The link between trade and environment

Today, there are many different perceptions of what the trading system ought to do on climate change. While some would like to see the trading system curb its own carbon footprint, others would approach the issue differently.

Some would like to see it offset any competitive disadvantage they suffer in the course of climate change mitigation. More specifically, they would like to impose an economic cost on imported products at their borders equivalent to the one they suffer in curbing their own emissions. In other words, a "levelling of the playing field" based on an importing country's perception of how that field may best be levelled.

There are many different ideas floating on what these offsetting measures may be. For instance, while some are considering the imposition of domestic carbon taxes, with adjustment for those taxes at their border, others are contemplating emission cap-and-trade systems, with an obligation upon importers to participate in those systems.

Yet another group would prefer to focus on what is most immediately deliverable by the trading system, and by this they mean the opening of markets to environmental goods and services; in particular to those that are relevant to climate change, through the ongoing Doha Round of trade negotiations.
These are but a few of the ideas I have heard so far. But there are other ideas for sure, and much work being conducted. While some are looking at WTO rules on taxes, others are looking at the rules on subsidies and intellectual property for instance.

The relationship between international trade – and indeed the WTO – and climate change would be best defined by a consensual international accord on climate change that successfully embraces all major polluters.

There is no doubt that trade regulations are not, and cannot be, a substitute for environmental regulations. Trade, and the WTO toolbox of trade rules more specifically, can at best offer no more than part of the answer to climate change.

It is only in an environmental forum, such as the United Nations Framework Convention on Climate Change, that a deal on climate change can be struck. Such an agreement must then send the WTO an appropriate signal on how its rules may best be put to the service of sustainable development.

Absent such a signal, confusion will persist on what would constitute an appropriate response by multilateral trading system. Let us take the issue of the international trading system's carbon footprint for instance. Much is said in the press everyday about the carbon footprint of international transportation. In fact, a new and emerging concept is that of "food miles" is leading some consumers to conclude it is better to buy from home.

But that argument does not always stand up to empirical verification. In fact, 90 per cent of internationally traded goods are carried by sea. And maritime transport is by far the most carbon-efficient mode of transport, with only 14 grams of CO2 emissions per ton kilometre. Shipping is followed by train transport, then road transport. Air transport has by far the highest CO2 emissions per ton kilometre (a minimum of 600 grams).

In addition, various studies conducted on the "carbon mileage" of traded goods have shown that the issue can often be counter-intuitive. For instance, some studies show that a Kenyan flower air-freighted to Europe emits a third of the CO2 of flowers grown in Holland. Others show that New Zealand lamb transported to the UK can actually generate 70 per cent less CO2 than lamb produced there.

Now, I am not saying that this will always be the case, but surely this is an issue in need of case-by-case analysis, and empirical verification. In the case of food, in particular, we must not ignore the cost of greenhouses in colder climates, and of energy-expensive out-of-season storage.

THE CASE FOR CLEAN TECH

The WTO tool-box of rules can certainly be leveraged in the fight against climate change, and adapted if governments perceive this to be necessary to better achieve their goals. The WTO has rules on product standards for instance, that encourage its members to use the international norms set by more specialised international institutions. The WTO has rules on subsidies, taxes, intellectual property, and so on.

All of these can prove valuable in the fight against climate change, but in that fight would need to be mobilised under clearer environmental parameters that only the environmental community can set.

In the absence of such parameters, the WTO will continue to be pulled from left to right by different players, with only a faint possibility of landing in the centre!

There is no doubt that an immediate contribution the WTO can make is to indeed open markets to clean technology and services. The Doha Round of trade negotiations offers an avenue for expanded access to products such as scrubbers, air filters and energy management services. But, as can be expected, what is and is not an environmental good is a topic that is hotly debated.

For economists, matters appear to be clearer. They tell us that, today, the global market for environmental goods and services is estimated to be worth more than $550 billion dollars every year. The OECD estimates that green services account for 65 per cent of this market and green goods 35 per cent. Climate change prevention and mitigation products and services represent an important proportion of these numbers.

Launched within a broader context of the Doha Round's environmental chapter, which also includes enhancing the mutual supportiveness between WTO rules and multilateral environmental agreements, the negotiations on environmental good services could deliver a double-win for some our members. A win for the environment and a win for trade.

Surely we should not miss an opportunity to open markets for clean technology and services in the Doha negotiations. But, in doing so, we should cognisant of the fact that, ultimately, it is the existence of environmental regulations that will drive demand for these goods and services. Hence the importance, once again, of setting the right environmental framework within which market opening can take place.

A multilateral approach to climate change, that centres on collective action, is absolutely key.

Vantage Point columnist: Pascal Lamy is Director-General of the World Trade Organisation. This is an edited extract of a speech to the Informal Trade Ministers' Dialogue on Climate Change in Bali late last year.

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