Bridges Trade BioRes ReviewVolume 2Number 3 • October 2008

Trade and Climate Change on the Road to Copenhagen 2009

by Moustapha Kamal Gueye

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There is now wide recognition among policy-makers and the public at large that the international community must reach a global agreement on climate change that will help stabilise global greenhouse gas concentrations in the atmosphere at a level that would prevent further dangerous anthropogenic interference with the climate system.

There is also great recognition of the urgency to do so within a time-frame that will allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner - as outlined in the UN Framework Convention on Climate Change (UNFCCC). The present crisis of global food supplies and high food prices is a stark reminder of the disastrous consequences that could result from future disruptions in global agricultural production systems.

In terms of process, the UN-sponsored negotiations for finding a successor of sorts to the Kyoto Protocol are now in an intensive phase, with the deadline of December 2009 rapidly approaching.

Economics at the heart of climate negotiations

A true wake-up call, the current global economic slowdown seems to have trapped governments into a difficult choice between rescuing the economy and imposing further sacrifices by taking the hard decisions needed to prevent further global warming. Although not entirely novel, the importance of economics in addressing climate change is more pronounced and visible today than it has been in the recent past. Since the Stern Review on the Economics of Climate Change of 2006 and the Intergovernmental Panel on Climate Change’s (IPCC’s) Fourth Assessment Report in 2007, economics has been at the heart of climate negotiations.

It is now clear to all that climate change mitigation and adaptation come at a cost. But exactly what the cost is, and how it will be distributed across countries and sectors under different policy scenarios remains uncertain. The international distribution of that cost is, and has always been, at the centre of the climate change negotiations. The UNFCCC recognises that the industrialised world is responsible for mitigating past emissions, and that developing countries have contributed little to the current problem. The international community has also acknowledged the limited capacity of developing countries to adapt to the consequences of climate change - hence the cornerstone principle of “common but differentiated responsibilities and respective capabilities” underlying the Convention.
Things have changed, however, since the first international agreement on climate change was adopted in 1992. Some developing countries have become major players in the world economy - as well as significant sources of greenhouse gas (GHG) emissions. Indeed, China became the leading emitter of climate-changing gases last year.

The compromise agreement reached in December 2007 at the Bali climate talks in part reflects this reality. The Bali plan includes a delicately negotiated set of obligations for developed countries to cut their emissions in quantifiable manner, as well as requirements that they help developing countries reduce the growth of their emissions while pursuing their sustainable development objectives. The commitment made by developing countries to implement nationally appropriate mitigation actions is made contingent on the provision, by industrialised countries, of technology, financing and capacity-building, in a measurable, reportable and verifiable manner.

Economic and trade-related concerns in the run-up to Copenhagen

As the international community embarks on the road to climate talks in Copenhagen in December 2009, when a new global agreement on climate change is expected to be forged, three categories of economic and trade-related concerns are likely to influence the process and outcomes of the negotiations: incentives for developing country participation; leakage and competitiveness concerns of industrialised countries; and trade and development concerns that developing countries have raised.
The first relates to incentives aimed at encouraging participation by developing countries, in particular through transfer of technologies and provision of financial resources to support action on mitigation and adaptation. Developing countries have stated clearly that financing and technology transfer will be essential if they are going to be able to mitigate their emissions and adapt to warming temperatures.

At the latest climate change talks held in Ghana in August this year, the G-77 group of developing countries and China called for the creation of an international financing mechanism under the Convention. Under the G-77 and China proposal, funding would come from a contribution ranging from 0.5 percent to 1 percent of the gross national product of Annex I Parties (industrialised countries), to finance technology transfer, including the cost of patents. Ghana put forward a proposal to create an international framework agreement for technology development and transfer, and to establish a multilateral technology fund, to cover, among other, the licenses to support access to and transfer of low-carbon technologies and knowhow. Financing the access of proprietary technology has been the subject of controversial discussions. While it remains unclear whether, and to what extent, intellectual property might act as a barrier for developing country access to necessary mitigation and adaptation technologies, the question remains the subject of divergent views. Clearly identifying barriers to the development, transfer and diffusion of technology is thus one of the key analytical processes to be completed before relevant approaches to financing for technology can be considered in an informed manner.

Leakage and competitiveness in industrialised countries is another vital trade-related question. Industry and policy-makers in industrialised countries worry that efforts to reduce GHG emissions would negatively affect their carbon-intensive manufacturing sectors, which may be unable to cope with competition from industries in developing countries that do not have comparable obligations imposed on them. Subsequently, concerns about competitiveness loss often also extend to relocation of industries from countries with obligations to those without. Industries generally concerned are: iron and steel; aluminium and copper; cement and glass; paper and pulp; and basic chemicals.
Unilateral trade measures, while not formally part of climate negotiations, could also disrupt or complicate the climate negotiations. Such provisions could include border measures - trade barriers that target economies that lack specific emissions reductions obligations - or requirements that countries purchase carbon offsetting allowances. This is already visible in discussions on sectoral approaches to mitigation, which developing countries see as a backdoor to address developed countries’ competitiveness concerns. It is critical that these concerns be addressed promptly in the relevant fora, including through informal diplomacy, before they emerge as critically disruptive factors in the end-game towards Copenhagen.

The third set of issues relates to the trade and development concerns of developing countries in certain economic sectors that are likely to be negatively affected by either the physical impacts of climate change or the socio-economic consequences of response measures. Related to that are their adaptation needs and modalities of their financing.

The IPCC projects that climate change will result in the decline of rain-fed agricultural productivity by up to 50 percent in certain parts of the world, mainly in developing countries. Tourism, a key economic sector in many small islands and developing states, is expected to suffer from climate impacts on the one hand, and from response measures such as a regulation of emissions from international marine and air transport, on the other hand. These are likely to result in a decline of tourism-related employment and contribution to gross domestic product.

Finally, certain developing countries have found themselves caught in the middle of a fight over whether certain agricultural products should have their ‘carbon footprint’ emblazoned on their labels. Generally referred to as the ‘food miles’ debate, the labelling of certain products on the basis on the air shipment puts an economic cost on producers from poor countries - the very countries that have been recognised under the climate convention as having a minimal contribution to the problem and that have been virtually exempted from mandatory emissions cuts.

These are the concerns that developing countries have raised in the climate negotiations, as highlighted in their Technology Needs Assessments, and that may feature in their National Adaptation Programmes of Action (NAPA). Seeking appropriate responses to these anxieties in the trading system, and defining adjustment mechanisms that would help economies adapt to the physical and socio-economic impacts of climate change are likely to be key priorities for positive engagement of developing countries on the way to Copenhagen.

The next 16 months will be crucial in building global consensus towards a new climate agreement. The economic architecture of such an agreement, which could have far-reaching impacts on markets the world over, is absolutely essential.

Moustapha Kamal Gueye is Senior Programme Manager of the Environment Cluster at ICTSD

One response to “Trade and Climate Change on the Road to Copenhagen 2009”

  1. CharlieO » (Re-) Balancing The World in 2009

    [...] and reducing energy consumption will be the topic of post-Doha, post-Kyoto United nations sponsored talks in Copenhagen next year, and to do this whilst reducing reliance on fossil-fuels will require substantial [...]

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