Transcript A Reality Check

EGS and Climate Change: A
Reality Check
Veena Jha
"This presentation builds on a forthcoming paper
prepared for ICTSD. Citation: Jha,V.(forthcoming,
2008). Environmental Priorities and Trade Policy
for Environmental Goods: A Reality Check, ICTSD
Environmental Goods and Services Series, Issue
Paper No.7, International Centre for Trade and
Sustainable Development, Geneva, Switzerland."
Structure of the presentation
• Where are the environmental hotspots related to
climate change?
• Linking trade flows in the list of 153 EGs with
Environmental problems related to Climate
Change and its associated technologies
• Trends in trade of EGS related to Climate
Change
• Factors behind imports of these products by
developing countries
• Policy implications
What results in Green house gas
emissions
•
•
Causes of green house gas emissions in
developing countries related to overpopulation,
urbanization, degradation of natural resources,
desertification, poor sanitation, and to a lesser
extent industrial development.
Making certain environmental technologies and
relevant services available in the market is not
sufficient to solve these environmental
problems as they would not address the root
causes.
Where are the Environmental
Hotspots
• The developed countries have higher per
capita carbon emissions than developing
countries. If carbon emissions from
agriculture are included then their
emissions would increase substantially.
• However, reducing carbon emissions is
not merely a matter of technology or
products but patterns of consumption too,
especially food.
Where are the Environmental
Hotspots
• Asia – Pacific has increased its energy use by
190 % over the period 1987-2002 compared to a
global average of 130%.
• According to UNFCC-CDIAC sources (2005),
this region has increased its share of global CO2
emissions from 32% in 1992 to 36% in 2002.
• North East Asia contributes to 63% of the
region’s emissions.
• On the other hand, Central Asia has recorded a
a 24% decrease.
Where are the Environmental
Hotspots
• Asia Pacific also most vulnerable to climate
change.
• The small island States of the South Pacific are
extremely vulnerable to sea- level rise and
global climate change. Countries such as
Thailand, India, Myanmar and China are
exposed to coastal flooding and erosion due to
sea-level rise and meteorological changes.
Bangladesh would be wiped out with a rise in
sea level of one meter.
Are the major emitters or the major
vulnerable countries trading in relevant
EGS?
• The top ten importers from developing
countries of renewable energy products
include China, Hong Kong, Korea,
Malaysia, India, and Pakistan over the last
three years for which data is available.
• Among the top ten developing and
developed country importers, China and
Korea figure prominently.
Trade in EGS products in general
• Top ten importers of these EGs include 5
developing countries accounting for roughly 35%
of the total imports of this group. This is higher
than the forecasted share for 2010 for EGS.
• Top ten exporters of EGs account for roughly
28% of the total exports of this group.
• Nearly the same developing countries dominate
the top ten exporters and the top ten importers.
• China along with Hong Kong accounts for over
half of the developing countries exports and
imports.
Are the major emitters or the major
vulnerable countries trading in relevant
EGS?
• However the top ten importers from developing
countries are also the top ten exporters of
relevant EGs.
• This implies that these countries while major
importers are also trying to develop their own
fledgling climate friendly industry and would in
some cases need infant industry protection.
• To examine whether this is the case, it is
important to look at the tariff profiles of the top
traders.
Tariffs of top ten Developing
country importers of EGs
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Bound Tariff
An analysis of tariff profiles
• Applied tariffs of most high level importers
fluctuates between 0 and 12%. While these are
not very high, on specific tariff lines they can be
as high as 40%.
• Tariff water is high for some countries.
• Liberalisation through cutting tariffs would yield
real market access benefits to trading partners.
• However, these benefits would only accrue if
imports of developing countries sensitive to tariff
cuts.
Linking trade flows with Climate
Change
•
•
•
•
Essentially climate associated technologies
and products scattered along the 9 categories
of EGS currently in the list of 153 products.
If we use the World Bank identification of
climate friendly technologies and products as
the starting point, around 43 products identified
as being associated with climate change.
About 30% of these products do not show any
sensitivity to tariff changes.
A number of these products are also dual use,
so difficult to identify how many would be put to
environmental end use.
Linking trade flows with Climate
Change
•
•
•
An important shortcoming of the world bank as
well as the WTO list is that both do not identify
technologies or products associated with
agriculture which could reduce carbon
emissions.
According to some studies if the EU reduces its
meat consumption by just 5%, the reduction in
carbon emissions would be equivalent to
removing 21 million cars off the road.
Thus Carbon emissions associated with
intensive agriculture, particularly intensive meat
production needs to be calculated.
Factors affecting imports of EGs
relevant to climate change
• Assumptions of the model:
The higher the GDP higher the imports.
The lower the tariffs the higher the imports.
The higher the FDI the higher the imports.
The higher the level of industrialisation the higher
the imports.
The higher the number of technical assistance projects
between governments of developed countries and
those of developing countries, the higher is trade
The higher the environmental performance index of a
country, the higher is the trade in EGs.
Results of the regression
• Tariffs not significant in 30% of the World
Bank list of products.
• Tariffs important in explaining trade of
developing countries in heat and energy
management products.
• Trade in renewable energy products are
also sensitive to reduction in tariffs at the
5% level.
Results of the regression
• Elasticity with respect to tariffs is low,
showing that a one percent reduction in
tariff leads to 0.15% increase in trade.
• GDP a far more important determinant of
trade.
• Trade in air pollution equipment,
environmentally preferrable products, and
products aimed at addressing natural risk
increases as GDP increases.
Results of the regression
• Trade in management of solid and
hazardous wastes, clean up and
remediation, renewable energy products,
and natural resource based products show
a significant negative correlation with GDP.
• This is probably because as GDP rises,
developing countries develop their own
capacities in these products.
Results of the regression
• The higher the EPI ranking of the developing
country the higher is the trade in climate friendly
products. (about 26 of the 43 products identified
by World Bank)
• High EPI ranking implies a better framework of
implementation of environmental regulations, as
well as better chances of attainment of
environmental targets.
• This high correlation could therefore be
interpreted to imply that probably trade in goods
in these categories is being put to some
environmental end use.
Results of the regression
• As FDI increases trade in seven categories of
EGS from Job 54 increases.
• The most direct, significant and positive
correlation is to be found with respect to
technical assistance projects.
• This correlation is found to be robust and
positive for eight of the ten categories of EGs in
job 54 and cover nearly 30 products from the
World Bank list.
• Elasticities in most cases is also significantly
over 1, indicating the crucial role of technical
assistance projects in explaining trade in EGS.
Dynamic Comparative advantage
• Dynamic Comparative advantage in nearly four
categories moving clearly in favour of
developing countries.
• This is not the case for Climate friendly
technologies as identified by the World Bank
group of products.
• However, even for other EGs which may be
relevant to Climate Change, only a handful of
developing countries have dynamic comparative
advantage.
ES of export interest to DCs
• Ecosystem services including Carbon
Sequestration and Forestry Management,
Watershed management, and Biodiversity
conservation.
• These services can be bundled.
• Developing a market for these services is
complex as it may involve detailed
international negotiations, scientific
reviews and national legislative action
ES of export interest to DCs
• Implementation will require investment in market
infrastructure (e.g. payment mechanisms,
monitoring and enforcement agencies, ancillary
service providers), as well as a costly process of
familiarisation amongst market participants.
• Countries which lack implementation capacity
may find it difficult to make such services
tradeable except by including their value in land
prices, or when granting prospecting rights for
biodiversity for example.
Policy Implications and proposals
• While the Doha Mandate puts environment at
the centre of the EGS negotiations, it is difficult
to see how products classified in the HS code
can be directly related to Climate Change.
• Thus the next logical step is to examine the
trade implications for developing countries of the
lists proposed as EGs to the extent that they are
relevant to climate change.
Policy Implications and proposals
• Examining the list of 43 EGs, the findings of this
paper show that roughly 26 products would be
sensitive to tariffs.
• The list can be further examined in light of the
dynamic comparative advantage of developing
countries.
• In this case, the dynamic comparative
advantage of climate friendly technologies and
products would not shift in favour of developing
countries in the near future. (2015)
Policy Implications and proposals
• However, other factors such as FDI, GDP,
Environmental performance and technical
assistance projects are much more important
determinants of trade flows than tariffs.
• The elasticity with respect to TA of trade in EGs
is particularly high.
• This shows that international and bilateral
donors would have a large role to play in
directing the trade of EGs, rather than tariff
negotiations.
• This also points to the role of UNEP in
developing such TA projects.
Policy Implications and proposals
• As far as ESs are concerned future work
could usefully focus on the scope of
making eco system services tradeable.
• A number of projects in this area
particularly linked to multilateral funding in
the context of Kyoto Protocol could help
evolve an understanding of how these
markets could develop.
Thank you very much
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