Trade Flows, Barriers and Market Drivers in Renewable Energy Supply Goods: The Need to Level the Playing Field
by Veena Jha
Environmental Goods and Services Series • Issue Paper 10
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Trade Flows, Barriers and Market Drivers in Renewable Energy Supply Goods: The Need to Level the Playing Field PDF • 1.01 MBEnvironmental goods and services (EGS) as a subset of goods and services was singled out for attention in the negotiating mandate adopted at the Fourth Ministerial Conference of the World Trade Organization (WTO) in November 2001. Increasing access to and use of EGS can yield a number of benefits including reduced air and water-pollution, improved energy and resource-efficiency and facilitation of solid waste disposal. Gradual trade liberalization and carefully-managed market openings in these sectors can also be powerful tools for economic development as they generate economic growth and employment, enable the transfer of valuable skills, technology, and knowhow, all of which are embedded in EGS. In short, well-managed trade liberalization in EGS can facilitate the achievement of sustainable development goals laid out in global mandates such as the Johannesburg Plan of Implementation, the UN Millennium Development Goals and various multilateral environmental agreements.
While Paragraph 31 (iii) of the Doha mandate calls for a reduction, or as appropriate, elimination of tariffs and non-tariff barriers (NTBs) on EGS, the lack of a universally-accepted definition on EGS has meant that trade delegates have struggled over the scope of goods and services that could be taken up for liberalization. Furthermore, while the aim of the EGS mandate is to liberalize, it provides no indication of the pace, depth or sequencing of liberalization vis-à-vis ‘other’ goods and services. A major fault line in the negotiations on environmental goods is the dispute over whether only goods intended solely for environmental protection purposes should be included, or if other goods that may have both environmental and non-environmental uses should also be incorporated. A number of developing countries are concerned about the inclusion of goods which they perceive to be only vaguely linked to environmental protection. They are also concerned about the import-led impacts of including a broad range of industrial goods on their domestic industries, employment and tariff revenues. In a broader context, a lack of movement on issues of interest to developing countries, particularly agriculture, also inhibits proactive developing country engagement in EGS negotiations.
Particular attention has been focused on the challenges of climate change and the widespread diffusion of climate-friendly technologies which are viewed as critically important in addressing these challenges. To the extent that the WTO negotiations on EGS can help identify and liberalize specific climate-friendly goods and services, they can enhance their wider diffusion. In the WTO context a number of challenges exist, as they do with many other environmental goods in identifying specific climate-friendly goods. This is partly related to the way climate-friendly goods are classified for the purposes of international trade negotiations and also to the fact that the same goods may have other uses in addition to climate-mitigation. Political economy considerations surrounding international trade negotiations indicate that it is will not be easy to liberalize any good or service even if it is important to climate change, and if doing so will also impact a broad range of industries in producing countries. Furthermore, trade-liberalization done in isolation may not necessarily generate greater trade flows in climate-friendly goods and services if the right policies and incentives that drive markets in these goods and services are missing. Hence, it would also be useful to identify the key market drivers of these goods and services that are related to domestic regulatory policies and measures.
In order to enable a better understanding of the patterns of trade flows and market drivers for technologies and associated goods, it is important as a first step to map key technologies and the associated goods that are important for climate mitigation. This needs to be done in a number of sectors. Thus, this paper by Dr. Veena Jha builds on a mapping exercise of technologies and associated goods in the renewable energy sector carried out by experts from the Energy Research Centre of the Netherlands (ECN) and their subsequent classification under the Harmonised System (HS) customs codes at the 6-digit level undertaken by Mr Izaak Wind, an expert and former Deputy-Director at the World Customs Organisation (WCO). Similar mapping studies and customs classification exercises have already been carried out for climate-friendly technologies and associated goods in the building and transport sectors in order to feed into subsequent trade analyses for these sectors.
This paper points out the challenges in identifying goods used solely for renewable energy generation purposes for computing trade statistics. It also highlights goods for which identification is relatively easier and those sectors which appear to be more trade-intensive than others. In addition, it shows the key exporting and importing countries of renewable energy equipment in a range of sectors including solar, wind, hydro-electricity, geothermal, ocean and biomass. Finally, the paper assesses to what extent tariffs drive trade flows in these technologies, compared to a number of other policy drivers including regulations and incentives. Overall, the paper addresses the issue of the need for a level playing field, particularly for developing country producers. The playing field can be leveled through subsidies provided to renewable energy in the developed world being made available to developing countries while addressing the trade-distorting ones through WTO rules and disciplines. While subsidies need to be phased out over the long term it is important to recognize the importance of some of these subsidies at least in the short to medium term for market creation. All of these issues are important in the context of both the role of the WTO in generating conditions for free and fair trade in climate-friendly goods as well as for the United Nations Framework Convention on Climate Change (UNFCCC) negotiations in creating an enabling environment for markets and domestic demand for these goods, particularly in developing countries.
Dr. Veena Jha is a Visiting Professorial Fellow at the Institute of Advanced studies, University of Warwick, UK, and a research fellow at the International Development Research Centre, Canada. In addition, she is the Executive Director of Maguru Consultants Limited, London, UK. She has worked with the United Nations in various capacities for over twenty years. She was the Coordinator of an important UNCTAD/ DFID/Government of India initiative on ‘Strategies and Preparedness for trade and Globalisation in India’. She has published twelve books on trade and development issues, articles in journals, and was a member of some consensus-building initiatives on trade and environment issues in the last decade. She has been a member of several national and international Advisory Boards, notably the United Nations Secretary General’s Task Force on Millennium Development goals. She has served as an expert on technical committees of the Government of India, industry associations, and non-governmental organisations on trade and development issues.
The paper is part of a series of issue papers commissioned in the context of ICTSD’s Environmental Goods and Services Project, which address a range of cross-cutting, country specific and regional issues of relevance to the current EGS negotiations. The project aims to enhance developing countries’ capacity to understand trade and sustainable development issue linkages with respect to EGS and reflect regional perspectives and priorities in regional and multilateral trade negotiations. We hope you will find this paper to be stimulating and informative reading and useful for your work.
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We hope during the UNEP meeting at Nusa Dua Bali on 21-26 Feb 2010 all discussion about this issue can open the perspective of all delegates.