Trade policy, climate change and the greening of business

Abstract

There is under way a worldwide greening of industry, driven by the huge demand generated by China and India as emerging industrial giants whose growth cannot be accommodated by ‘business as usual’ fossil-fuelled development—for reasons having as much to do with energy security as concerns over global warming and climate change. While the role played in this process by fiscal and industry policies (e.g. carbon taxes and other market-based incentives) is well understood (even if not pursued currently in Australia), the potentially powerful leverage to be exercised by trade policy is under-recognised. There are some positive developments such as a proposed Environmental Goods Agreement being discussed in Geneva, while there are negative developments embodied in various bilateral and regional trade agreements such as the proposed Trans-Pacific Partnership (TPP) agreement, to which Australia has committed itself. There are rising levels of conflict over trade and climate change mitigation measures, in actions brought at the WTO against countries looking to promote green industries through measures like local content requirements being attached to foreign direct investment, or by countries imposing border tax adjustments against exporters who allegedly fail to implement carbon taxes. The issues involved are discussed in this paper and possible ways forward are proposed, along with some implications for Australia.

Keywords:

• border tax adjustments
• environmental goods agreement
• green trade
• local content requirements

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. We stated

Here the WTO could complement the Kyoto process. Just as trade in information technology products such as personal computers and their components was greatly expanded in the 1990s by a voluntary agreement to reduce tariffs, adopted in Singapore in 1996 and then by the WTO, so the preliminary agreement to free up trade in renewables adopted by APEC countries in 2012 should be expanded and adopted (perhaps through the G20) by the WTO, as a Clean Technology Trade Agreement (Mathews and Tan 2014, 168).

2. The changed character of Australia's role in such a world is discussed by White (2011).

3. See ‘In the grip of a great convergence’ by Martin Wolf, Financial Times, January 4, 2011, available at: http://www.ft.com/intl/cms/s/0/072c87e6-1841-11e0-88c9-00144feab49a.html#axzz37dYAJ8q6.

4. See Spence (2011) for an argument that the Asian powers are moving toward a new development model; while Hu Angang (2006) provides a much more explicit argument as to why green development is the inevitable choice for China.

5. These green and black strategies are discussed in Mathews (2014).

6. For recent reviews of progress, see the reports from the International Centre for Trade and Sustainable Development (ICTSD), based in Geneva. See Mahesh Sugathan, ‘road ahead for the environmental goods agreement talks’, September 2, 2014, at: http://www.ictsd.org/bridges-news/biores/news/the-road-ahead-for-the-environmental-goods-agreement-talks.

7. See the WTO website on the ITA: http://www.wto.org/english/tratop_e/inftec_e/inftec_e.htm.

8. On the other hand the ITA is defined by a ‘positive list’ of products that have proven to be rather rigid and resistant to updating; the latest attempt to update the list was vetoed by India. The case for an alternative ‘negative list’ that is open-ended in mentioning categories of products, and only listing exemptions, has merit.

9. In April 2014, the International Trade Commission of the United States opened an investigation into the potential economic effects of a trade agreement on environmental goods, EGA. This indicates the seriousness with which it is being pursued.

10. Allocating certain goods to an exempted category (for a limited period of time) is well-established in WTO procedures, as discussed in recent contributions such as those by Cosbey (2013), Cosbey and Mavroidis (2014), Howse (2010), Simmons (2014) or Wu and Salzman (2014).

11. See the list at: http://apec.org/Meeting-Papers/Leaders-Declarations/2012/2012_aelm.aspx.

12. The Australian Trade Minister at the time, Dr Craig Emerson, was reported to have played a major role in clinching this APEC cleantech trade agreement.

13. The 14 WTO member countries are: US, EU (as one bloc), China, Japan, Australia, Canada, Korea, Singapore, Taiwan (Chinese Taipei in WTO-speak), Hong Kong, New Zealand, Norway and Switzerland. Notable absentees are Brazil, India and any country from Latin America; they are no doubt suspicious of the impact that a ‘free trade’ agreement in green goods might have on their own efforts to promote a greening of their economies. I deal with this question below. For an up-to-date account of the negotiations for the EGA, together with statements from the parties, see ‘The road ahead for the environmental Goods Agreement’, September 2, 2014, at the website of the ICTSD: http://www.ictsd.org/bridges-news/biores/news/the-road-ahead-for-the-environmental-goods-agreement-talks.

14. The idea of a CTA (or SERA, or EGA) has the backing of the Geneva-based International Centre for Trade and Sustainable Development (ICTSD) where the agreement is dubbed a Sustainable Energy Trade Agreement (SETA).A high-level workshop was staged in Washington DC in January 2012 to canvass support for just such a SETA, organised by the ICTSD and the Peterson Institute (http://ictsd.org/i/events/dialogues/152707/).

15. For a useful overview of the TPP, the environment and climate change (mitigation), see Meltzer (2014).

16. General sources on the TPP include Lim et al. (2013); Palit (2014); and Lewis (2011). On the perspective from China, examining its options, see Du (2015).

17. Wu and Salzman (2014) provide a useful discussion.

18. For a classic statement of the issues involved, see the 2003 report ‘Unwanted, unproductive and unbalanced: Six arguments against an investment agreement at the WTO’, available at Public Citizen: http://www.citizen.org/documents/[email protected].

19. See Wikileaks press release and the full text of the Environment chapter, plus Report from the Chair on consultations and negotiations, January 15, 2014, ‘Secret Trans-Pacific Partnership Agreement—Environment Chapter’, at: https://wikileaks.org/tpp-enviro/pressrelease.html.

20. See Wikileaks press release and the full text of the Environment chapter, plus Report from the Chair on consultations and negotiations, January 15, 2014, ‘Secret Trans-Pacific Partnership Agreement—Environment Chapter’, at: https://wikileaks.org/tpp-enviro/pressrelease.html.

21. It is this negative bias of existing regional trade agreements that makes them unlikely candidates for greening the global economy, contra the arguments of Leal-Arcas (2013).

22. The worry is that of the 14 members of the WTO who claim to be developing an Environmental Goods Agreement at Geneva, six countries—the US, Japan, Australia, Canada, New Zealand, Singapore—are also negotiating members of the TPP Agreement. This does not bode well for the forthcoming EGA talks.

23. For discussion, see for example Mattoo and Subramanian (2012) and Jha (2013).

24. Ontario adopted a Green Energy and Green Economy Act in 2009, including both Feed-in tariff and LCR provisions. The Act envisaged that local content requirements would reach 50 percent of wind and 60 percent of solar projects by 2012. Likewise Quebec has insisted on LCR in public tenders for renewable energy projects since 2003. It has been strikingly successful, with international players GE, Enercon and REPower all opening wind turbine manufacturing plants in Quebec.

25. For a review of these LCR provisions in individual US states, see Kuntze and Moerenhout (2013).

26. In Australia the focus has been on the (now repealed) carbon tax and the renewable energy target, rather than on feed-in tariffs and local content requirements which are known to work.

27. For details, see the WTO website on the dispute, at: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds412_e.htm.

28. See the recent review by Hestermeyer and Nielsen (2014).

29. For discussion, see McKibbin and Wilcoxen ([2008] 2009) or more recently Mason, Barbier, and Umanskaya (2014).