Transcript BCA presentation [PPT 212.50KB]

‘ ‘Border Carbon Adjustment
Measures and Small States’
Peter Holmes
University of Sussex
June 13th 2011
28/05/2016
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BCAs and small states: Outline
• Why pressure for BCAs?
• Why has it been resisted so far?
– “Leakage” seen as quite limited.
– BCAs ineffective and hard to operate.
– Risk of disputes at WTO.
• Small and LICs – a few directly at risk
• Implications:
– Press for climate deal.
– Seek shelter through FTAs?
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Why Border Carbon Adjustments?
• Carbon Emissions can be restricted by taxing
carbon emissions or by issuing permits up to a fixed
quota which can be used or sold as in EU Emission
Trading Scheme; or by other regulatory means.
• EU (and US) firms argue they suffer an unfair
disadvantage if others are not subject to equivalent
limits and risk of “Carbon leakage”.
• Pressure for measures on imports to match those
on home products either a tax or making importers
buy permits as if they had factories in the EU.
And • Any excuse for protectionism!
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Risk but no BCAs yet. Why?
• US hasn’t yet got emissions regime!
• Eur. Comm. (and most MS) believe:
– Risk of leakage surprisingly small overall;
but a few sectors could be hit.
– Better to compensate at-risk industries by free
allocation of permits. (Many firms prefer this).
– Costs of BCAs exceed gains in terms of likely
WTO disputes and admin complexities of
making it work.
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Carbon leakage and
competitiveness
• Leakage is % of emissions reductions, eg in EU,
offset by rises elsewhere.
• On environmental grounds we care if emissions
don’t fall.
• Competitiveness. We also worry about jobs.
• So EU steel firms might still demand BCAs even
if China had reduced emissions hugely – but
only by imposing costs on aluminium smelters.
(Actually they don’t).
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Latest study for EC says leakage
risk limited and BCAs ineffective
• “The main result from our modelling exercise is the finding that
carbon emission leakage due to direct loss of competitiveness via
the trade channel is very small. Global competition distortions
caused by the absence of a carbon price in countries with no binding
pledges result in direct leakage effects of 2% or less.”
• “Another major difference with earlier studies is the limited effect that
border measures (BM) have on leakage in our simulations.”
Paradoxically, emissions cuts by EU would reduce demand for fuel and
its price and that could cause leakage!
• “Measures taken by countries with binding pledges to reduce
emissions reduce global demand for energy and thus reduce global
energy prices.”
Johannes Bollen, Paul Koutstaal and Paul Veenendaal Trade and Climate Change . Netherlands CPB for EC,
April 2011
• So we need global agreements but not BCAs
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Top UK CO2-intensive subsectors. Cumulative
Gross Value Added under 2% of GDP
(Source Demailly et al, 2007:6)
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Free allocations
• ETS scheme identifies industries at risk
and gives a high (but lessening) share of
their estimated carbon permits free.
• This offsets the cost and allows most
efficient firms to sell permits at a profit.
• But
– Are too many free permits given?
– Are they subsidies under WTO rules?
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BCA complexities
• If BCAs are adopted, exact method matters.
How are carbon footprints of imports estimated – huge
scope for debate.
- actual, importer average, exporter average?
Impossible to be accurate for complex products
Virgin steel vs scrap. Mozambique Al – which electricity
does it use?
Are carbon charges destination (consumption) based or
origin (production) based?
- if destination all imports pay and exports get rebates
• Huge scope for disputes at WTO
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WTO rules messy
• BCAs may be WTO legal if
– do not arbitrarily discriminate between home and
foreign products (Art III/XX).
– Serve legitimate goal under Art XX (cf Shrimp Turtle).
• But no agreement on what this all means.
• Any derogations for small & LICs would have to
be non discriminatory as between similar
countries.
• Risk of WTO Appellate Body making up rules.
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Impact on small and low income
countries
• Most small and LICs do not produce high carbon
products – but with significant exceptions – eg
Zimbabwe steel, Mozambique aluminium.
• Some others potentially affected eg Vietnam
ceramics. Petrochemicals. Niger.
• Limited effect if BCAs only on carbon intensive
products BUT problems if measures widened or
if documentation demanded.
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Energy-intensive exports from LICs and
LMICs to the EU
Country
Class
Mozambique
Tajikistan
Armenia
Ukraine
Moldova
Zimbabwe
Egypt
Jordan
Georgia
India
Albania
Iran
Cameroon
Tunisia
Ghana
China
Indonesia
Uzbekistan
LIC/LDC
LIC
LMIC
LMIC
LMIC
LIC
LMIC
LMIC
LMIC
LMIC
LMIC
LMIC
LMIC
LMIC
LIC
LMIC
LMIC
LIC
Morocco
LMIC
Energy intensive
exports
(2004-2008)
Energy intensive
Trade
$m pa
(2004-2008)
84.5%
71.4%
39.7%
32.5%
22.9%
22.8%
16.6%
14.0%
12.1%
8.2%
6.7%
5.3%
5.2%
4.2%
4.2%
4.0%
3.6%
3.0%
1203
184
1862
782
180
115
1426
53
76
2494
47
879
157
447
403
10387
570
32
3.0%
31
Source C. Brandi International Trade and Climate Change: Border Adjustment Measures and Developing Countries DIE 2010
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Energy-intensive exports from
LICs and LMICs to the US
Country
Class Energy
Energy intensive
intensive
Trade
exports
$m pa
(2004-2008) (2004-2008)
Tajikistan
Ukraine
Zimbabwe
Georgia
India
Indonesia
China
LIC
LMIC
LIC
LMIC
LMIC
LMIC
LMIC
74%
62.9%
50.3%
49.8%
7.0%
3.2%
3.0%
51
973
48
85
1569
458
8488
Source C. Brandi International Trade and Climate Change: Border Adjustment
Measures and Developing Countries DIE 2010
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Possible responses
• Multilateral climate deal essential but
meanwhile..
• BCAs create further incentive for small and LICs
to join FTAs with some common rules on mutual
recognition/equivalence of emissions schemes
in exchange for exemption from charges (maybe
escaping WTO rules on derogations).
• FTA could be good opportunity for low cost
regulatory reform - much energy saving actually
reduces costs.
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Conclusions
• BCAs are an “obvious” solution to carbon
leakage; but actually very undesirable, even if
not ruled out by WTO.
• Small states should actively campaign for
climate measures to minimise likelihood of
BCAs.
• Most small states not directly at risk but would
suffer from trade wars.
• Perhaps consider including in FTA discussions.
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