A fly on the wall

Today, I rode over in my Sunday best to the Bali Intercontinental Hotel in where the trade ministers were meeting for the first time ever on the topic of climate change. I wandered into a big room that had large square table with flags from different countries around the world set. I took a seat behind the table straddling the New Zealand and Norway spots, figuring I’d have a better chance blending in there than with the Philippine or Pakistani delegation.

A few minutes later the room started to fill with trade ministers. Camera crews followed and then were quickly ushered out leaving me as the only apparent member of the media in the room. Below is the summary.

First Trade Ministers Meeting on Climate Change

Hither to, we arrive at the issue. Climate change is not just a problem for environment ministers anymore, a cadre of trade ministers, including US Trade Representative Susan Schwab, were told today at the Bali Intercontinental Hotel on the fringes of UN Climate Change meetings. The meeting marked the first time ever that trade ministers met on the topic of climate change.

Reducing emissions in developed countries by 70-80 per cent by 2050 and substantially bending back the emissions growth curve for developing countries will have profound impacts for the global economy, because energy powers the economy, and meeting the climate change challenge will require no less than a multi-trillion dollar revamp of our energy infrastructure (US$20 trillion of for Asia alone over next several decades), David Runnalls, President of the International Institute for Sustainable Development told the group of ministers and officials, who had commissioned a report on trade and climate change from his Institute.

Mr. Runnalls characterized the Kyoto Protocol as “principally an investment agreement” that involves fundamentally changing our energy system, adding, “a failure to address climate change would constitute a failure of the multilateral trading system.”

So far, climate and trade agreements appear to have been on the same page. Article 35 of the UN Framework Convention on Climate Change clearly states that measures taken to combat climate change should not be disguised restrictions on international trade.

Likewise, the role of the WTO is to advance development objectives in accordance with the principles of sustainable development. But Runnalls cautioned that this honeymoon between trade and climate could soon end if we do not proactively address conflicts that will arise around competitiveness concerns that the prospect of substantial and uneven carbon pricing bring to the fore.

To start, Runnalls urged countries to focus on the promise of trade to combat climate change rather than the potential for conflict. Good places to start include looking at scrapping some of annual US $250 billion in fossil fuel subsidies that International Energy Agency has identified, and looking at how trade policy can best supply climate friendly goods and services, to meet the estimated additional $200-$210 billion dollars per year (compared to present ODA levels of just $100 billion/year) the UNFCCC says it will be necessary to invest over the next 23 years to achieve the climate change mitigation goals of the convention.

The World Bank also presented a preliminary report at the meeting, which showed that trade flows of climate friendly goods and services could expand by as much as 7.2 to 13.5 per cent if tariffs and non-tariff-barriers (NTBs) are removed. The same report found that so far that climate regulations have affected competitiveness much more than carbon taxes, in part because countries generally offset carbon taxes for trade-exposed industries, or the carbon tax rate has not been substantial enough to make that much of a difference.

The World Bank report did find a trend of carbon leakage, whereby carbon intensive industries relocate from high carbon-price jurisdictions to low-carbon price jurisdictions, but this may be due in part to the availability of raw materials and rampant growth in some developing countries like China and India. The World Bank official said the intellectual property rights would also have to be tackled in any agreement to expand technology transfer of climate friendly goods and services.

The most newly minted trade minister, Simon Crean, from Australia was the first minister to speak up, insisting that trade and environment policies must be mutually supportive, identifying the carbon market as one part of the solution, towards which Australia will establish a national emission trading system to achieve its goal of reducing greenhouse gas emissions by 60 per cent from 2000 levels by 2050.

Mr Crean also cautioned about messing with the trade goose that lays golden eggs for the economy. “These international agreements are based on a hard earned consensus,” he said.

In a not so veiled reference to France’s carbon import tax proposal and the requirement for importers of carbon intensive products to purchase emissions allowances under the Lieberman-Warner bill making its way through the US Senate, he went on: “When countries mention things like carbon taxes or border transfer taxes, as trade ministers, we should be quite concerned about such a systemic threat to the trade system that has served us so well.”

The best way to ensure this doesn’t happen, he said, is to “ensure that all major emitters are involved in emission reductions efforts.”

US Trade Representative Susan Schwab echoed Mr Crean’s concern, cautioning, “using climate as an excuse for covert protectionism is a slippery slope and will ultimately hurt all of us.”

Better, Ms Schwab said, to focus on the positive things we can do with trade. She singled out the Doha round as offering the “single best early opportunity to make a contribution that is climate friendly.”

The EU and the US have a proposal on the table at Doha to immediately eliminate NTBs for 43 goods and services that the World Bank has classified as environmentally friendly, and to make progress on a more broadly based environmental goods and services agreement. This could be expected to expand climate friendly trade, and not just the north selling to south, Ms Schwab underlined, pointing out that the US currently imports $18 billion of environmentally friendly goods and services each year, with four of the top ten (including the top two) ports of origin being in developing countries.

Ms Schwab also commented that trade ministers meeting on the topic of climate was long overdue and it was “astonishing that this was the first time that we gathered at the nexus of trade and climate.”

Miguel Jorge, the Brazilian Minister of Development, Industry and Trade, said he would oppose the EU-US proposal because the list of 43 environmental goods and services excluded ethanol.

“Why is ethanol considered an agricultural product, when biodiesel produced from vegetables is not?” he asked. Ms Schwab’s other remarks that regional and bilateral forums would be useful additional forums for opening up the floodgates for green trade also rubbed Mr Jorge the wrong way.

“If there are two things that are global, it is trade and climate change,” he said, citing the risk of a patchwork approach in which the sum of the parts are less than the whole required to meet the global climate challenge. Mr Jorge challenged his colleagues to work with him to find a way to value the ecosystem services and carbon sink function provided by Brazil’s threatened Amazon forest, without exonerating rich countries from making emission reductions themselves.

“Even if Brazil does everything it can to stop further deforestation,” Mr Jorge explained, “without aggressive mitigation of greenhouse gas emission, the Brazilian rainforest will be destroyed within 70 years because of climate change.”

Mr Jorge also suggested that lessons from expanding access to certain pharmaceutical drugs through TRIPS be applied to opening up green trade. WTO chief Pascal Lamy said that an important element of green trade was to change transport patterns.

“Air and truck produces more greenhouse gases than shipping,” he pointed out. Mr Lamy discouraged expanding aid for trade. “We have enough problems we need to address. We should focus on those,” he said.

The Swedish official recommended commencing a multilateral effort to explore using labels and certifications in collaboration with the WTO, UNFCCC and International Standards Organization, pertaining to environmental information about the life cycle impact of products in a way that expands trade rather than erecting impediments as have some other labeling and certification schemes.

The UN Conference on Trade and Development head, Dr. Supachai Panitchpakdi registered strong disdain for using punitive trade measures levied against countries that cannot afford to take aggressive low-carbon development paths. He also made an aggressive pitch for lifting barriers from biofuels as the single measure that would best advance the equally important battles against poverty and dangerous climate change.

The EU trade official, who may have been Peter Mendelson (it was hard to make him out from across the room), delivered a sobering dose of reality to the meeting: “we’d better hope that our colleagues can reach a comprehensive global climate agreement, or we will face problems stemming from competitiveness concerns that go beyond our ability to solve them.” Japan expressed support for the EU-US green trade proposal but requested that hybrid cars be added to the list of 43 approved goods and services.

Of all the speakers, China took up the least amount of floor time, emphasizing that there is no contradiction between trade and climate change, as long as everyone respects the principle of common but differentiated responsibility. China also cautioned that in addition to its low per capita emissions, historic responsibility and lower than average GDP per capita, the reallocation of energy intensive industry into developing countries also had to be taken into account.

India beat its usual drum role about having low per capita emissions and stressed the importance of dealing with intellectual property rights as part of the strategy for scaling up green technology transfer. Russia’s main contribution was to caution that [trade and climate change] “is an extremely sensitive space and we must be careful not to distort the market.”

The UK wrapped up the meeting noting that it was surprising that so little literature existed in the trade and climate change nexus, and suggested commissioning works similar in authority to the Stern Report to help pave the way for a green trading system up to the challenge of climate change.