is a difficult task. Such policies can be structured into regulatory measures (including regulations, standards and labelling), and economic incentives (including taxes, tradable permits and subsidies). Many of these policies are trade or investment policies or have implications for trade and investment. In practice it is therefore very difficult to make clear distinctions. The point to make is that the mitigation of climate change requires a comprehensive approach combining various policies which need to be consistent and carefully coordinated at national and regional level and which conform to international trade rules and do not result in hidden protectionism or in unduly distorting trade. 10 16 ADB (2009). The economics of climate change in Southeast Asia: a regional review. Manila. April. 17 United Nations Framework Convention on Climate Change (UNFCCC) (2007). Investments and financial flows to address climate change. Bonn. 18 See, for instance, Organization for Economic Cooperation and Development (2009). The economics of climate change mitigation: policies and options for global action beyond 2012. Paris. Wooders, Peter; Cosbey, Aaron. (2010). Climatelinked tariffs and subsidies: Economic aspects (competitiveness & leakage). TAIT and the Graduate Institute. E/ESCAP/CDR(2)/INF/7 19. Policies which can be distinguished for the purpose of mitigating and adapting to climate change consist of general policies consisting of nationally appropriate mitigation actions (NAMA) and national adaptation programmes of action (for least developed countries only) as committed under the United Nations Framework Convention on Climate Change (UNFCCC), a comprehensive national level legal framework for low carbon growth, and the possible adoption of national level emission trading systems (also known as cap-and-trade). Policies targeting particular sectors, including policies aimed at reducing emissions from deforestation and forest degradation (REDD) would also fall in this category. Other general policies include public procurement systems favouring low-carbon suppliers. Such policies should be coupled with financial policies, i.e. policies which tax the use of high carbon products and subsidize the use of low carbon products. For that reason, fossil fuel subsidies should be reduced or eliminated in many countries in a phased manner to limit negative impact on the poor while active financial support should be given to investment in and production and use of CSGT. Specific policies to promote the use of renewable energy also need to be implemented, e.g. feed-in-tariffs and renewable portfolio standards which have already been adopted in various Asian developing countries. Trade and investment policies should be mainstreamed into general climate change mitigation and adaptation strategies. While the imposition of trade barriers to products perceived to have 20. a large carbon footprint may run afoul of international trade rules, trade policies can and should be adopted which promote trade in CSGT and climate-smart services. For that reason, both at and behind the border obstacles to such trade need to be removed. As the negotiations on the liberalization of environmental goods and services are stalled at the multilateral level, unilateral liberalization or liberalization under regional and bilateral trade agreements seems to be the next best solution. Negotiations on the liberalization of trade in CSGT and climate-smart services are generally hampered by a lack of consensus on the definition of an environmental or climate-smart good or service and on the modalities for reducing barriers to such trade. However, at the bilateral or subregional level, chances are higher that such a consensus could be forged. In the meantime, countries could adopt various trade and transport facilitation measures such as paperless trade in all goods and adoption of single windows which would help in reducing carbon emissions associated with trade. Investment policies play an important role in both promoting 21. domestic and foreign direct investment (FDI) in the production of CSGT and provision of climate-smart services. Transnational Corporations are at the forefront of developing CST and therefore a conducive and enabling 19 environment for such investment is essential. Such an environment includes an enabling regulatory framework, appropriate infrastructure and availability of local expertise, availability of incentives or privileges for climate-smart investment, and an appropriate level of intellectual property right (IPR) protection. Investment promotion agencies could engage in specific targeting of climate-smart investment. At the same time, the capacity of domestic small and medium enterprises (SMEs) in the area of 19 For a comprehensive overview of issues related to FDI in low-carbon goods, see UNCTAD, World Investment Report 2010, New York and Geneva. 11 E/ESCAP/CDR(2)/INF/7 CSGT should be enhanced so that they can evolve into suppliers of lowcarbon TNCs and effectively integrate in low-carbon value chains. Countries should also ensure that any regional or bilateral trade agreements or international investment agreements they are a party to, do not unduly undermine their policy space to pursue low-carbon growth but, instead, are conducive to such growth. 22. Climate-smart standards and labels play an important role in promoting trade and investment in CSGT. While it is recognized that standards may be a formidable non-tariff barrier to trade in CSGT, they also force enterprises to produce products which conform to market expectations and contribute to reduction of GHG emissions. Important standards include energy and fuel efficiency standards, minimum energy performance standards, carbon emission standards and labels informing consumers on the carbon footprint of a certain product, and “green” building codes. Various countries already have national level label schemes 3(e.g. Japan’s Eco Mark, Republic of Korea’s Eco-labelling Programme, and Singapore’s Green Label). Notwithstanding the importance of such standards and labels, they should conform to international trade rules and not be used as a tool for protectionism while countries should strive towards harmonization and mutual recognition of such standards, at least at the subregional or regional level. An issue of utmost importance to the mitigation of and adaptation to 23. climate change and closely related to trade and investment is that of technology transfer. It has been pointed out that in many cases, climatesmart technologies already exist but require further development and commercialization. Developing countries need to enhance their capacity to develop such technologies and obtain and absorb technologies appropriate to their level of development. Technology transfer is a complicated process often associated with the attraction of FDI but transfer is not automatic and various barriers have to be overcome. Barriers can be distinguished into eight categories: institutional and legal (including IPR), political, technological, economic, information-related, financial, and cultural. IPR protection does not seem to matter much in least developed countries. However, it is understood that an excessive level of IPR protection is not conducive to the effective transfer of technology of any kind in most cases and, hence, a proper balance needs to be sought between needs of the recipient country and those of the technology supplier. One solution is to agree on additional flexibilities in the international IPR-related trading rules, i.e. the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) though there is no consensus on this issue. The need for technology transfer and financial assistance has 24. dominated global climate change talks. In light of the capacity constraints faced by developing countries, financial assistance in particular is essential, either as part of wider aid-for-trade initiatives or in addition to such initiatives. Various global and regional funds already exist but may not be sufficient to satisfy the needs. This document proposes that regional cooperation initiatives could incorporate modalities for technology transfer and financial assistance from the more advanced developing economies of the region to the less developed economies as part of a wider regional partnership, which is further discussed below. 12 E/ESCAP/CDR(2)/INF/7 V. Regional cooperation and the role of UNESCAP 25. While national level actions and policies to mitigate climate change are important, climate change is most effectively tackled through international cooperation. In the absence of international consensus, such consensus may have a better chance of success at the regional or subregional level. Though various voluntary schemes related to the mitigation of climate change already exist in the context of subregional organizations (e.g. Asia-Pacific Economic Cooperation, Association for South-East Asian Nations, Pacific Forum Secretariat, and South Asian Association for Regional Cooperation), a region-wide approach is as yet lacking. Given the cross-border nature of GHG emissions, regional cooperation is indispensable. This paper calls for a Regional Trade and Investment Cooperation Partnership/Agreement for Mitigation of and Adaptation to Climate Change. At the core of this Partnership would be a Regional Trade and Investment Agreement on Mitigation of Climate Change The Regional Partnership/Agreement would include, inter alia, measures for the liberalization and joint promotion of climate-smart trade and investment, adopt regional climate-smart sectoral and industry standards and labels, explore the feasibility of a regional carbon tax and a regional emission trading system, provide modalities for the effective joint development and transfer of climate-smart technology, joint promotion and targeting of climate-smart FDI and development of the required supportive legal, institutional and physical infrastructure, expertise, and establishment of a regional financial support mechanism for climate-smart SMEs and climate-smart growth in general, tapping at least part of the huge international reserves of selected countries. 26. Among all regional institutions, ESCAP is well-placed to pursue the conclusion of such a partnership/agreement. Already, the Secretariat has undertaken various initiatives to support trade and investment in CSGT and climate-smart services. As part of a wider low-carbon ESCAP project funded by the Republic of Korea, the Secretariat undertook research and organized a Regional Symposium on Low Carbon Economy: Trade, Investment and Climate Change in Bali, 13-14 October 2010. The Symposium agreed that trade and investment in CSGT could play an important role in mitigating climate change and that barriers to such trade and investment needed to be removed. The Symposium also emphasized that measures to mitigate climate change should not undermine national development and economic growth targets and be in accordance with each country’s capacity. _______________ 13