FCCC, Kyoto Protocol & Trade Implications

Transcription

1 FCCC, Kyoto Protocol & Trade Implications Meeta K Mehra, TERI, India Session 2, UNFCCC Workshop on Cleaner or Less GHG Emitting Energy: Exchange of Information & Views Whistler (British Columbia, Canada)

2 Structure of presentation Overview Marrakech Accord Short term view Impact on trade & SD Kyoto Protocol & WTO principles Flexibility mechanisms Emission allocation principles Domestic climate change policies & measures Trade measures & GATT/WTO exceptions Kyoto Protocol, international investment & IPR regimes Implications for oil and gas markets Summary: building on developing country concerns Long term view

3 Overview UNFCCC: a framework to limit/reduce GHGs from human activities Kyoto Protocol: agreement established by Parties to UNFCCC to legally bind targets to limit/ reduce emissions Parties included in Annex I to reduce anthropogenic GHG emissions by an aggregate of around 5% from 1990 levels over budget period

4 Guiding principles Achieving these deems it necessary to change fundamental base of production, consumption, investment & trade patterns in signatory countries policy reforms in energy sector occupy centrestage Common but differentiated responsibility Recognition of growth in DC emissions to meet social and development needs DC participation contingent upon effective implementation of commitments by developed country Parties

5 Marrakech Accord: short term view Successful conclusion of negotiations on operational details of KP but Dilution of Kyoto commitments Total estimated Kyoto reduction: mtc 0.4% of 1990 Annex I GHG emissions Forest management 70.5 mtc Domestic action + CDM + JI 21.1 mtc US withdrawal mtc Hot air 92.4 mtc Source: Halnaes in Ghosh (Ed) 2000.

6 Stylised representation of GHG markets for emission reduction through CDM Price of carbon JI Supply CDM Supply JI+CDM Supply Demand GHG emission reduction Source: Halnaes in Ghosh (Ed) 2000.

7 UNFCCC states Means taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade - Article 3.5, UNFCCC

8 Impact on trade & sustainable development Domestic regulatory instruments E.g. domestic C tax on production + equivalent import tax (to level the playing field) constitutes an Non-tariff barrier (NTB)? WTO inconsistent E.g. higher domestic energy costs due to C caps? increase in price of EI exports (imports) of developed (developing) countries? shifts in composition of exports/imports baskets of countries Preferential trading in goods & services within bubbles or regional groupings may go against basic WTO principles

9 Impact on trade & sustainable development (cont.) Trade measures pursuant to the Convention E.g. under WTO rules, Parties specifying trade restrictions against non-fccc/kp Parties (to punish, press them to sign or avoid free riding), could potentially appeal to WTO Pollution haven effects Relocation of industry from place of stricter environmental regulation to where it is lenient

10 Impact on trade & sustainable development (cont.) North-South equity If KP penalises exports of developing countries that may be more GHG intensive in production? slow down in economic growth through setback in exports Concerns relating to CDM Transfer of state of art technology Equitable geographical distribution of investment Issues of environmental additionality (especially in the context of hot air ) Fair prices for emissions entitlements for developing countries

11 Case study of India: India-US Trade Partial equilibrium: analysis of first-order effects Carbon (C) tax scenarios Change in volume of -exports -imports C intensity of oil, gas, coal, electricity Price elasticity -Export demand -Import demand Fuel price increase Impact on cost of production India s exports of select commodities to US to drop between % for carbon tax range of US $ 10-50/t C. Similar reduction in value of imports of India from US Reduction in GDP on account of reduced exports (imports) of around 0.05% (0.03% (inelastic import demand)) at US $ 50/t C tax Source: TERI 1997

12 Potential conflicts between Kyoto Protocol & WTO principles Flexibility mechanisms: If these are taken to imply trade in goods exclusively amongst Annex I parties (as in case of emissions trading or JI), violate the Most Favoured Nation (MFN) principle of WTO and non-discrimination between like products from WTO members similar to transferable financial instruments then as governed by GATS, for which the MFN counterpart entails that any provider of financial services is allowed to handle them, irrespective of whether she/he is a Party Source: compiled from RIIA/IISD (1999), WTO/CTE (2001) & Chambers (Ed), GEIC (1998)

13 Potential conflicts between Kyoto Protocol & WTO principles. Initial national/ international allocation of emissions could be perceived as financial contribution from government to industry & hence a subsidy under the Subsidy & Countervailing Measures (SCM) of WTO (grounds of infant-industry, social considerations)? questionable on grounds of potential NTB and guided by special-interest politics

14 Potential conflicts between Kyoto Protocol & WTO principles. Domestic policy changes in pursuance of KP Carbon & border taxes? less energy intensive production in countries with higher taxes? terms-of-trade changes w.r.t. EI goods? border adjustment of taxes to maintain competitiveness? lack of consensus on whether this is WTO consistent? concerns about impacts on global emissions (concerns of C leakages) Standards Energy efficiency standards emanating from national welfare maximisation viewpoint? run counter to Technical Barriers to Trade (TBT) Agreement of WTO Subsidies on environmentally friendly technologies/products e.g. RETs, cleaner fuels impinge on market share of competing foreign producers

15 Potential conflicts between Kyoto Protocol & WTO principles. Likely trade measures Not the first best from pure economic efficiency standpoint Trade restrictions could act as means of disguised protection Prohibitions on goods trade and emissions trade with non-parties or non-complying Parties violation of MFN, National Treatment and Nondiscrimination

16 KP & investment/ipr regimes KP & Multilateral Agreement on Investment (MAI)/Trade Related Investment Measures (TRIMs) Non-discrimination, performance standards etc. KP & international transfer of ESTs Escalating R&D costs due to shorter commercial cycles IPR regimes (TRIPs & technology transfer) Liberalised imports in DCs

17 Trade & energy sector Energy importing and energy exporting countries have both found reasons in the past to isolate this sector from the normal set of [trade] rules, and to retain the sovereign ability to impose restrictions for political, strategic or diplomatic reasons.governments have generally subordinated trade policy in this [energy] sector towards energy security concerns - UNCTAD

18 Likely impacts on oil and gas markets across different regions In general, demand for fossil fuels will fall relative to levels otherwise expected C reductions require energy conservation or fuel switching Prices of internationally traded fuels will fall, especially coal & oil Impacts variable across regions depending on Agreement to limit emissions Status as energy importers or exporters (including import demand/ export supply elasticities) Income and substitution effects (general equilibrium effects) Source: based on Montgomery, CRA, 1999 & Brack, et.al, RIIA (2000)

19 Likely impacts on oil and gas trade across different regions Annex B regions may/ may not face higher net costs Cost of compliance Terms of trade improve/deteriorate depending on first & second-order effects as overall import levels also fall Spillover effects on oil importing developing countries are ambiguous Price of oil imports fall Price of energy intensive (EI) exports to Annex B countries to rise spillover of domestic environmental regulation of Annex B countries Price of other goods exported to Annex B countries to fall Source: based on Montgomery, CRA, 1999 & Brack, et.al, RIIA (2000)

20 Impacts on oil and gas markets Oil exporting developing countries face significant losses Oil prices and exports fall Some can shift oil to domestic industries and increase EI exports Increased integration of world oil markets (between importers & exporters adds a new dimension) Source: based on Montgomery, CRA, 1999 & Brack, et.al, RIIA (2000)

21 Impacts on oil and gas markets. Natural gas markets effects depend on Possibility of existing coal-based power plants to be replaced with advanced gas combined cycle to reduce emissions (issues of technical feasibility) Growth/reduction in aggregate electricity demand (income & price elasticities) Substitution of natural gas in transport & industrial sectors Source: based on Montgomery, CRA, 1999 & Brack, et.al, RIIA (2000)

22 To sum up Protocol an achievement but only a first step QELRCs inadequate Long term vision on stabilization technological innovation technology transfer change in lifestyles DCs to participate but when and how? Importance of domestic policy initiatives not to be undermined

23 To sum up Measures and mechanisms for enhanced coordination of policy packages at the international level Clearer understanding of regional distribution of costs & benefits due to changes in energy consumption/ production & hence international trade Partial analyses for select developing countries indicate marginal economic impacts, but inclusion of second-order effects would be more revealing Implications for South-South trade & development of indigenous technological base in DCs Potential mechanisms to compensate the losers, especially if they are developing countries

24 Potential conflicts between Kyoto Protocol & WTO principles Article XX(b) XX(g) of GATT/WTO Measures to limit/reduce GHGs not to constitute means of arbitrary or unjustifiable discrimination between countries or disguised restriction on trade can be applied when other, less traderestrictive options, are not available WTO flexibility only for products produced domestically, imported products and domestic production processes & not the manner in which foreign product is produced need to reconcile this with concerns of global (an not local) externality issue

25 Summing up: need for a long term perspective Equity Efficiency Sustainable development Principles for agreement Per capita emissions Per capita income GHG intensity Combination of the above

26 Summing up: sustainability corridor CO emissions (resource consumption) 2 A Threshold countries South 1 North 2 B 3 C Sustainability corridor GDP (time)