Moving ideas, pursuing solutions
What role can trade play in the fight against climate
change? The challenge for ACP agriculture
Brussels Rural development Briefings, CTA-ACP-EU DG Development
Brussels 13 February 2008
Ricardo Melendez-Ortiz
Chief Executive, ICTSD

Outline
The implications of climate change for
trade, agriculture and sustainable
development in ACP countries
Exploring the linkages between, trade,
climate change and development
The potential use of agriculture-related
trade policies to achieve climate change
and sustainable development objectives

The policy context
 There is today wide recognition that action to address climate
change will have significant trade and development
implications, warranting interventions not only in the
environment arena, but also efforts on other policy fronts.
 There is also convergence that while the solution to climate
change will have to be first and foremost sought in the
UNFCCC and other climate policy processes, trade and trade
policies could offer part of the solution.
 The Bali Action Plan sets the stage for a process of
negotiations towards reaching a global agreement for long-
term cooperative action on climate change, with the objective
of concluding those negotiations in 2009.

The policy context
Responses to climate change challenges as they relate to agriculture in
the ACP countries will be adopted within the UNFCCC context and
determined by existing regulatory frameworks. Evolution of international
policy is characterized at this time by complementary, competitive and --
very often, uncoordinated-- multiple policy tracks, including:
1. Trade-driven agricultural reform at the global level, generating policy
actions that seek to ensure income to farmers in developed countries
affecting land use and agricultural production, including unprecedented
levels of subsidies and other support for the production of agro-fuels
2. A redefinition of EU-ACP trade relations, as well as trade relations among
ACP countries in the context of the establishment of EPAs;
3. A regulatory-driven emergence of a global market in agro-fuels derived
from policy that reacts simultaneously to climate change and energy
security concerns
4. A rapid growth driven surge in demand and investment in the ACP space
and for ACP commodities including agriculture, originating in China, India,
Brazil and the Gulf oil states.

Climate impact on agriculture, trade and
sustainable development in ACP counties
 The impacts of climate change and the mitigation and adaptation efforts
needed are essentially development challenges.
 Despite their low levels of emissions, many ACP countries will be amongst
the worst affected by climate change.
 The IPCC projects that by 2020, in some African countries, yields from rain-
fed agriculture could be reduced by up to 50%, further undermining food
security.
 It will also alter trading patters as current exporters of certain commodities
may be turned into importers..
 Several pacific islands will face sea level rise threatening the survival of
entire economies and ecosystems.
 In Africa, the cost of adaptation would consume at least 5-10% of GDP by
2080, which could be 5 to 8% higher in arid and semi-arid areas.

Context - energy supply
• Fossil fuels will continue
to make the largest share
of global energy supply:
Oil, gas and coal estimated
to be 80% by 2050
• But, by 2015 global
demand for oil and gas will
outstrip supply (Shell,
World Economic Forum,
January 2008).
• Fact is that countries are
increasingly adopting
« energy security » polices,
affecting current backdrop
for climate change.

Context - heterogeneity of countries/
Demographics:
• Population growth dynamics (2030/2050): Nigeria and Congo will
become fourth and eight most populated countries
• Given current growth and mobilization trends, by 2030 80% of the
world’s population is expected to live in urban settlements
• But, in many ACP countries large numbers will continue to live and rely
in rural environments for their livelihoods
• Indeed, any response to climate change will need to take account of
differences in:
• Stages of development/economic transformation
• Economic and social circumstances
• Agricultural situations
• Policies toward the agricultural sector

Stage of development/economic transformation: share of
agriculture in GDP
50
e.g. China 15.9%
Guyana 31.1%
e.g. Congo, Rep. 5.3%
40 Thailand 10.3%
Number of countries
e.g. Bhutan 36.7%
30 Guinea Bissau 58.5%
e.g. Botswana 2.5%
20 Mexico 4.1%
10
0
below 5 5-15 15-35 35 and above
percent
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

Population size and location (rural vs. urban), 2000
Country Total (million) Rural population % total
China, Main 1,252.95 65.3
India 1,008.94 72.3
Brazil 170.41 18.8
Nigeria 113.86 55.9
Mexico 98.87 25.6
Egypt 67.88 57.3
Nepal 23.04 88.2
Chile 15.21 14.2
Mali 11.35 69.8
Cuba 11.20 24.7
Haiti 8.14 64.3
Bhutan 2.09 92.9
Qatar 0.57 7.3
Suriname 0.42 25.9
Belize 0.23 52.2
Seychelles 0.08 36.3
Dominica 0.07 28.2
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

Structure of production: % population dependent on agriculture
for livelihood
60
e.g. Philippines 39%
e.g. Argentina 10% Syria 28%
50
Tunisia 25%
Number of countries
40
e.g. India 54%
Senegal
30
74% e.g. Burkina Faso 92%
e.g. UAE 4.5% Papua N.G. 77%
20 Singapore 0.2%
10
0
Below 5 bet 5- 25 bet 25-50 bet 50-75 Above 75
Agricultural Population as % of Total Population
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

Trade structure: % agricultural products in total merchandise
exports
50
e.g. Egypt 10% e.g. Brazil 26%
Trin&Tob 6% Fiji Is.28.6%
40
Number of countries
30
e.g. Iran 4%
Qatar 0.1%
20 e.g. Gautemala 57%
Rw anda 62%
10 e.g. Malaw i 96%
Afghanistan 72%
0
Below 1 5 - 20 20 - 50 50 - 70 Above70
Tot Agricultural Exports as % of Tot Merch Exports
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

Trade structure: % single agricultural commodity in total
merchandise exports
45 e.g. Bhutan 4%
Mexico 1% e.g. Gambia 20%
40 Malaysia 5%
35
e.g. Paraguay 39%
Number of countries
30
Mauritius 20%
25
20
e.g. Burundi 75%
15 Vanuatu 42%
10
5
0
1 - 5% 5 - 20% 20 - 40% Above 40%
Share (%)
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

% population living on less than $1 a day
Africa Latin America & the
Caribbean
Nigeria 70.2 Honduras 40.5
Central African Republic 66.6 El Salvador 26.0
Madagascar 63.4 Ecuador 20.2
Burkina Faso 61.2 Paraguay 19.5
Sierra Leone 57.0 Venezuela 18.7
Gambia, The 53.7 Mexico 12.2
Zimbabwe 36.0 Brazil 9.0
Rwanda 35.7
Botswana 33.3 Asia
Ethiopia 31.3 India 44.2
Kenya 26.5 Nepal 37.7
Senegal 26.3 Pakistan 31.0
Tanzania 19.9 Bangladesh 29.1
South Africa 11.5 China 18.5
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture
Source: World Bank , World Development Report 2000/2001

Differences in Social Situation
Extent of food insecurity: % of population
undernourished
Burundi
Zambia
Haiti
Banglade sh
Dominican Re p.
Botswana
India
Bolivia
Philippine s
Gambia
Ve ne z ue la
Pe ru
Braz il
Jamaica
China
Egypt
Chile
0 10 20 30 40 50 60 70 80
Proportion of people undernourished
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture

Differences in Agro-ecological conditions
Regions Arable land in Arable land in
use use as % of
(million ha) potential
1997 / 99 1997 / 99
Sub-Saharan Africa 228 22
Near East / North Africa 86 87
Latin America & the
203 19
Caribbean
South Asia 207 94
East Asia 232 63
From: Harmon Thomas, FAO. Joint FAO/ICTSD experts dialogue on SDT in Agriculture
Source: FAO, World Agriculture towards 2015 / 2030, 2003

Exploring the linkages between trade,
climate change, and development

Policies and measures considered in the climate regime
 The Kyoto Protocol to the UNFCCC calls for action including in the
following areas that relate to agriculture/forestry:
 Protection and enhancement of sinks and reservoirs of GHG,
promotion of sustainable forest management practices,
afforestation and reforestation
 Promotion of sustainable forms of agriculture in light of climate
change considerations
 Development and increased use of new and renewable forms of
energy
 Progressive reduction or phasing out of market imperfections
and subsidies in all greenhouse gas (GHG) emitting sectors
 Several agriculture-related trade rules come at the intersection of
these policy interventions

Trade related climate policies generally fall under
three categories
Regulatory Fiscal measures Market-based and
measures incentive measures
• Energy efficiency • Domestic carbon and • Kyoto flexibility
standards energy taxation mechanisms:
emissions trading
• Regulations, • Carbon/energy tax on (ET), joint
standards and targets imports or exports Implementation (JI),
for renewable energy Clean Development
Mechanism (CDM)
• Subsidies and
domestic support • Market access for
mechanisms low carbon goods and
services
• Government
procurement.

WTO rules and agreements framing policy
Climate Measures GATT – WTO Related Agreement
GATT GATS AoA SCM GP TRIMS TBT
Regulatory measures
• Renewable energy regulations x x x x x x
• Energy standards and labels x x x x
Fiscal measures
• Carbon/energy taxes x x x x x
• Energy subsidies x x x x x
• Border tax adjustment on import x x x x x
• Border tax adjustment on exports x x x x x
Market-based and incentive measures
• Kyoto flexibility mechanisms (emissions x x x x x x
trading, CDM and Joint Implementation).
•Markets for low carbon goods & services x x
• Government procurement x

Trade related climate policies: Regulatory measures
Regulatory measures Status Trade-related issues/implications
• Energy efficiency • These have been introduced in WTO’s Technical Barriers to Trade agreement
standards most OECD countries, but also prohibits standards that create unnecessary
in certain developing countries. obstacles to trade, and favours international
standards over national ones. No global
• 57 countries with 80 percent of mechanism for standard-setting.
the world’s population now have
energy efficiency standards and • It is unclear whether standards can be set on
labelling programs. production and process methods (PPMs) that do
not affect the end characteristics of final
products.
• Regulations, standards and •EU: 20 percent of energy from •In many jurisdictions, renewable energy
targets for renewable energy renewables by 2020 targets have been made a requirement for
energy producers and electricity generators
•US: 35 billion gallons of under feed-in-laws and renewable
obligations. These policies involve producer
renewable and alternative fuels
in 2017 subsidies that may raise trade concerns.
•China: 15 percent from
renewables by 2020.

Trade related climate policies:
Fiscal measures
Fiscal measures Status Trade-related
issues/implications
• Domestic carbon and • Energy taxes common in most • Domestic carbon and energy
energy taxation countries taxes do not raise trade concerns
• Carbon taxes proposed in many as long as national treatment and
countries but implemented in a few non-discrimination principles
(about six countries - Austria, Denmark, apply.
Finland, Estonia, New Zealand, Slovenia)
• Carbon/energy tax on • Border tax adjustment on • Under GATT rules border tax
imports or exports imports/exports proposed in some adjustments are possible for
countries but not yet implemented in any. direct taxes.
• It is unclear whether adjustment
can be made for indirect taxes on
unincorporated input during the
production of goods
• Subsidies and domestic • Subsidies to fossil fuels and renewables • The SCM agreement prohibits
support mechanisms common in many developed and industry and sector-specific
developing countries subsidies.

Trade related climate policies: Market-based and
incentive measures
Market-based and incentive Status Trade-related issues/implications
measures
Emissions trading (ET), joint These have been introduced •Can CDM projects be used as
Implementation (JI), Clean both in developed (JI, ET) and benchmarks for defining environmental
Development Mechanism developing countries (CDM, goods?
(CDM). ET) •It remains unclear under which
conditions there may be a subsidy
element in the allocation of emissions
allowances in ETS.
Trade liberalisation in low- Ongoing negotiations in the •Liberalisation in climate-friendly goods
carbon goods and services Doha Round – complexity and and services has been considered in
difficulty of defining the negotiations on EGS.
environmental goods and
services
Government procurement. Procurement policies in •Environmental factors can be taken
several countries into account in government
procurement decision under the WTO
Agreement on GP.

Impact of climate change policies on trade,
competitiveness & development
 International trade may contribute to carbon leakage
 Climate mitigation measures may lead to loss of competitiveness and
industrial relocation in certain industries from mitigation countries
 Carbon labelling and export competitiveness
 Initiatives seeking to label the carbon footprint of internationally traded
agricultural products may negatively affect exports in poor countries
 Carbon embodied in internationally traded goods and the global
carbon accounting system
 In 2004, net exports from China accounted for 23% of its total CO2
emissions, a figure comparable to Japan's total CO2 emissions, and
more than double the UK's emissions in the same year (Wang and
Watson, 2007)
 All these factors raise fairness and equity considerations that may
trigger use of (unilateral) trade policy tools in the search for solutions

The potential to use agriculture-
related trade policies to achieve
climate change objectives

An overview of carbon emissions by sector
Global anthropogenic GHG emissions by sector, 1970-2004
Residential and
Agriculture in a commercial Waste and waste
buildings water
importance
8% 3% Energy supply
source of GHG
26%
emissions, and is Transport
one of the sectors 13%
where emission
are growing
fastest in Agriculture
developing 14% Industry
countries
Forestry 19%
17%
Source: IPCC,2007

Global savings in C02 emissions in the alternative
scenario
Demand-side measures represent the largest contributor the emissions reductions
Source: IEA, WEO 2006

An overview of mitigation potential by sector
Economic mitigation potential by sector in 2030 estimated from bottom-up studies*
Agriculture also holds a
significant potential for
mitigation in developing
countries
Source: IPCC,2007, * assuming macro-economy as unchanged and not including lifestyle
changes

Commonly identified adaptation sectors, subsectors and
technologies considered by UNFCCC Parties in TNAs
The greatest need for
adaptation in developing
countries is in the
agricultural sector.

A conceptual framework for linking mitigation strategies and
measures with trade policy and trade negotiations
Sector Exp of Mitigation Exp of Trade Related Opportunities and
strategy/option policy trade Constraints
instruments negotiation
Transport •Fuel efficient •Enhanced •NAMA Markets expanded for
vehicles market access •Agriculture efficient vehicles and fuels
•Modal shifts for efficient •EGS Product differentiation,
•Cleaner fuels vehicles PPM and classification
•Rules
(e.g. Biofuels) •Support to and issues
market access •A4T
Possible
for cleaner fuels production/market
distortions
Forestry/f Incentives for •Enhanced •NAMA Markets expanded for
orests afforestation, market access •EGS sust. forest products
reforestation, for certified •A4T Product differentiation,
reduced forest products PPM and classification
deforestation, issues
Possible
production/market
distortions
Note: Mitigation strategies/options derived from IPCC 4th Assessment report

A conceptual framework for linking adaptation strategies and
measures with trade policy and trade negotiations
Sector Exp of Exp of Trade policy Related trade Opportunities and
Mitigation instruments negotiations Constraints
strategy/option
Water •Water storage •Enhanced market • Rules Markets expanded for
and conservation access for water- • EGS water
techniques, water saving technologies • NAMA saving/capture/desalina
re-use, •Technology transfer tion technologies
desalination, • Agriculture
instruments? Possible
irrigation •A4T production/market
efficiency distortions
Agricultu •Improved land •Incentives for •Agriculture Markets expanded for
re management, climate-friendly •EGS? sustainable agricultural
R&D policies, agricultural practices •Rules products
financial •Support to and Product
incentives •A4T
enhanced market differentiation, PPM and
access for sust classification issues
agricultural products Possible
(e.g. organics) production/market
•Technology transfer distortions
instruments?
Note: Adaptation strategies/options derived from IPCC 4th Assessment report

The Doha mandate on agriculture and climate
change
 A successful conclusion of the Doha Round with a high level of
ambition, and an outcome that improves the economic prospects for
developing countries would be the biggest contribution to the flight
against climate change:
 Agricultural reform can play a significant role in addressing climate
change
 Reforming subsidies that encourage more land under cultivation
(in subsidising counties) might be one of the most cost-effective
means of reducing net GHG emissions from agriculture.
 Subsidy reform would also contribute to easing pressure leading to
unsustainable forms of production in developing countries.

Enhancing market access for agricultural products
generating climate change benefits
Traditional Main purpose
To address an
Goods environmental
problem
EPPs Main purpose
Other uses
WTO Proposals
Production
EU
•Organic pesticides E.g. Organic
agriculture
Brazil But
•Ethanol environmental
benefits arise Consumption/Use
Peru (supported by during
E.g. biofuels
Colombia, Chile and South
Africa)
Disposal
•Organically or biologically
grown agricultural products E.g. Jute Bags

Using green box payment to achieve climate
objectives
EU notified Green Box spending, marketing year 2001/02, 2002/03 and 2003/04
8000
7000
Effective use of green box
6000
payments for climate purpose,
5000 without leading to production/trade
! millions
2001/02
distorting effects, could generate
4000 2002/03
global benefits. 2003/04
3000
2000
1000
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Type of measure
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Source: ICTSD compiled, 2007

Several ACP countries have a significant potential in
producing biofuels that can generate climate benefits
1471 harves ting res idues Estimated long-term technical production potential
bioenergy crops
235
188
1176
125 25 29
100 195 20 23 76
8 14 4 12 48
188
60 156 151
14 63 W.Europe E.Europe
27 39
CIS & 21
31 15
2 2 Baltic States
00 0 0
North America 350 East Asia
Near East & Japan
280 38
North Africa 22 25 30 Ameri
252
South Asia
513 202
114
130
115
46 92
58
40 55
273 sub-Saharan
Caribean & Africa Oceania
Latin America
America
World
W o r l d
Source: Faaij, 2007

Reduction of well-to-wheels GHG emissions from liquid
biofuels compared to conventionally fuelled vehicles
Source: WRI, 2006.

Research points to significant export potential for
certain ACP regions
Ethanol production in SADC from existing Scenarios for internal SADC and export
cane, new cane, and sweet sorghum market demand
35000
30000 35000
30000
25000
25000
20000 20000
15000 15000
10000 10000
5000
5000
0
0
2005 2010 2015 2020 2025
2005 2010 2015 2020 2025
cane, existing areas cane, new areas sw eet sorghum SADC demand export market
Source: Johnson et al. In ICTSD, 2006

Biofuel imports into the EU under Preferential Trading
Arrangements, 2002–2004
Trade Agreement 2002 2003 2004 Average Share of
2002–04 Total Biofuel
Trade
2002–04
(million liters) (percent)
GSP normal 227 183 288 233 9
GSP plus
553 1,569 1,413 1,178 47.5
ACP 291 269 155 238 9
EBA 30 86 19 45 1.5
Others 107 104 123 111 4
Total preferential
1,208 2,211 1,998 1,805 70
Total MFN
657 495 1,125 759 30
Grand Total
1,865 2,706 3,123 2,564 100
Source: Faaij, ICTSD (forthcoming)

Safeguarding livelihoods, food security in products
of interest to developing countries
The Special Products Mechanisms
The Special Safeguard Mechanism
Aid for trade and adjustment to trade
liberalisation

Concluding points
 Through reform of market distortions and enhanced market
access for sustainable agricultural products, trade policies can
provide a meaningful contribution to the fight against climate
change.
 Action on the trade front should prioritise multilateral solutions
as opposed to unilateral measures
 Equity and fairness concerns need to be given due
consideration in the use of trade policy tools to achieve climate
change objectives
 Trade liberalisation needs to be accompanied by other policy
interventions such as technology transfer, technical assistance
and considerations of domestic concerns– trade liberalisation
alone may not be sufficient to drive global diffusion and
adoption of climate-friendly technologies.

Moving ideas, pursuing solutions
Thank you
International Centre for Trade
and Sustainable Development (ICTSD)
www.ictsd.org
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