Trade flows and barriers affecting single-use climate-friendly goods - René Vossenaar, ICTSD Consultant WTO, Geneva, 1 July 2010
BACKGROUND ICTSD studies on climate change and trade Sectors: Mapping of climate-friendly technologies. Identification of products and components associated with these technologies, including in HS codes. Drivers of technology deployment, trade. Trade, tariff and NTB analysis. Supply of renewable energy. Residential and commercial buildings. Transport sector. WTO: climate-related EGs in proposals listed in TN/TE/19, 22 March 2010. List of 43 climate-friendly EGs by the World Bank. 2
CLIMATE-RELATED SINGLE-USE EGs Definition of climate-related single-use EGs used in the paper: Goods that are used exclusively or predominantly for climate-related environmental purposes. Are traded internationally. Examples of internationally traded products: Goods used in harnessing renewable energy (such as photovoltaic cells and modules, wind turbines, and hydraulic turbines). Renewable energy products (such as biofuels). Products that use RE as an energy source (such as electric and certain hybrid vehicles). Materials that are predominantly used for the insulation of buildings. Certain energy-saving products, while in use (e.g. compact fluorescent lamps (CFLs) which find a perfect match in a specific 6-digit HS code). 3
PRACTICAL ISSUES Ex-out items: Ideally, single-use EGs should be defined at the 6-digit HS level. Possible only in very few cases (e.g. HS 850231: wind-powered generation sets). Many single-use EGs defined as ex-out items may represent only a very small portion of trade captured by a particular HS tariff item. Included in the trade analysis if there is a reasonable indication that trade may be driven by the deployment of climate-related technologies. More detailed national/regional tariff schedules and industry surveys. Components: In general would not qualify as products with single environmental use. However, certain components, such as electronic control components, while being applied in several end-use sectors, are predominantly used to make energy use more efficient or to facilitate RE generation. Such components could be considered as single-use EGs. 4
PRODUCT SELECTION FOR TRADE ANALYSIS Definition used for single-use EGs largely excludes multiple-use goods: Environmental benefits of trade liberalisation of multiple-use products (which may have both environmental and non-environmental applications) are less certain. Difficult to know whether and to what extent trade in multiple-use products is driven by climate-related technologies. Products have been selected based on: Pragmatic considerations (such as the extent to which they can be identified in existing tariff schedules and the availability of data). Current and potential importance in terms of trade flows. From different sectors covered by technology mapping studies. 5
EXPORTS OF SELECTED SINGLE-USE EGs, 2008 HS Climate-related single-use EGs World, excl intra-eu value $m structure % value $m Developing countries structure % share in world % 2207ex Fuel bioethanol 4318 8.5 3687 12.3 85.4 Various Building insulation 3536 6.9 925 3.1 26.1 841011/12 Hydraulic turbines 109 0.2 36 0.1 63.7 841861 Heat pumps 1916 3.8 358 1.2 18.7 841919ex SWH 969 1.9 504 1.7 52.0 850231 Wind turbines 3335 6.5 1010 3.4 30.3 853139 CFL 3625 7.1 3091 10.4 85.3 854140 Solar PV devices 30513 59.8 19460 65.2 63.8 853710ex Electric cars 1137 2.2 70 0.2 6.2 903210 Thermostats 1528 3.0 721 2.4 47.2 Total 50986 100 29861 100 58.6 Source: COMTRADE 6
COMPARING WITH EGS PROPOSALS World exports (excluding intra-eu trade) Climate-related single-use environmental goods: $ 51b Climate related goods in EGs proposals: $ 200b* Developing country exports Climate-related single-use environmental goods: $ 30b Climate related goods in EGs proposals: $ 83b* Developing country imports Climate-related single-use environmental goods: $ 18b Climate related goods in EGs proposals: $ 103b* * Based on proposals listed in TN/TE/19, 22 March 2010 (45 6-digit HS items) 7
Trade barriers WHAT ARE THE IMPORTANT BARRIERS? ICTSD studies: tariffs are, in general, less significant as an explanatory variable for increased exports or imports of RE equipment and components compared to other variables. The deployment of RE technologies and investment in EE largely driven by policy targets, regulations and incentives. Tariff liberalisation alone likely to have relatively little impact. However, high bio-ethanol tariffs have significant impacts on trade (bioethanol is considered an agricultural product in WTO context). WRI study on the wind-energy industry: NTBs and formal and informal barriers that distort firms investment decisions (rather than import tariffs) are the principal obstacles to global integration. NTBs, subsidies and other incentives may affect opportunities for developing country producers to participate in global supply chains. 8
Tariffs MFN-APPLIED TARIFFS IN DEVELOPING COUNTRIES Climate-related single-use EGs: China: MFN applied tariffs are mostly in the 8-12% range Simple average close to 10%. India: Most MFN applied tariffs are either 7.5 or 10% Simple average 8%. Brazil: simple average of MFN applied rates around 12%. Solar PV cells and panels (part of HS 8541.40) enter most markets dutyfree: 99.5% per cent of 2008 world imports of (in value terms, excluding intra-eu trade) enjoyed zero MFN applied rates (for developing country importers: 98.5%). In many developing countries MFN applied rates for solar water heaters (part of HS 8419.19) are rather high. 9
MFN APPLIED TARIFFS MFN applied Bound 6806.10 6806.90 8.1 7.9 27.8 27.6 Insulation products 9.4 28.2 Hydraulic turbines 4.5 22.6 Heat pumps 9.8 26.5 SWH 12.7 26.0 7008.00 7019.39 8410.11 8410.12 8418.61 4.7 4.2 8.5 9.8 13.0 22.6 22.6 29.1 28.4 26.5 MFN applied bound Wind turbines 5.1 23.8 8419.19 12.7 26.0 CFLs 9.7 26.8 8502.31 5.1 23.8 PV cells 1.6 12.4 8539.31 9.7 26.8 Vehicles 26.1 40.1 8541.40 1.6 12.4 Thermostats 6.0 22.5 8703.90 26.1 40.1 9032.10 6.0 22.5 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 Source: WTO Tariff Download Facility 10
MFN APPLIED TARIFFS IN SELECTED DEVELOPING COUNTRIES Argentina (2004) Brazil (2009) Chile (2009) China (2008) Chinese Taipei (2009) Colombia (2009) Costa Rica (2009) Ecuador (2007) Egypt (2009) Hong Kong, China (2009) India (2008) Korea, Rep. (2009) Malaysia (2008) Mexico (2009) MFN applied Bound Morocco (2002) Pakistan (2009) Philippines (2008) Qatar (2009) Saudi Arabia (2008) Singapore (2009) South Africa (2007) Thailand (2009) Tunisia (2008) Turkey (2008) United Arab Emirates (2007) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 Source: WTO Tariff Download Facility 11
IMPLEMENTING TARIFF REDUCTIONS AT NATIONAL LEVEL Most single-use EGs analysed are finished products. Experience shows that many developing countries have already implemented a variety of autonomous tariff liberalization measures, in some cases to facilitate imports of finished products and in other cases to facilitate imports of intermediate products with a view to supporting the development of domestic manufacturing capacities. Developing countries may need a certain period of time to address possible trade-offs with a view to enabling them to participate in and benefit from trade liberalisation as pursued in the EGS negotiations. In the longer term, tariff reductions of both finished and intermediate products may help to reduce costs and stimulate innovation. 12
NTBs NON-TARIFF BARRIERS Local-content requirements (in both developed and developing countries). These have been applied, for example, in the wind-energy sector, and are increasingly used for solar-energy projects. Differing industrial standards and certification requirements. These may affect several categories of EGS, including wind turbines, PV panels and heat pumps. Political quid-pro-quo expectations may exist, in principle, in cases wherein governments provide subsidies and other incentives (especially when incentives provided through stimulus packages). Trade in biofuels is affected by high import tariffs on fuel ethanol, varying fuel-quality standards for biodiesel, subsidies to domestic producers and, increasingly, sustainability regulations. 13
SUBSIDIES AND OTHER INCENTIVES Government subsidies (e.g. grants, tax credits, preferential loans, loan guarantees) for residential installation of RE equipment and EE improvements, productive capital, and production of renewable-energy-based electricity or renewable fuels. Feed-in tariffs to encourage the deployment of RE technologies for electricity generation Possible trade implications: Incentives and regulations have been instrumental in creating demand for single-use EGs (including EGs imported from developing countries). Subsidies for strengthening manufacturing capacities in developed countries may affect the opportunities for manufacturers in developing countries, to participate in international supply chains. 14
Trade flows TRADE IN CLIMATE-RELATED SINGLE-USE EGs Trends in period 2004-2008 Favourable context for trade in climate-related single-use EGs: World trade (excluding intra-eu trade) increased by 80%. Annual grid-connected solar PV capacity additions increased from 900 MW in 2004 to 5400 MW in 2008. Annual wind-power capacity additions increased from 8200 MW in 2004 to 26000 MW in 2008. Largest increase in developing country exports: In absolute terms: PV cells and modules, bioethanol, CFLs, wind turbines. In terms of growth rates: wind turbines; hydraulic turbines, PV cells and modules; bioethanol. 15
DEVELOPING COUNTRY EXPORTS Climate-related single-use EGs Share of developing countries in world exports (excluding intra-eu trade) 2004 2005 2006 2007 2008 All products 34 39 45 50 59 PV cells and modules 35 39 46 55 64 Wind turbines 4 6 12 19 30 Other single-use EGs 34 42 51 50 55 Remarks: In some cases exports represent little value added. Companies exporting from developing countries include subsidiaries of TNCs and locally-owned companies that operate as contract manufacturers or under licensing agreements with foreign companies. 16
Wind turbines DEVELOPING COUNTRY IMPORTS Developing country imports of climate-related single EGs also increased (93% compared to 74% increase in total imports of manufactured products), but at a much slower pace than in developed countries Less subsidies and other incentives to create markets for climaterelated EGs (import-duty exemptions for components - which, in general, are not counted as single-use EGs - rather than finalised products). Imports of components mostly excluded from analysis. Local manufacturing capacities in solar PV industry expanded throughout the supply chain (HS 854140 includes solar cells). Share of developing countries in world imports fell from 44% in 2004 to 33% in 2008. 17
WIND ENERGY Global market for wind turbine installations $ 63 billion in 2009 (GWEC). World market: 37.5 GW in 2009, China became largest market (13.9 GW). US imports key driver of international trade (almost two thirds of the increase in world trade, excluding intra-eu trade, in 2004-2008) USITC study: from 1998 to 2005 changes in US imports of wind turbines were closely correlated with changes in annual wind-turbine installations. This correlation has weakened as domestic manufacturing capacity has increased (see next slide). FDI may become more important than exports (WRI study). Apart from China and India, other developing countries are developing wind-energy capacity and may have a stake in the EGS negotiations. 18
US: ANNUAL WIND CAPACITY ADDITIONS AND IMPORTS OF WIND TURBINES Annual wind-energy capacity additions (10 GW) (US$2.3b) Imports of wind turbines (US$ values) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: USITC, updated 19
WIND TURBINES: TARIFF AND NTB ISSUES MFN applied tariffs in developing countries are, on average, low (5%). Tariff structures may be relevant for countries that are developing domestic manufacturing capacities. In China and India tariff rates applied to wind turbines are roughly the same as those applied to key components (around 8% in China and 7.5% in India). Tariff protection may have played some role in supporting the development of manufacturing capacities in India and China (more important in the latter case were local-content requirements). Some developing countries installing wind energy capacity (e.g. Egypt, Costa Rica and Morocco) apply zero or low import duties, as does Turkey. WRI study: Formal and informal non-tariff barriers that distort investment decisions more important than import tariffs. 20
Solar PV cells and panels SOLAR PV CELLS AND PANELS World exports (excluding intra-eu trade) $ 30.5 billion in 2008. Most of the increase in developing-country exports was triggered by increased EU imports, which in turn were the result of increased demand driven by incentives (in particular Feed-in tariffs). China and India are now adopting ambitious targets and introducing incentives to strengthen the domestic market for PV cells and modules. PV modules may continue to provide market opportunities for developing countries, but there is a need to assess how certain developments may affect competitiveness, in particular: The decline in PV module prices. Reduction of incentives (e.g. for residential installation of PV modules) in key markets (such as Germany). Increased manufacturing capacities in developed countries 21
Biofuels BIOFUELS Biofuels could make an important contribution to future CO2 savings - on a life cycle basis - in the transport sector Biofuel markets affected by government support and trade restrictions. The Global Subsidies Initiative (GSI): government support in OECD countries (in particular for biofuel facilities, production-related payments and exemption of biofuels from fuel-excise taxes) reached USD 11 billion a year by 2006 Sustainability regulations and certification also affect markets for biofuels High tariffs for fuel bioethanol. Standards and sub-quotas for biofuels with high GHG savings. The US Renewable Fuel Standard (RFS) (Sugarcane ethanol from Brazil recognized as an advanced biofuel) EU 2009 Renewable Energy Directive Certification schemes may have significant impacts on trade As from 1 January 2012, the HS will have a a new heading for biodiesel (HS 38.26). 22
Lessons learned LESSONS LEARNED FOR EGS NEGOTIATIONS Possible implications of market-access negotiations are becoming more relevant for developing countries: Several countries are adopting national RE targets and creating a domestic market for associated products and components. Some countries have a competitive edge in certain technologies and have become exporters of single-use EGs. From a development perspective, some developing countries have made progress in building manufacturing capacities across the supply chain, or are considering strategies to do so (for example in the area of SWH). Whether or not a specific product could be considered as a single-use EG, in most cases, often depends on specific conditions. Developing countries need flexibility to identify products that offer the bestpossible opportunities for harnessing environmental and developmental gains by liberalising trade. 23
THANK YOU 24