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EGS and Climate Change: China a case study. Veena Jha. Structure of the presentation. What framework policy is China following to control implications of climate change? How does this link with trade?
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Structure of the presentation • What framework policy is China following to control implications of climate change? • How does this link with trade? • Linking trade flows in the list of 80 EGs with Environmental problems related to Climate Change and its associated technologies • Trends in trade of EGS related to Climate Change • Policy implications
Policy of co-control and co-benefit • Earlier local pollution control policy and climate change policy were considered independently without links • Ancillary benefits or secondary benefits of GHGs reduction were found to be also beneficial for controlling local air pollution. • The joint benefits of controlling GHGS were measured. • Thus it was decided to design policies/programs/projects in order to maximize joint benefits of GHG reduction and local pollution. • These joint control policy and projects were designed and implemented for the five year period 2006-2010
Foreign trade policy challenges • Environmental accounting of the trade balance between China and the rest of world, using DRC-CGE model simulation 1.2 billion ton of carbon deficit, taking up about 23% of total direct emissions • 5.3 million ton SO2 deficit, taking up about 39% of total industrial emissions • 61.5 billion ton of water resources, taking up about 12% of industry and agriculture consumption
What is green trade for China • Green trade is one of the measures to achieve the goal of 11th five year plan: • Suggestions include: • Put tariff on export goods with high energy and pollution intensity • Encourage eco-labels on exported products • Encourage imports of environmental goods and services as well as technologies
Liberalization of Environmental Goods and Services (EGS) trading • Low carbon EGS products are the core of low carbon economy, which have co-benefits associated with high/low sulphur/PM etc • High carbon product trading sanction Vs Low carbon product trading liberalization • CDM investments: mode 3 of trade in service 49% shares limitation • Visa: a barrier of mode 4 of trade in service for co-benefit consulting service • Carbon-friendly equipments importing limitation for co-control projects • Liberalization of EGS trading is the key barrier of actions with co-benefits for low carbon, low sulphur, low PM society
Liberalization of EGS trading • Who should and how to deal with the barrier of EGS trading? • WTO Doha Round negotiation on EGS • The problems of EGS negotiation • Trade interest driven but environment demand driven • Environment is used by trade officials as an excuse to promote exports • National interest driven but should be global interest driven. It’s very necessary to have global environmental goods to improve global environment
What to Liberalise? : Issues of Product Coverage • Difficult to • Isolate ‘climate-friendly’ products from others for easier trade liberalisation. ‘Dual-use’ categories includes environmental and non-environmental products. • Deal with intrinsically ‘dual-use’ products
What to Liberalise? : Issues of ProductCoverage (iii) Present HS classification also difficult to operationalise faster liberalisation for ‘relatively’ friendlier products especially if product remains the same but embedded technology changes. Eg: Energy efficient products.
Where are the Environmental Hotspots • The developed countries have higher per capita carbon emissions than developing countries. If carbon emissions from agriculture are included then their emissions would increase substantially. • However, reducing carbon emissions is not merely a matter of technology or products but patterns of consumption too, especially food.
Technology • Substantial convergence in technological achievement between China and the developed countries according to a World Bank study. • This is attributed to the openness of China to foreign trade, foreign direct investment. • Returning Chinese migrants have also dramatically increased both exposure to new technologies and the opportunities to use foreign markets to exploit increasing returns to scale. • Hence both exports and imports of EGs important for China.
Trade in EGS products in general • Top ten importers of EGs identified by job 54 of the WTO prominently includes China. China accounts for roughly 10% of total imports and exports at the global level. • China along with Hong Kong accounts for over half of the developing countries exports and imports.
Exports of Climate mitigation products and technologies in the area of energy • China a major exporter, i.e among the top twenty countries in almost all categories of climate friendly energy products. • However, its volume of exports much lower than those of developed countries in a range of products. • Its exports are highest in small hydro plants and turbines and products associated with solar energy. • In addition a number of Climate friendly energy technologies use electronic components in which China has a comparative advantage.
Exports of Climate mitigation products and technologies in the area of energy • China also is the number one exporter in a number of geothermal energy exports. • It has a comparative advantage in a number of solar energy exports as demonstrated by the fact that it is among the top 5 exporters of nearly twenty products in this category. • It is a relatively small exporter of wind energy products and technologies.
Imports of climate mitigation products • In almost 66 of the 84 categories of energy products, China is among the top twenty importers. • However, China’s rank as an importer among the top twenty is much lower than that of its exports. • This indicates that China has a net comparative advantage in value terms in the production of most products which are climate friendly energy products. • Nevertheless, the gap between China and the developed countries remains wide in terms of both exports and imports.
An analysis of tariff profiles • Applied tariffs of most high level importers fluctuates between 0 and 12%. While these are not very high, on specific tariff lines they can be as high as 40%. • China’s tariffs on an average for these products is between 5 and 8%. • Liberalisation through cutting tariffs would yield real market access benefits to China as far as intra-developing country trade is concerned. • However, these benefits would only accrue if imports of developing countries sensitive to tariff cuts.
Linking trade flows with Climate Change • Essentially climate associated technologies scattered around 84 product categories for energy efficient products. • If we use the World Bank identification of climate friendly technologies and products as the starting point, around 43 products identified as being associated with climate change. • About 30% of these products do not show any sensitivity to tariff changes. • A number of these products are also dual use, so difficult to identify how many would be put to environmental end use.
Linking trade flows with Climate Change • An important shortcoming of the world bank as well as the WTO list is that both do not identify technologies or products associated with agriculture which could reduce carbon emissions. • According to some studies if the EU reduces its meat consumption by just 5%, the reduction in carbon emissions would be equivalent to removing 21 million cars off the road. • Thus Carbon emissions associated with intensive agriculture, particularly intensive meat production needs to be calculated.
Policy Implications and proposals • While the Doha Mandate puts environment at the centre of the EGS negotiations, it is difficult to see how products classified in the HS code can be directly related to Climate Change. • Thus the next logical step is to examine the trade implications for developing countries of the lists proposed as EGs to the extent that they are relevant to climate change. • While additional tariff lines identified by other studies may be more relevant to climate change, the process of isolation and agreement on what would be considered as climate friendly may be somewhat cumbersome.
Policy Implications and proposals • Examining the list of 84 EGs, China has a clear comparative advantage in a number of products. • The list can be further examined in light of dynamic comparative advantage of China. • In this case, the comparative advantage of climate friendly technologies and products would not shift in favour of China in the near future. (2015). • In addition, if NAMA negotiations are successful, they would achieve the liberalisation of a number of climate friendly goods too.
Policy Implications and proposals • However, other factors such as FDI, GDP, Environmental performance and technical assistance projects are much more important determinants of trade flows than tariffs. • The elasticity with respect to TA of trade in Energy products is particularly high. • This shows that international and bilateral donors would have a large role to play in directing the trade of EGs, rather than tariff negotiations.
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