A SUSTAINABLE ENERGY TRADE AGREEMENT? DEALING WITH NON-TARRIFF BARRIERS TO TRADE

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1 A SUSTAINABLE ENERGY TRADE AGREEMENT? DEALING WITH NON-TARRIFF BARRIERS TO TRADE Emmanuel Guerin Director, Energy and Climate Change Institute for Sustainable Development and International Relations, Paris Visiting Fellow, Grantham Research Institute London School of Economics

2 Summary What are climate policies? How can they be barriers to trade? Is there evidence that some really are? What is the problem? How should we deal with it?

3 What are climate policies? Source: Productivity Commission 2011, Carbon Emission Policies in Key Economies, Research Report, Canberra.

4 What are climate policies? (Cont d) Policy for the market failures. Different failures point to different instruments: Greenhouse gases: carbon taxes / cap-and-trade / regulation. A combination of all three likely to be needed for different circumstances; RD&D: Assistance with R&D, tax breaks, feed-in tariffs for deployment; Imperfections in risk/capital markets: risk sharing/reduction through guarantees, equity, feed-in tariffs, floors on carbon prices, green investment banks; Networks: rules governing electricity grids, building regulations, mandatory efficiency standards, community based street-by-street schemes; Information: labelling and information requirements on cars, domestic appliance, products more generally, awareness of options; Co-benefits: regulation of dirty and more dangerous technologies, valuing biodiversity. Source: Nicholas Stern International collaboration on climate change and the new energy-industrial revolution Tsinghua Global Vision Lectures, Tsinghua University, Beijing, March 2011

5 How can they be barriers to trade? Source: Gary Clyde Hufbauer and Jisun Kim: Climate Change and Trade: Searching for ways to avoid a train wreck Thinking Ahead on International Trade (TAIT) 2nd Conference Climate Change, Trade and Competitiveness: Issues for the WTO

6 Is there evidence that some really are? Tariffs are the most visible «de jure» barrier to trade in environmental goods and services However, most tariffs applied to sustainable energy related goods and services are single digits, and well below WTO bounds Even if a few exception stand out: Electric cars: Egypt (135%) Ethyl alcohol: India (150%) Source: Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement November 2011 ICTSD Global Platform on Climate Change, Trade and Sustainable Energy

7 Subsidies Source: Productivity Commission 2011, Carbon Emission Policies in Key Economies, Research Report, Canberra.

8 Local content requirement United States of America: American recovery and reinvestment act (ARRA): $787 billion Buy American amendment: «none of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States» Projects (un-successful so far) to extend the amendment from government contract to procurement by private firms China: 2002 government procurement law Directs government entities to give priority to domestic goods, with only a few exceptions Chinese solar arrays and nuclear power plants, like wind farms, will likely give a very high preference to Chinese producers China s stimulus package: 4 trillion yuan (US$568 billion) NDRC circular (non binding) requires that government investment projects give priority to domestic goods, construction engineering, and kindred services Bidding process for a package of 25 wind turbine orders worth about US $7 billion. Top 3 wind turbine manufacturers -- Vestas Wind Systems (Denmark), GE Energy (US), and Gamesa (Spain) -- rejected early in the bidding process Source: Gary Clyde Hufbauer and Jisun Kim: Climate Change and Trade: Searching for ways to avoid a train wreck Thinking Ahead on International Trade (TAIT) 2nd Conference Climate Change, Trade and Competitiveness: Issues for the WTO

9 What is the problem?

10 How should we deal with it? Trade barriers increase the cost of renewable energy goods and services They need to be progressively removed But we need to understand where they come from: From a world business leader perspective they don t make sense From a country perspective, they can; but not always do To successfully combat climate change: Costs of mitigation need to be minimized Ambition of mitigation need to be increased Trade plays an un-ambivalent positive role re the 1st objective But an ambivalent role re the 2 nd To accept increasing their own ambition, countries will be to be confident they can gain from it (economically, industry, jobs ) The objectives of the SETA should be: To discuss the trade implications of raising level of ambition in different countries To harness the potential for more ambitious and cheaper mitigation of trade

11 Thank you! For more information, visit the IDDRI website: Voituriez, T., Balmer, B., The Muddle over Green Race, Studies N 01/12, IDDRI, Paris, France,38 p Guérin, E. Schiavo,J., Chinese renewable energy and technology policies: Legal compatibility with WTO rules & Economic interactions with other countries climate and industrial policies, Working Papers N 02/11, IDDRI, Paris, France, 18 p