The Different Dimensions of Climate-friendly Goods: Overcoming the Challenges. -Mahesh Sugathan

Transcription

1 The Different Dimensions of Climate-friendly Goods: Overcoming the Challenges. -Mahesh Sugathan Dialogue on Trade Policy, Climate Change and Sustainable Development for the Asia Pacific Region. Singapore, 06 November 2009.

2 Context Energy supply as well as efficient use of energy is of fundamental importance in addressing the challenge of climate change. Breaking the link between energy use and green-house gases through switch to cleaner forms of energy will help put economies onto a low-carbon trajectory. A number of Renewable Energy (RE ) and Energy-efficiency (EE) technologies are commercially available today and many are undergoing R&D. Most RE technologies are not cost-competitive when compared with existing fossil-fuels. Many reasons-identifying these barriers and addressing them are important. Trade barriers are important to address but may not be the key obstacle to uptake of these technologies. Should not be looked at in isolation but considered as part of an integrated approach.

3 Overview What do the trade flows in key RE technologies and select number of Buildings Technologies look like? Problems in identifying and isolating RE and EE goods to calculate trade flows. (Issues of Customs classification) To what extent are trade barriers-particularly tariffs an obstacle to wider dissemination of RE technologies? How do they compare with other policy-related barriers? How can incentives to RE be designed so as not to create an unlevel playing field for equipment and service providers? How can the UNFCCC help create an enabling environment for the uptake of RE and EE products in developing countries?

4 The WTO Window: the DDA Negotiations on EGS Doha Ministerial Declaration: Para 31(iii) calls for the reduction or as appropriate elimination of tariff and non-tariff barriers to environmental goods and services. No definition exists of what is an environmental good. This has made an agreement difficult to reach. A number of goods from a set of 153 products proposed by a few WTO Members for further liberalisation include products relevant to addressing climate change. These fall in two categories: (1) RENEWABLE ENERGY PLANT and (2 ) HEAT AND ENERGY MANAGEMENT Out of this set of 153,US-EU informal 2007 proposal to liberalise 43 climate friendly goods identified by the World Bank and climate friendly services on an accelerated basis. Zero tariffs on these goods by 2013.

5 The Problem of Dual Use Case 1: Case 2: Pipes 6-digit HS code entry (841360) : Pumps for liquids, whether or not fitted with a measuring device; other rotary positive displacement pumps As an Environmental Good: Used in Solar Hot Water Systems As a Non- Environmental Good: Used in Oil and Gas Transportation Environmental Good Ex-Out: Pumps for Sewage and Wastewater treatment Non-environmental good Other pumps Non-environmental good Other pumps

6 Climate-relevant Environmental Goods-What has been going on in the WTO? Qatar : includes natural gas fired generation systems and advanced gas-generation systems. Canada initially included hydrogen and bio-diesel;new Zealand :methanol and bio-diesel-later dropped. Brazil has informally proposed bio-fuels and bio-fuel technologies. Glass Insulation (Japan and New Zealand). Fluorescent Lamps (Japan, Canada, New Zealand and the United States). Some Members have proposed a review mechanism to identify and extend liberalisation benefits to new technologies that would evolve.

7 ICTSD s Work on Climate-Friendly Environmental Goods Technology mapping studies in 4 key mitigation sectors identified by the IPCC Energy Buildings Transport Industry Specification of technologies for mitigation and identification of corresponding goods Definition of HS codes at 6 digit and beyond; options for new classification Analysis of trade flows, tariff and non-tariff barriers, DCA, GHG mitigation potential Research and analytical insight into UNFCCC negotiations on (potential for trade to enhance) transfer of technology

8 Findings from ICTSD Trade Analysis of 69 Products ( HS 6- digit Level) in the Renewable Energy Supply Sector ICTSD Analytical Exercise conducted with support of UNEP

9 Methodology Technologies Mapped by ECN and peer-reviewed by IPCC experts. classified into 78 HS 6 digit codes ( covering solar, wind, hydro, geothermal, ocean and biomass). 5 HS codes were added to original ECN list ( i) Undenatured and (ii) denatured bio-ethanol, (iii) solar air-heaters (iv) solar water heaters (v) parts of hydraulic turbines, (vi) parts of generators and gearboxes for wind-turbines. Hence 69 HS codes at 6 digit level were analysed for RE trade flows. Caveat: Not all trade figures are representative of RE supply products. Because the 6 digit codes often include a number of unrelated products these get captured in statistics. Further some products like ball bearings are used for instance in wind turbines as well as other purposes

10 Exports of RES products and components that may be used in the RES sector, 2007 ( USD millions) Exporter (all) Exports (US million) Exporter (developing countries*) Exports (US million) All countries Developing countries* Germany China China Korea, Rep Japan Taiwan, China 5825 United States Mexico 4606 France Singapore 4282 Italy Thailand 3411 United Kingdom 7264 Brazil 3252 Netherlands 7040 Malaysia 2949 Belgium 6283 India 2321 Korea, Rep Turkey 1416 Taiwan, China 5825 Philippines 971 Sweden 5240 South Africa 718 Denmark 5220 Viet Nam 590 Mexico 4606 Argentina 443 Spain 4567 Saudi Arabia 264 Singapore 4282 Tunisia 195 Austria 4192 Colombia 173 Switzerland 3693 Pakistan 160 Thailand 3411 El Salvador 145 Canada 3325 Kazakhstan 136 EU Intra-EU EU-27 (excl intra-eu) Source: COMTRADE using WITS

11 Imports of RES products and components that may be used in the RES sector, 2007 ( USD millions) Importer (all) Imports (US million) Importer (developing countries*) Imports (US million) All countries Developing countries* United States China Germany Hong Kong, China 8843 China Korea, Rep Spain 8923 Mexico 7016 France 8879 Taiwan, China 5575 Hong Kong, China 8843 Singapore 4541 Korea, Rep Saudi Arabia 3553 Japan 8513 Thailand 3438 Italy 8225 India 3434 United Kingdom 7754 Malaysia 2689 Mexico 7016 Brazil 2519 Netherlands 6805 United Arab Emirates 2482 Canada 6638 Viet Nam 2280 Taiwan, China 5575 Turkey 2155 Belgium 5207 South Africa 1365 Singapore 4541 Qatar 1220 Russian Federation 4384 Kuwait 1206 Saudi Arabia 3553 Argentina 1102 Sweden 3542 Nigeria 1056 Thailand 3438 Kazakhstan 965 EU Intra-EU EU-27 (excl intra-eu) Source: COMTRADE using WITS

12 Some comments on hydro, geo-thermal and ocean energy products Most cases main countries trading in relevant HS codes are not the main deployers of energy. This implies that mapping of technologies used in these energy sources to HS 6 digit may not be accurate and include a diverse range of products. Further on-site development and grid development may be more relevant to these forms of energy rather than tradeable parts.

13 Tariffs on Renewable Energy Technologies, Equipment and Components Russian Federation Turkey Thailand Taiwan, China South Africa Singapore Philippines Peru Pakistan Mexico Malaysia Korea, Rep. India Hong Kong, China China Chile Brazil Argentina United States Switzerland Norway Japan European Union Canada Australia BND MFN Source: WTO Databases using WITS

14 Main Measures Used to Stimulate RE Markets Laws requiring utilities to purchase all electricity generated from renewable sources. Laws requiring renewables to be a certain percentage of all power generation. Subsidies for investments in component manufacturing. Exemptions or reductions in taxes for component manufacturers and preferential tariffs (feed-in tariffs) for electricity from renewables.

15 Regression Analysis to Detect Drivers of Exports and Imports in Renewable Energy Products Export and Imports Taken as the Independent Variables Import Tariffs, Targets for Renewables, Proportion of Renewables in an Economy, Subsidies such as feed-in tariffs and Patents for RE Technology Registered by a Country taken as explanatory variables. Regression results show that in general the major exporting and importing countries of RES goods are also likely to: patent inventions use a high percentage of renewables showing high deployment of renewable energy provide subsidies and have low tariffs. However tariffs have been found to be less significant as an explanatory variable for increased exports or imports as compared to the share of renewables in a country s grid and subsidies. This appears to indicate that tariff reduction by itself may not generate trade in RES goods without supportive market drivers and policies such as feed-in tariffs and other forms of subsidies

16 Summary of Findings from the Renewable Energy Sector by Veena Jha for ICTSD [forthcoming (Nov 2009)] Only a handful of players important in trade in renewables. Any negotiating proposal for liberalising trade will need to take account of this. No matter how careful the mapping exercise, translating renewables to six digit tariff lines has serious limitations. In most cases it would include multiple use products. Emerging economies important players, though their share of trade is less than half that of developed countries. Components for solar and wind appear more tradeable than for geothermal, hydro and ocean.

17 Summary of Findings from the Renewable Energy Sector by Veena Jha for ICTSD [forthcoming (2009)] Liberalizing tariffs alone may not guarantee a diffusion of these technologies or the creation of markets for products used in these technologies in developing countries. NTBs also require to be addressed. Subsidies, venture capital investment important drivers of exponential market growth in developed countries. Given the present grip of the economic and the financial crisis it is unlikely that such venture capital will come to developing countries. China and India may provide scale opportunities for bringing down the cost of RE technologies. But enabling conditions for take-off needed.

18 Findings from ICTSD Trade Analysis of 5 Product Groups ( HS 6-digit Level) in the Buildings Sector ICTSD Analytical Exercise conducted with support of UNEP

19 Methodology and Product Groups Identified Original List derived from technology mapping exercise conducted by TERI, India. Peer-reviewed by IPCC experts. The HS codes can be divided into five groups: building envelope (insulation materials); heating, ventilation, air conditioning and refrigeration (HVAC- R); lighting; renewable-energy use in buildings; stoves. Trade Analysis is based on 35 HS 6 digit codes. Most have multiple-uses but still included if important in EE such as plastic foam used as insulation. Trade figures may thus be exaggerated. In some cases impossible to determine end-use as in HVAC products.

20 Problems with HS identification The building envelope. A number of building insulation products can be easily defined at the 6-digit HS level and can be considered as single environmental end-use products. However, some other products that are used for building insulation also have other applications, in particular in the area of plastic foams. In such cases, multiple-use issues are relevant.

21 Problems with HS identification HVAC-R. It is very difficult to identify EE technologies based on the 6-digit HS classification. Even when more detailed national (the 10-digit Harmonized Tariff Schedule of the United States) and regional (the 8-digit Common Nomenclature of the European Union) it is, by and large, not possible to identify (relatively more) energy-efficient products in tariff schedules..

22 Problems with HS codes continued Lighting. 6-digit HS level, allow for the identification of energyefficient light bulbs. One prominent example of the latter is the compact fluorescent lamp, but includes other types of bulbs as well. For LEDs, the corresponding 6-digit HS code also includes PV cells and panels. Active collection and transformation of solar energy in buildings: Analyses trade flows and tariffs for solar panels and solar water heaters, as well as trade-related policies that may encourage the wider deployment of renewable sources of energy in the building sector. Stoves. includes wood-pellet burning stoves (for heating) and solar cooking stoves. In both cases, these stoves are hidden under HS codes that also include other stoves. The 6-digit HS code used to analyse trade in solar panels (854140) also includes light emitting diodes. This code is also relevant for the lighting sector.

23 Almost single use products include slag wool and rock wool (HS ); mineral insulating materials and articles (HS ); multiple-walled insulating units of glass (HS ); glass-fibre insulation products (HS ); heat pumps (HS ); solar water heaters (HS ); heat exchange units (841950); compact fluorescent lamps (853931); solar panels and light emitting diodes (HS ) and programmable thermostats (930210).

24 Notes on Appliances Based on a sample of key products covered by the ENERGYSTAR programme, it is estimated that per cent of world imports in 2007 (estimated at almost $100 billion) was supplied by developing countries. China is the largest exporter of such products, followed by Germany, Japan, the United States and France.

25 Summary of Trade analysis and Trends in Major Buildings Product Categories Thermal Envelope (Insulation) Major producers European companies. Many use subsidaries and koint ventures rather than direct exports to supply foreign markets. Most exports and imports between developed countries. China the exception (4 th largest exporter and importer). Developed countries mostly apply single-digit tariffs. Higher for some developing countries and Russian Fed.

26 Summary of Trade analysis and Trends in Major Buildings Product Categories HVAC Developing countries account for significant portion of HVAC exports -esp air-conditioners but developed countries predominate in central heating boilers and heat pumps. Top importers predominantly developed countries. Major exporters tend to comply with standards in export markets and also develop their own MEPs. Tariffs also mainly in single digits except for a few primarily developing countries.

27 Summary of Trade analysis and Trends in Major Buildings Product Categories Lighting Share of EE lighting has been increasing while that of incandescent and tungsten lamps falling. Same is true of developing country imports. China is the world largest exporter of CFL, with a share of 56 per cent of world exports in 2007 (or 75% if intra- EU trade is excluded).china s share in world exports of incandescent lamps and tungsten halogen filament lamps is only around 15 per cent.

28 Summary of Trade analysis and Trends in Major Buildings Product Categories Lighting (Contd) With regard to tariffs, the European Communities have bound its import duties at 2.7 per cent ad valorem and the United States at 2.4 per cent. The simple average of the applied tariff is 8.7 per cent and the tradeweighted (using 2007 import values) average rate is 4.9 per cent. Among the 30 largest importers, Argentina, Brazil, Colombia, India, Malaysia, Mexico, the Philippines, the Russian Federation, Thailand and South Africa have tariffs (applied rates) of 10 per cent or more. Some of these countries, however, have their own production of CFL and other highly-efficient lamps and apply other measures than tariffs to discourage the use of inefficient lamps. For example, applied rates in Argentina and Brazil are 18 per cent ad valorem (the common external tariff for MERCOSUR), but Brazil is subsidizing CFL and Argentina is banning the use of inefficient incandescent lamps

29 Summary of Trade Analysis and Trends in Major Buildings Product Categories Solar energy products Intra EU trade is highest, Germany, Japan and China are significant exporters. In specific products such as solar water heaters which is most tradeable.china is emerging as the largest exporter. Regional markets also important, e.g. Mexico exports to the US, Turkey to Europe, China to Japan. Tariffs low. Most countries have zero applied tariffs or PV cells and modules all (except Mexico and South Africa) have bound rates. Solar water heaters-many large importing developing countries have higher rates of 20 percent or more.

30 Summary of Trade analysis and Trends in Major Buildings Product Categories Household stoves 2 types identified-solar stoves and wood pellet stoves World trade was around $ 5 billion in 2007 (only part of this corresponds to the types of stoves being analysed in this paper). Developing countries accounted for more than half the value of world exports excluding intra-eu trade. Almost half of 2007 world imports of stoves (in value terms, excluding intra- EU trade) were imported into the United States. Imports into developing countries and countries in transition in Asia were worth around $700 million, accounting for only around 18 per cent of world trade. The top importers were Venezuela, Saudi Arabia and Kazakhstan, but imports were spread over a large range of developing countries with over 60 developing countries registering imports of over $ 1 million each. This suggests that stoves are largely produced locally, with some imports taking place (perhaps to acquire special stoves or filling local shortages). Tariffs are high in many developing countries reaching 50 percent in the case of Morocco.

31 Summary of Market Drivers in Buildings Product Categories Building Envelope (Insulation) HVAC Lighting RE Use in Buildings EE requirements in building codes. Incentives esp for building renovations. High energy prices Energy Neutral Houses target High energy prices Regulatory requirements (MEPs) and labelling. EE requirements in building codes and financial and fiscal incentives for new products. Eg: Heat-pumps and boilers. Govt regulations and Incentives. Eg: Voluntary market transformation programmes International initiatives such as efficient lighting initiative (ELI) launched by IFC and GEF Regulation Fiscal incentives and subsidies Solar Stoves Financial Incentives and subsidies Tax-credits

32 Conclusions Trade liberalization done in isolation unlikely to stimulate a significant uptake of EE technologies. The experience of developed countries shows that the uptake of energy-efficient technologies and products as well as the generation of renewable energy in residential and commercial buildings is to a large extent driven by regulations and incentives. These include EE requirements in building codes, minimum energy performance standards (MEPS), labelling, a wide array of fiscal and financial incentives (such as low-interest loans, tax credits and subsidies), and feed-in tariffs to stimulate residential renewable electricity generation.

33 Conclusions Trade liberalization will be more effective in boosting EE improvements in the residential and commercial buildings sector in developing countries if it is implemented as part of a integrated national policy. But most importantly, EE does not take place because developing countries cannot provide incentives to move to more energy efficient buildings. However these incentives or subsidies cannot be given in perpetuity even in developed countries and will need to be disciplined.

34 Environment, Market Creation and Fair-trade. Complementary or Contradictory? Enables Enables Regulations and Incentives for Renewable Energy Generation. Markets for RE Goods and Services. Supply Markets for Building Efficiency Goods and Services. Regulations and Incentives for Buildings Energy Efficiency. If de-facto or de-jure link Possibly Distorting Trade in Possibly Distorting Trade in If de-facto or de-jure link Regulations and Incentives Favouring Domestic RE Equipment Manufacturers or Service Providers Adverse effects Adverse effects Competitive Equipment and Service Providers Regulations and Incentives Favouring Domestic EE Buildings Equipment Manufacturers or Service Providers

35 Way Forward and Fuel for Thought RE Market creation and energy efficiency may need supportive measures outside WTO. The latter in turn may enhance trade further. Some incentives may have a trade-distorting impact if they benefit domestic equipment manufacturers. There may be good and bad green subsidies. Implications for climate change negotiations esp discussions on technology and financing? What role can UNFCCC particularly play? What policies should it support? Proposal for international fund to support feed-in tariffs for renewable energy. Sunset clause for financial support? When? Grid-parity?

36 ICTSD s work on Trade in Climatefriendly Goods and Services Part of broader work under ICTSD s Global Platform on Trade and Climate Change For papers please visit or me at: smahesh@ictsd.ch

37 Thank You