What role can trade and technology play in the fight against climate change?

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 0 y) t gs s aid or s gs rit s og s ef gs id og ce ro pp eli ro cu ta ro pr od lp vi pr su tp tp rr se en er fo e ta et nc ste en e ls en stm od en -n m tic ta em ra isa em co ety (fo nm es sis ve ne tir ld in tir m af In ro Ge as g re re ra Do /s in d vi tu le al ce ld er En e Na up on ur uc ho nc co gi so od ra ck Re De Re su Pr sto in ic e m bl Type of measure co Pu In 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 ICTSD is the publisher of BRIDGES Between Trade and Sustainable Development©, BRIDGES Weekly Trade News Digest©, BIORES©, and co-publisher of PUENTES entre el Comercio y el Desarrollo Sostenible©; and PASSERELLES entre le commerce et le développement durable©; PONTES Entre o Comércio e o Desenvolvimento Sustentável© As well as Mосты Bridges Russia and China BRIDGES

What role can trade and technology play in the fight against climate change?

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What role can trade and technology play in the fight against climate change? — Presentation Transcript