Environment Goods Agreement. Opportunities and Challenges Dr. Veena Jha, ICTSD

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1 Environment Goods Agreement Opportunities and Challenges Dr. Veena Jha, ICTSD

2 Why Trade Policy or EGA? Urgency of climate change (among a number of otherwise important environment goals). The need to ensure that trade-policy (among others) plays a key role in scaling-up Renewable Energy (RE) as well as enhancing energy-efficiency. Need to minimise costs of RE critical as while costs (particularly for solar are declining rapidly) it still struggles to compete. Why trade-policy? It is a tool that governments can easily deploy/ with the stroke of a pen compared to other policy spheres (such as a carbon tax or removing fossil-fuel subsidies)..

3 Trade Policy a small part of other policies Trade in RE, heat and energy management (HEM) products more sensitive to tariff reduction compared to other categories. But covers only 26 products in The APEC list. Imports of products in RE category found to be positively correlated with level of GDP. But imports of RE and HEM products also positively correlated with general Environmental Performance Index (EPI) of countries. 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 projectsfor 30 products.

4 Dynamic Comparative advantage In 4 Env Goods categories developing countries have an improving dynamic comparative advantage ( ). This includes HEM equipment, 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.

5 Contribution of Sectors and Technologies to Annual Emission Reductions for transitioning from 6 degree to 2 degree global warming scenario-iea Estimates Source: International Energy Agency (2014), Energy Technology Perspectives 2014, OECD/IEA, Paris.

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8 There are win-win situations for improving energy efficiency (EE) Certain specific technologies have an immediate impact on energy consumption and GHG emissions when deployed widely Example 1: LEDs Lighting accounts for 19 percent of global electricity production acc to IEA. Worldwide, the switch to LED lighting could save energy consumption for lighting 40%. This equates to approximately 130 billion euros per year in running costs and 670 million tons of avoided carbon dioxide emissions. by

9 Example 2: Energy-efficient Motors Motor-driven equipment accounts for about 54% of electricity-use in manufacturing. The use of more efficient electric motors and drives alone is estimated to save per cent of global electric motor demand (i.e. 10 per cent of all global electricity consumption)

10 Challenges of Addressing Selective Import Liberalisation on EE Technologies I. Physically Distinguishing EE Products for Tariff Liberalisation Purposes (particularly energy-efficient products). II. III. Whether to include or exclude products and components that lead to energysavings when deployed as part of a system or process. Clumping of EE with other non-ee products in the same basket or more precisely under the same HS-6 digit code. Source: Mahesh Sugathan, ICTSD

11 Challenges of Addressing Selective Import Liberalisation on EE Technologies IV. Whether or not to include products that may also be deployed in other applications or contexts not related to energyefficiency. V. Dealing with technological change or rapid evolution of energyefficiency products so that newer versions of products continue to benefit from zero-duty benefit granted to older versions. Source: Mahesh Sugathan, ICTSD

12 Possible Ways Forward in EGA Negotiations Product Tier Characteristic (s) Examples Tier 4 Spare Parts important for the 1. Parts for functioning of solar water-heaters Functioning of Energy- Efficiency ( Ex ) Products 2. Parts for Heat Exchange units (Ex ) Tier 5 Permanent duty-waiver on 1. Electric motors and generators f various Highest Efficiency Class/Classes of specifications (0.12KW-1000KW) excluding Energy-Efficient Products by EGA generating sets. Specific ex-outs of the Members based on an following conforming to highest IEC efficiency International Standard as classes 3 and 4- documented by importer (HS , ,850131,850132,850133, , ,850152, ,850161, and/or (if EGA participants agree) ,850164) Permanent duty waiver applied by importing country to energyefficient products that conforms to highest domestic MEPS as documented by importer Source : Mahesh Sugathan, ICTSD

13 Additional Considerations Addressing Non-tariff Measures and recognition of measures pursued in other standard-setting forums such as the harmonization of energy performance standards, mutual recognition initiatives and harmonization of test procedures for energy efficient products For EGA Phase 2? Review of EE goods list to ensure future technologies and products continue to benefit from previous tariff liberalisation initiatives. Need for clear product HS codes and ex-out description. Lessons from ITA Review process? Development dimension Enabling export opportunities for developing countries. Technical assistance for PRI frameworks and implementation that will further expand markets for EE products

14 Environmental Goods and Services Synergy Liberalising environmental services may require new regulatory tools including those relating to pricing and service standards. 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. 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

15 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

16 APEC list: ex-outs for RE goods (20 HS subheadings) Solar cells (HS ) Wind-powered generating sets (HS ) Wind-turbine blades (HS ) AC generators for wind turbines (HS ) and parts (HS ) Meteorological equipment (HS ) Other electric generating sets (HS ) Parts of static converters (HS ) Total G14 trade (exports plus imports, excl intra-eu) in 2013 (all trade in subheading) HS Subheading USD b HS HS HS Total 20 HS 363 Solar heliostats (HS ) and parts (HS ) Source: COMTRADE Solar water heaters (HS ) and parts (HS ) Parts of biomass boilers (HS ) Auxiliary plant for use with boilers (HS ) and parts (HS ) Gas turbines for electrical power generation (HS ) and parts (HS ) Parts of steam turbines used for RE generation (HS ) Instruments used to monitor heat from geothermal or biomass heating systems (HS ) Automatic regulating or controlling instruments (HS ) Source: Rene Vossenaar, ICTSD 3

17 Strengths and weaknesses of the APEC list in the area of RE technologies Strengths Covers various RE subsectors, including core RE technologies (solar and wind) Includes both equipment and parts (value-chain approach may be especially effective in reducing costs) Weaknesses Possible gaps Some technologies (e.g. hydropower) not included Parts of value chains not included Classification issues Dual use products Some technologies are hidden under basket categories (including at national tariff line level) Need ex-outs 5

18 Wind energy APEC List Possible additions Component HS Component HS Wind-powered generators Tower Blades Gearbox Generator Ball bearings Parts Clutches Meteorological equipment Power converter Automatic regulators AC generators (alternators) Transformers ; Electronic control equipment CLIMATE AND ENERGY Promoting the transition to a low carbon economy and a sustainable energy future 7

19 Solar thermal Total installed capacity 600 MW 3.6 GW Annual installed capacity 100 MW 882 MW Annual investment USD 1.8b USD 6.8b Source: IEA: Technology Road Map, Solar Thermal Electricity, 2014 Edition APEC List Possible additions Component HS Component HS Heliostats (solar tower) Mirrors (Parabolic through) Parts for heliostats Fresnel reflector modules (Fresnel lens) Stirling motors, micro-turbines (Parabolic dish) Generation of steam for solar thermal electricity 1/ Also other RE technologies (e.g. biomass, geothermal) Parts of steam, water boilers Heat exchange units Auxiliary plant for use with boilers Steam turbines (output exceeding 40 W) Parts of steam turbines Steam turbines (output not exceeding 40 W) / Source: World Energy Council 2015, Catalysing the low-carbon economy 8

20 Additional products: G14 MFN-applied tariffs (simple average, subheading-averaging method) Non-exhaustive selection (34 HS subheadings) MFN-applied tariffs somewhat higher than for RE technologies on list: 2.8% (5.4% for dutiable subheadings) and maximum of 15% Major markets: China (8.5%), EU (4.1%), US (2.5%) Several products have significant tariffs in key markets Ball bearings: EU (8%), China (4-8%), Korea (8%), US (5.8%) AC generators, transformers (China, Chinese Taipei) Hydraulic turbines: China (10% turbines; 6% for parts), EU (4.5%), US (3.8%) Steam turbines: US (6.7%) Fresnel reflector modules (HS ): China (15%) EU (6.7%) Source: Rene Vossenaar, ICTSD the APEC 9

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