The steadily growing volume of global trade is forcing policymakers to start taking a hard look at its climate impact, while keeping equity and development issues as top priority. The carbon footprints of traded goods, the potential for carbon leakage between countries with stringent versus lax climate regulations, the impact of global transport itself – be it by road, rail, marine vessels or air freight – are at the core of the debate. The views and priorities of key stakeholder groups can be found across the spectrum.
Embodied carbon in trade – are global emissions migrating?
Pioneering research on embodied carbon in trade and on carbon leakage and competitiveness are tackling these tough questions head-on. The previous issue of the BioRes Review featured an article by Muthukumara Mani of the World Bank, who suggested that some – but not major – relocation of carbon-intensive industries to countries without climate commitments has taken place (Bridges BioRes, Vol. 1, Issue 1, October 2007, p. 4-5). However, Mani pointed out that the picture may change in the future when countries take on more stringent reduction targets.
Meanwhile, other research has identified a stronger link, suggesting that developed countries already are ‘outsourcing’ some of their carbon dioxide emissions by importing products manufactured by inefficient carbon-intensive industries in other countries. In fact, global emissions end up being higher overall when production relocates to the emerging economies – and China is particular. Shui Bin and Robert Harriss have studied the embodied carbon associated with trade between the US and China (see this issue of Bridges BioRes, p. 3-5), noting that the US has managed to avoid a significant amount of carbon dioxide emissions because of its trade with China, and that overall emissions are higher because some of the more efficient production in the US is being substituted by less efficient processes in China.
Do we need a new carbon accounting system?
In suggesting that consumer products imported from the emerging economies come with a significant carbon footprint, the research on embodied carbon in trade raises questions regarding current carbon accounting systems, which are based on the nation state. It raises issues regarding the responsibilities of producer and consumer countries with regard to emissions reductions, and underlines the need for a comprehensive global regime to tackle climate change and avoid leakage of carbon emissions from countries with stringent climate policies to those without.
While the picture is not yet clear-cut, the issues have become highly political. Some dispute that significant carbon leakage is taking place, pointing to the fact that developed countries still are producing most of their energy-intensive steel and cement products domestically. Some economists say that trade leads to greater production efficiencies, including lower overall greenhouse gas emissions.
Others have accused developed countries of ‘carbon laundering’ their economies by outsourcing polluting industries to developing countries. They stress the need for developed countries to take strong first steps to tackle climate change in order to address their responsibilities both with regard to their historic emissions and their current emissions, taking into account the embodied carbon in their imports. Some exporting countries have, in fact, hinted at the need to redefine emissions reduction responsibilities since part of their emissions are directly related to consumption in developed countries. Meanwhile, emerging economies are taking measures to improve the energy efficiency of their industries. There have been calls on developed countries to intensify technology transfer to developing countries, including economies they are sourcing large amounts of their consumer goods from.
Trade unions and representatives of heavy industry have, on the other hand, raised concerns over jobs lost in developed countries due to industry relocating to developing countries with less strict climate standards – leading to carbon leakage and the same, or even larger, amounts of carbon dioxide ending up in the atmosphere. Following this train of thought, a number of politicians have suggested setting up protective measures at the border.
Adjustments at the border?
At the recent World Energy Congress that met in Rome in mid-November, its Secretary General, Gerald Doucet, warned against a “trade war between those who are concerned over carbon emissions and those who are not.” Such a trade war could come about if countries with stringent climate policies decided to make use of border adjustments towards imports from countries taking a lax approach to climate change mitigation.
French President Nicolas Sarkozy recently called for a European levy on imports from countries outside the Kyoto Protocol, namely the US and Canada. European legislators have called for border tax adjustments from time to time, but the European Commission has not moved on the issue, preferring a less confrontational approach.
On the other side of the Atlantic, two climate change bills currently under review in the US Senate include elements that have raised concern among some trading partners because they would require exporters of energy intensive goods to the US to buy greenhouse gas “emissions allowances” on the US market (see Bridges BioRes, Vol.1, Issue 1, October 2007, p. 6-7).
Defensive action to mitigate potential trade and competitiveness impacts envisioned in the draft bills would target countries without stringent climate regulations in place, such as China, which is currently not required to make emissions reductions under the Kyoto Protocol. The US itself has rejected the Kyoto Protocol, and the actual enactment of any legislation to cap greenhouse gas emissions is not expected in the near future.
The WTO-compatibility of border tax adjustments in terms of energy prices affecting carbon emissions remains untested. Under a climate change agreement with global by-in, such problems would be unlikely to surface. Cleaning up transport
Aside from the debate on carbon leakage, more attention is being focused on the emissions related to the actual transport of goods. The Intergovernmental Panel on Climate Change has singled out the transport sector as the one where emissions are rising the quickest, and efficiency gains are quickly outpaced by the rise in volume.
Marine transport has been practically untouched, leading to a situation in which Intertanko – the international organisation representing independent tanker operators – is admitting that the sector lags far behind other transport sectors in terms of fuel efficiency and other standards. In the US, environmental groups are taking a bottomup approach to climate regulation, and have asked the US Environmental Protection Agency to set limits for greenhouse gas emissions from marine shipping (see page 6, this issue of the BioRes Review).
The transport of goods by air has received more attention, and is at the heart of a debate taking place especially in the UK on ‘food miles’ and ‘fair miles.’ With the debate on embodied carbon and leakage concerning mainly developed and emerging economies, some of the most vulnerable countries have found themselves the victims of the food miles discussion. Certain developing countries in Africa have managed to capture high-value niche markets in developed countries by air freighting fresh produce during the northern winter. These countries want to retain their right to grow, including through tradeled growth. They argue that their overall emissions are much lower than those of the importing countries, which should start by cleaning up their own act. In addition, these vulnerable countries are already experiencing the impacts of climate change and have limited capacities to adapt (see page 7, this issue of the BioRes Review).
In search of a global solution
While more work is needed to shed light on the cluster of issues related to trade and climate change, it is clear that both the climate change and trade communities will see much more discussion of them, both from a carbon accounting perspective and because the climate impact of trade can and should be minimised.
As climate change negotiators from around the world meet in Bali from 3-14 December to create a roadmap for negotiations on a treaty to tackle climate change after 2012, some of these discussions are likely to surface.