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Trade and Climate Change in Emerging Economies: The Competitiveness, Technology, and Intellectual Property Rights Dimension Informal Dialogue organised by ICTSD in collaboration with RIS.

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BACKGROUND

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  1. Trade and Climate Change in Emerging Economies: The Competitiveness, Technology, and Intellectual Property Rights DimensionInformal Dialogue organised by ICTSD in collaboration with RIS Trade Flows, Trade-Barriers and Market Drivers in Climate-Friendly Technologies and Associated Goods: Where do Emerging Economies Stand? René Vossenaar

  2. BACKGROUND Background • The deployment of renewable energy (RE) technologies and the promotion of energy efficiency (EE) are crucial for climate mitigation and provide opportunities for sustainable development and trade gains. • Trade can contribute to the diffusion of climate-friendly technologies: • Trade liberalisation (reducing costs of technologies/components). • Market transformation. This presentation • Linking technology deployment with international trade • ICTSD studies • Trade flows • Trade barriers • Market drivers • Some lessons learned for EGS negotiations ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  3. Issues covered in ICTSD project: Mapping of climate friendly technologies Renewable energy (RE) Energy efficiency (EE) Identification of (internationally-traded) products and components associated with these technologies, including HS codes Drivers of technology deployment, trade Trade, tariff and NTB analysis Market access conditions Market opportunities that arise from the deployment of such technologies, especially for producers in emerging countries Policy conclusions Three sectors: Renewable energy supply Residential and commercial buildings Transport Trade analysis can be linked to only part of the technology options identified in the mapping studies ICTSD STUDIES ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  4. CONCLUSIONS • The deployment of RE technologies and investment in EE are largely driven by policy targets, regulations and incentives. • Tariff liberalisation alone likely to have relatively little impact. • Need to look into NTBs and subsidies and how they affect opportunities for developing country producers to participate in global supply chains • Trade can help promote market transformation (beyond EGS negotiations). • Integrated packages are needed to stimulate the successful deployment of RE and EE technologies in emerging economies. • The uptake of RE and EE technologies in many developing countries will require a broad array of support measures (e.g. sharing knowledge of the technologies and their components, financing and capacity-building). ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  5. HS codes often not specific enough to capture climate-friendly technologies: unrelated goods get included (“ex-out” items). Multiple-use: including non-environmental. Energy efficiency: in most cases tariff classifications cannot identify relatively energy-efficient products A good match between RE technologies and HS exists in only very few cases. In several proposed definitions of (potential) EG, multiple-use products represent around 80 per cent of world imports. Consulting more detailed tariff schedules may sometimes be useful, but conclusions cannot be generalized. In most cases, expert opinions and industry surveys are needed to assess whether the deployment of climate-friendly technologies is a driver of trade USITC study on US wind industry “Ex-outs” Where multiple use is intrinsic to the product, creating “ex-outs” is not a viable option. METHODOLOGICAL ISSUES ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  6. Key technologies: Solar energy Concentrating solar power (CSP) Solar heating and cooling Photovoltaic (PV) Wind energy Onshore Offshore Hydropower Biomass Equipment Biofuels Ocean energy Geothermal energy Trade analysis (largest number of products) Single environmental use Finished products (examples) Solar PV panels (Ex 8541.40) SWH equipment (Ex 8419.19) Wind-energy turbines (850231) Hydraulic turbines (HS 8410) Biofuels Ex 2207 Ex 382490 Components Participation in supply chains Multiple use issues (and “ex-out” issues) MAPPING TECHNOLOGIES: RE SUPPLY ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  7. Key technologies: Improving energy efficiency (EE) in new and existing buildings Insulation materials Efficient lighting Energy-efficient HVAC-R, hot water, appliances Increasing renewable energy (RE) use in buildings Active collection and transformation of solar energy RE heating and cooling (REHC), such as geothermal heat pumps and wood-pellet stoves overlap with RE supply Trade analysis Certain insulation materials excl multiple-use materials Efficient lighting HS 8531.39 EE components e.g. control instruments (such as thermostats) Solar PV panels HS 8541.40 (includes LED) Solar water heaters HS Ex 8419.19 Heat pumps HS Ex 8418.61 MAPPING TECGNOLOGIES: BUILDINGS ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  8. Key technologies: More efficient petroleum-powered vehicles Improvements to gasoline and diesel internal-combustion engines (ICE) Non-engine technologies; e.g. lighting and air conditioning, rolling-resistant tyres Lightweight materials Larger market penetration of alternative, low-carbon vehicles such as hybrid cars, plug-in hybrids and electric cars Electric cars Battery technologies Fuel cells Increased consumption of biofuels Trade analysis Electric cars Ex 8703.90 Batteries Ex 8506.80 Ex 8507.80 Fuel cells Biofuels Ex 2207.10 Ex 2207.20 Ex 3824.90 MAPPING TECHNOLOGIES: ROAD TRANSPORT ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  9. Trade flows TRADE IN CLIMATE-FRIENDLY TECHNOLOGIES/PRODUCTS Based on ICTSD studies: • Although trade in products and components (that may be) associated with climate-friendly technologies is significantly overestimated due to “ex-out” and multiple-use issues, it represents only around 2% of total world trade or around 3% of world trade in industrial products (HS 28-97). • Developing country share in world exports (excluding intra-EU trade) increased from 32% in 2004 to 42% in 2008, in value terms. • Very strong increase developing country share wind and solar energy. • Their share in world imports remained stable at around 60%. • The share in total developing country exports of industrial products increased gradually from 2% in 2004 to 3% in 2008. • Top developing country exporters of products and components associated with climate-friendly technologies are no different from top exports of industrial products in general. ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  10. SHARES IN WORLD EXPORTS OF RE TECHNOLOGIES/GOODS Source: COMTRADE and ICTSD studies Large emerging economies increased their share (in value terms) in world exports of goods and components associated with RE technologies during the period 2004-2008 (at the expense of developed countries) ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  11. DEVELOPING COUNTRY SHARE IN EXPORTS OF WIND TURBINES UP SHARPLY Other exporters Source: COMTRADE Developing country exporters ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  12. EXPORTS OF PV CELLS AND MODULES • Developing country share in world exports (excl. intra-EU trade) of solar PV cells and modules has increased sharply in recent years • Chinese and Indian exports increased, largely in response to rapidly increasing EU imports (in particular Spain and Germany) World exports excl. intra-EU Developing country exports Exports by other countries Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  13. TOP DEVELOPING COUNTRY EXPORTERS OF CLIMATE-FRIENDLY RODUCTS 89% 93% 93% Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  14. Trade barriers WHAT ARE THE IMPORTANT BARRIERS? • Tariffs are, in general, less significant as an explanatory variable for increased exports or imports of RE equipment and components compared to other variables. • However, bio-ethanol tariffs have significant impacts on trade (bio-ethanol is an agricultural product). • WRI study on the wind-energy industry: non-tariff barriers (NTBs) and formal and informal barriers that distort firms’ investment decisions (rather than import tariffs) are the principal obstacles to global integration. • NTBs, subsidies and their effects on opportunities for developing country producers to participate in global supply chains. The markets for RE technologies are distorted by subsidies, preferential procurement policies, local-content provisions, tied aid and projects offering tariff and other concessions ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  15. TARIFFS IN LARGE EMERGING ECONOMIES Sample of products that may be associated with climate-friendly technologies: • China: MFN applied tariffs are mostly in the 8-12% range • Simple average close to 10%. • India: Most MFN applied tariffs are either 7.5 or 10% • Simple average of slightly above 8%. • Brazil: simple average of MFN applied rates around 14%. • In South Africa, most tariffs are in the 0-15% range • Simple average of around 5% • Solar PV cells and panels (part of HS 8541.40) enter most markets (including China, India and South Africa) duty-free. 99.5% per cent of 2008 world imports of (in value terms, excluding intra-EU trade) enjoyed zero MFN applied rates (for developing country importers: 98.5%). • In Brazil: MFN applied rate of 12% • In many developing countries MFN applied rates for solar water heaters (part of HS 8419.19) are rather high (20% in Brazil and 35% in China). ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  16. TARIFF LIBERALISATION: SOME ISSUES • It is sometimes suggested that tariff liberalisation could focus on finished products with predominantly single environmental use (to minimise concerns related to multiple-use products). • Preferred option for smaller developing countries? • Focusing liberalisation on finished products only might, in theory, affect tariff structures and, in some cases, result in negative protection. • Developing countries with sufficiently large markets seek to develop local manufacturing capacities and attract FDI. • Examples: wind energy in Brazil and China, National Solar Mission in India and SWH in South Africa. • Infant-industry arguments for tariff protection (but avoiding inefficiency)? • Liberalising key intermediate products (despite multiple-use issues)? • Some countries may have relatively high tariffs at the border, but provide for significant fiscal incentives (e.g. internal tax reductions or exemptions. Example: Brazilian incentives for solar and wind-energy products) ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  17. TARIFFS, WIND ENERGY: FINISHED PRODUCTS AND COMPONENTS Source: WTO Tariff Download Facility ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  18. INCENTIVES AND NTBs Incentives and subsidies • Incentives based on Government interventions (such as Feed-in Tariffs) • Governments subsidies (e.g. installation subsidies, tax credits, preferential loans) • Manufacturing subsidies (e.g. section 48C of the American Recovery and Reinvestment Act (ARRA)) WRI study on wind-energy sector: NTBs more important than tariffs: • Local content requirements (in developed and developing countries) • Different industrial standards and certification requirements. • Political quid-pro-quo expectations ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  19. Market drivers KEY DRIVERS, POLICIES AND MEASURES Drivers • Climate change (in particular in developed countries) • Energy shortage, access to energy (in particular in developing countries) Policies and measures (examples) RE technologies • Renewable portfolio standards (which require electricity providers to obtain a minimum percentage of their power from RE resources by a certain date). • Feed-in tariffs to encourage the deployment of RE technologies for electricity generation. Buildings • EE requirements in building codes, incentives for renovations • Minimum energy performance standards (MEPS) and labelling Transport • Fuel-economy or CO2 emissions standards. • Blending mandates ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  20. DRIVERS OF TRADE Drivers • Capacity additions are often an important driver of international trade. • Nine of the 10 countries that most expanded their wind-energy capacity in 2008 are also among the top 20 importers of wind turbines (India being the exception). • USITC study: from 1998 to 2005 changes in US imports of wind turbines were closely correlated with changes in annual wind-turbine installations. • Large additions in installed PV solar capacity in Spain and Germany (in particular in 2008) resulted in significant increases of imports. • Chinese exports of solar PV modules jumped from $5.3 billion in 2007 to $11.7 billion in 2008 with exports to Spain and Germany together accounting for almost 70 per cent of this increase. Developing country advantages • Abundant renewable resources • Lower production costs (equipment, components) ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  21. THE SOLAR PV MARKET: TRADE GENERATION • World solar PV market of 5.95 GW in 2008 • Increase of 110% over 2007 (285% growth in Spain) • A large part of demand was met by imports (from China, India) • Market grew 5% to 6.37 GW in 2009 (i.e. in terms of new capacity installations; price decreases may have resulted in lower market values) • Negative factors: new installed capacity eligible for FiT capped to 500 MW in Spain and recession • Positive factors: New incentives (China, Japan) and strong demand growth in Germany in anticipation of reduction of FiT • In 2008, PV market of 5.95 GW generated $30.5b of world trade. • Subsidies/FiT (which suddenly change) contributing to market fluctuations • Ambitious targets to strengthen the domestic market (e.g. India) ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  22. THE WIND-ENERGY MARKET: TRADE GENERATION • World wind-energy market: 37.5 GW in 2009 • In 2009, China added more capacity (13.9 GW) than any other country. • Imports into the US market have been key driver of international trade • In 2008: wind-energy market of 27.1 GW generated $3.3b of world imports of wind turrbines. Source: Global Wind Energy Council ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  23. TRADE INTENSITY MAY DIMINISH • Future capacity may generate less trade per MW • The correlation between additions to RE installations and imports may weaken over time, as local content increases: • As (larger) countries add more installed capacity, domestic industry will develop more capacity to supply RE equipment and components. • Leading manufacturers may target growing markets through FDI (e.g. subsidiaries or joint ventures) rather than exports (wind-industry) • Governments which play a key role in stimulating the take-off of RE capacity by providing incentives may seek to ensure maximum benefit for local (domestic and foreign-owned) firms and employment, in particular when incentives are provided through stimulus packages. This is done through formal local content requirements or political pressure. ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  24. US: ANNUAL WIND CAPACITY ADDITIONS AND IMPORTS OF WIND TURBINES (10 GW) Annual wind-energy capacity additions (US$2.3b) Imports of wind turbines (US$ values) Source: USITC, updated ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  25. Lessons learned LESSONS LEARNED FOR EGS NEGOTIATIONS • EGS liberalisation may be relevant for only part of the technology options identified by IPCC. • Tariff policies only a small part of policy options and unlikely to have a significant impact if not supporting other (more targeted/efficient) policies. • Difficult to agree on which products to include in definition of EG. • Only a limited number of products may have a clear environmental benefit. • Most products involve multiple use and “ex-out” issues, with environmental benefit, if any, depending on many factors. • In countries where there are no strong RE and EE policies, 6-digit HS codes are not likely to significantly include EG • Liberalising trade in a certain multiple-use products may be useful, but fast-tracking under paragraph 31(iii) may be difficult to justify. • Positive outcome of EGS negotiations may be important, politically. • Developing countries need flexibility (e.g. through request and offer) to harness real possibilities for environmental and developmental gains. ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  26. THANK YOU ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  27. TRADE BALANCES (2008)ICTSD STUDIES ANNEX Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  28. TRADE BALANCES (2008) 43 CLIMATE-FRIENDLY GOODS (WB) Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  29. TRADE BALANCES (2008)ICTSD STUDIES: PREDOMINANTLY SINGLE USE Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

  30. SELECTED PRODUCTS (12) WITH PREDOMINANTLY ENVIRONMENTAL USE Source: COMTRADE ICTSD/RIS Informal Policy Dialogue, New Delhi, 30-31 March 2010

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