Trade and Environment Newsletter: Issue 13, October 2012

APEC leads in reducing environmental trade barriers

APEC Leaders have wrapped up their annual meeting in Vladivostok with a joint declaration on ways to promote trade, investment and integration in the region, amidst concerns about the global economy, food security and rising trade barriers.

Environment figured significantly in the communiqué. The importance of not allowing carbon emissions to harm the global economy was recognised. A new commitment was made to halt illegal trade in fish products, wildlife and timber products.

But there was clear assertion that action to protect the environment did not justify ‘green’ protectionism. Leaders stated that “while supporting sustainable growth, we agree that promoting green growth should not be used as an excuse to introduce protectionist measures. We are committed to ensuring that our actions to protect the environment are least trade restrictive and consistent with our international trade obligations.”

Consistent with APEC’s market orientation, a program to reduce trade barriers to environmental goods and services was adopted. Leaders agreed to cut import duties on 54 ‘green’ products to no more than five per cent by 2015. This includes solar cells, solar hot-water systems and wind-turbine blades, but not palm oil. Palm oil was reportedly not included on the list after opposition from the more developed APEC members and a study by the USA EPA which found it did not sufficiently contribute to reductions in greenhouses gases. This is despite media reports that Secretary of State Hilary Clinton gave Indonesia’s President Yudhoyono a commitment to address US restrictions on imports of Indonesian palm oil (see recent story “Is Palm Oil an Environmental Good?”)

APEC’s lead in reducing environmental trade barriers is welcome – it should become an international standard for non-APEC countries to apply – but restraints on trade to address legality less so. This reflects a preoccupation of the Obama Administration to advance issues promoted by unions and Green groups. It will not be favoured by commodity exporters such as Russia, China and other developing members of APEC who already have in place wide ranging measures to address illegal trade.


WTO: Open production chains crucial to growth

The WTO is increasingly recognising the importance of global value chains to international trade and investment.  In a recent speech, WTO Director-General Pascal Lamy spoke about the benefits that flow from open and competitive production channels. He referred to the rise of public policy measures by governments for health, safety, environmental and social considerations that now impact on trade.

This shows growing concern about use of standards to limit trade, including those which mandate sustainability requirements. It has been of concern to WTO members for some time. Indonesia and Malaysia have voiced concerns about the impact of biofuel standards under the EU Renewable Energy Directive on their palm oil exports. EU environmental requirements for disposal of electronic waste and controls on imports of chemicals have repeatedly been raised by WTO members for their effects on trade. According to the WTO World Trade Report 2012, 317 specific concerns were raised by WTO members in the TBT Committee between January 1995 and June 2011 in relation to the trade impact of a regulatory measure taken by one of their trading partners.

The importance of international production chains to growth is gaining recognition. APEC Leaders agreed this month “that the reliability of supply chains is crucial to facilitate trade, maintain sustainable development, and ensure economic, energy, food, and environmental security in the APEC region and around the world”. They committed to reduce barriers to the efficient and timely operation of supply chains over the next few years.

This underlines the need for good regulatory practice which fosters competitiveness and efficiency in trade, rather than that which imposes additional cost burdens on producers.


Environmental trade wars – solar panel subsidies and now airline carbon fees?

This month the US Commerce Department issued a final determination to impose anti-dumping duties on imports of Chinese solar cells from just over 31 percent to 250 percent. Anti-dumping duties are tariffs imposed on goods which are found to be sold at unfairly low prices in export markets. US solar manufacturers say they have been harmed by unfairly traded imports. Panel installers and vendors claim the industry is trying to shield itself from global competition.

As stated by a member of the Coalition for Affordable Solar Energy, “trade barriers in the form of protective tariffs will not improve the economics of the US solar industry or change the way the Chinese do business.” Reuters reports they have not been effective in slowing the decline in solar prices. A Cato Institute paper by Scott Lincicome – an international trade attorney with White and Case – argues that increased bilateral tension and global uncertainty regarding green energy subsidies are the more likely outcome.

The US Senate also passed a Bill that could exacerbate global green trade wars. The Bill would block US airlines from participating in the EU emissions trading system by preventing them from purchasing carbon emissions permits. The ETS requires that airlines buy allowances for their carbon emissions for all flights in and out of Europe, or face penalties.

If US airlines are fined for not participating in the EU program, it is unclear who would pay. The Washington Post reports this could be as much as US$22 billion by 2020. US airlines could sue the government for losses incurred, or the government could invoke a little-used law to fine European airlines in retaliation and use this money to compensate airlines. However, Europe also has a law allowing retaliation which could be invoked if its airlines were fined by the US.

How will this be resolved? The EU may back down. Or the US and EU could negotiate an agreement on aviation emissions. China and India have already banned their airlines from complying with the aviation emissions rule.


EU weakens renewables policy for land-derived biofuels

The EU has proposed policy to limit the amount of food crops that can be used to make fuel as part of its renewable energy policy. Since 2009, Europe has had in place a target to have 10 percent of all transport fuels made up of renewable fuels by 2020. Under a new proposal from the European Commission, biofuels derived from food crops –‘first generation biofuels’ – are now to be limited to 5 percent. Given they already account for 4.5 percent of transport fuels, this leaves little room for growth.

Use of ‘second generation,’ non-land derived biofuels such as household waste and algae is to be encouraged instead. There are media reports the Commission is introducing a controversial system of accounting to support this. It is envisaged all public subsidies for biofuel produced from food and feed will end by 2020, unless they lead to substantial greenhouse gas savings.

The EU will also weaken its policy to reduce the indirect climate impact of biofuels. Fuel suppliers will not, as originally planned, be held accountable for the indirect greenhouse gas emissions biofuels cause by displacing production into new areas, known as indirect land use change (ILUC) factors. Although new (ILUC) emission values for biofuels made from cereals, sugars and oilseeds have been proposed, they reportedly are unlikely to carry legislative weight. As a result, fuel suppliers will be free to continue blending biodiesel made from rapeseed, palm oil and soybeans into their fuels and claiming credit for cutting emissions. Relatively high emissions values expected for fuels derived from oilseeds would have penalised the use of biodiesel to meet fuel targets.

While these changes are positive for biofuel producers of palm oil, which environmental groups had sought to exclude from the targets altogether, the policy shift to reduce the target will impact on investment in the EU crop-based biofuels industry, estimated to be worth 17bn euro a year.

Environmental groups had campaigned for ILUC factors to be formally recognised in renewable energy legislation and for sustainability standards to be regulated for biofuel production as part of a broader campaign to restrict land-derived biofuels, such as palm oil. A new report by Oxfam criticises subsidisation of biofuels for displacing viable food production, driving up global food prices and contributing to climate change. The contribution of the biofuel industry to growth and poverty alleviation in developing countries however is not recognised nor addressed.

The Commission’s proposed rules must be jointly agreed upon by EU governments and lawmakers before coming into effect. This process could take several years.


WWF links financial investment in agriculture and food to sustainability standards

A new WWF report, “The 2050 Criteria: Guide to Responsible Investment in Agricultural, Forest and Seafood Commodities” seeks to tie financial investment in developing countries to compliance with sustainability standards.

It sets out a framework for financial analysts and institutions designed to ensure ‘responsible investment’ in food and agricultural commodities based on social and environmental considerations. The framework applies to ten ‘soft commodities’, including palm oil, timber, pulp and paper, dairy, beef, cotton, sugar, soy and bioenergy identified by WWF due to their global ecological impacts.

The report identifies standards and certification schemes for verification and traceability, principally those established by WWF, which should be adopted by financiers, producers, and procurers for investing in industry sectors. Where standards do not already exist it puts forward key environmental and social performance criteria to guide investment decisions – such as land conversion, labour and climate change.

For example, it advocates conditioning investment in the palm oil industry on membership of the WWF developed RSPO and application of its standards, including funding certification costs.  For pulp and paper it suggests tying loan conditions to FSC timber certification, noting regulation as insufficient to ensure responsible production processing practices.

The report is another step in a broad campaign by WWF to condition production along the supply chain in favour of producers and procurers who meet WWF standards and certification schemes. The express intent is to “reshape the competitive playing field in favour of supply chain actors who ensure sustainability standards are met.” By implication, investment and trade which does not meet the NGO’s standards should be restricted.


Study finds trade restrictions will not help climate change

A new study published in Nature Climate Change finds that without world trade, the emission of greenhouse gases in countries like China could potentially be even higher than today. In ScienceDaily, the authors point out that intervention in world trade – such as tariffs on goods which produce high greenhouse gas emissions – would only have a small impact on emissions and could do more harm than good.

The study ‘Interpreting trade-related CO2 emissions transfers’ was able to break down known emissions transfers between countries into traded components. It found that the US emits less carbon dioxide in the production of its exports than is contained in its imports, simply because it imports more than it exports. Only about 20 percent of carbon dioxide transfers from China into the US can be traced back to the fact that China is more specialised in the production of dirty goods.

Greenhouse gas emissions in developing countries are to a large extent caused by the production of goods exported to the West. Policy interventions, which alter trading patterns by shifting more energy intensive industries to developing countries, could increase emissions.

As ScienceDaily explains, this is because Western countries export goods that need more energy in the production process, such as machines, and use comparatively cleaner production processes than developing countries. Developing countries, such as China, produce goods for export which require relatively little energy for production, like toys, but tend to use emission intensive coal power plants. If China produced more energy intensive goods instead of importing them, emissions would increase.

The authors reiterate that “crucial for CO2 transfers is not only world trade, but also the question of how dirty or clean national energy production is in each case.” “To really justify trade policy interventions like much discussed CO2 tariffs, further analysis would be needed.”

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