Can the environment and trade tango

Written by ASHOK B SHARMA | Updated: Dec 10 2007, 22:28pm hrs
The US and EU proposal to introduce freer trade in green goods and services on the WTO agenda meets with opposition at the climate change conference in Bali.

The US and the European Union (EU) are proposing the introduction of freer trade in green goods and services in the WTO agenda. It prompted a meeting of trade ministers on December 8 on the sidelines of the UN climate change conference in Bali.

According to OECD, global market for environmental goods and services is estimated at more than $550 billion a year, out of which green services account for 65% and green goods 35%. The EU accounts for 30% of this market.

The US-EU joint proposal has invited severe criticism from environmentalists and trade advocacy groups, which allege that it is based on a recent World Bank proposal that suggested huge gains in trade volumes from 3.6% to 63.6%. While some of them say that there is no need to introduce an additional proposal when those on the table have not yet been resolved. Developed countries are not yet eager to open up their markets for goods from developing countries. They are also not prepared to reduce their level of farm subsidy and support. The introduction of the new proposals will only complicate and delay the process of trade negotiations, they say.

Environmental groups have criticised the US by saying the country, which has not signed the Kyoto Protocol and other environment treaties, has no right to suggest how other countries should deal with the situation.

India has already made its position clear by opposing the introduction of environmental agenda in trade negotiations. India has said that the criteria of per capita emission by countries should be considered, if the developing countries are called upon to make emission cuts. Union commerce minister Kamal Nath has opposed the idea of terming India as an emerging economy. We are still a developing country with a large number of poor people, he said. According to one indicator in the OECD report, released recently in Paris, India is the worlds third largest economy behind the US and China.

The US-EU proposal made on November 30, 2007, is a two-tier process for much freer trade in green goods and services as part of the Doha Round of negotiation. The first step suggests an agreement to liberalise trade by reducing tariffs in at least 43 goods with clear environmental benefits drawn from a list prepared by the World Bank. The list includes solar panels, wind mill turbines, clean coal and energy-efficient lighting. The US is now shifting to clean coal technologies as global prices of crude oil are firming up.

In the second process, the proposal suggested more far-reaching environmental goods and services agreement (EGSA) to be negotiated by the WTO members which would foresee further binding commitments to eliminate tariffs and non-tariff barriers in trade in green technologies. In services, highly ambitious and comprehensive commitments would be undertaken to address environmental and climate change challenges such as waste management. Developing countries would be asked to make contributions proportionate to their level of development.

Intellectual property right is an issue in trade as far as green technologies are concerned. The developed countries have already failed in their assurance to transfer clean energy technologies, and the funds to finance it which was agreed upon at the Rio Earth Summit. Clean technologies with high price tag of intellectual property rights would make it difficult for developing countries to address the problems of climate change. Even in San Francisco Bay Area of California, there is no consensus within the industry about the necessity for global monopoly patents on important new clean energy technologies.

The reduction or elimination of tariff barriers on green goods and services as suggested by the US-EU proposal would severely affect the developing countries that have either developed some of these technologies or are in the process of development. It would be better to leave the option of applied tariff reductions to countries that want to mitigate climate change rather than making the tariff reduction binding. Government action is more important in mitigating climate change, rather than emphasis on trade. Government action like placing a price on greenhouse gas emission, while trade rules will minimise government action or incentives. Cost internalisation can come in many forms, including caps and/or taxes on carbon, renewable energy criteria, or even energy-efficiency standards. The imperative to internalise carbon costs should compel policymakers to protect and expand their policy space so that they have the freedom to enact necessary.

The US-EU proposal in the name of breakthrough priorities for a Doha deal include the opening of markets for its energy services companies like Halliburton in countries with large oil and gas reserves. So any benefits from trade in clean technologies would have to be offset with the WTO deepening worlds dependence on fossil fuels.

Even though trade in cargo is fuelled by one of the dirtiest of all energy sources (bunker fuel), the US-EU proposal has not questioned the inherently increasing carbon footprint that will result from shipping. The UNFCCC is more competent to address the issues of climate change than the WTO.

As suggested in the background papers for trade ministers meeting in Bali, one area where trade policy could reduce its restraints on climate policy is by increasing flexibilities to allow many forms of public support needed to accelerate the research, development and deployment of clean, efficient, energy technologies.

The background paper also proposed a discussion on non-tariff barriers to investment, which could cover zoning codes, tax incentives, operating permits, or just about any measure governments enact that impact investment. Non-tariff barriers have too often, in recent trade policies, implied the legal protections for the environment or community development. Again, trade policy makers must keep away from restricting governments from internalising costs in energy investment and production today.

According to International Energy Agency, $22 trillion investment in new energy infrastructure is required for the next 25 years to meet what it calls runaway demand for energy led by China and India. However with the likely carbon pricing regime in different countries, investors are uncertain about their future. Even OPECs recent Riyadh Declaration has asked the oil-importing countries to clarify their future demand for petroleum.

The massive bio-fuel programme backed by huge subsidy across the world has also become controversial. The recent UNCTAD annual report said that such bio-fuel programmes in Europe and US have distorted global trade and skyrocketed the prices of grains.

It apprehended that massive cultivation of bio-fuel crops would displace food crops from cultivation and create food security problem. The Nobel prize winning chemist, Paul Crutzen, best known for his work on ozone layer has concluded that bio-fuels could increase global warming with laughing gas.

Leading scientists like David Pimentel of Cornell University, Tad Patzek of University of California, Florian Siegert, managing director, Remote Sensing Solutions GmbH , Munich, Mario Giampietro of Institute of Environmental Sciences, Barcelona and Helmut Haberl of Klagenfurt University, Austria have questioned the very basis of the contention of the IPCC report that bio-fuel programme causes a reduction in carbon dioxide emission.

The mayor of London, Ken Livingstone, who was in Delhi recently said that bio-fuels do not reduce emissions to the extent desired. London has prepared its own Climate Change Action Plan to deal with the intention of reducing 60% of the city's emission by 2025. According to the action plan, London is to promote low-carbon vehicles with hybrid fuel system which cut transport emissions by up to 4 to 5 million tonne .''Carbon dioxide emission from road transport would fall by as much as 30% if people simply bought the most fuel efficient car in each class,'' the action plan said.