www.ictsd.org

Trade Considerations in Designing ‘Green-Economy Policies.’

Challenges and Opportunities-Mahesh Sugathan, ICTSD

Designing the Green Economy:Economic Principles and Guidance for Policy

Makers. UNEP-CIES WorkshopGeneva, December 14, 2011

THE CLIMATE CHALLENGE: Drastic Action is Required to Check Global Warming: World Energy-related CO2 Emissions by Scenario

Source: International Energy Agency (IEA), World Energy Outlook, 2010.

Source: IEA, World Energy Outlook, 2010

THE ENERGY ACCESS CHALLENGE: Number of People without Access to Electricity in Rural and Urban Areas in the New Policies Scenario

(millions).

THE ENERGY SECURITY CHALLENGE: Oil-Import Dependence in Net Importing Regions (Per Cent)

Year 2002 2010 2020 2030

OECD Total 63 68 79 85

OECD North America

36 35 47 55

OECD Europe 54 68 80 86

OECD Pacific 90 94 94 95

European Union 76 85 91 94

Developing Asia

43 59 72 78

China 34 55 68 74

India 69 80 87 91

Other Asia 40 54 68 76

Note: Imports include non-conventional oil

Source: IEA, World Energy Outlook, 2004

Financial New Investment in Renewable Energy: Developed versus Developing Countries, 2010, and Total Growth in

2009 (in USD billion)

Source: Bloomberg New Energy Finance, UNEP, 2011

I

Increasing share of Low-Carbon Energy from 13 percent now to 30-40 per cent by 2050

17,000 Wind Turbines of 4 MW

each=68,000 MW

Biggest Annual Capacity Addition

Since 1995=40,000 MW during

2008-09

Total Installed CSP Capacity in 2012 is expected to be 4GW or 4000MW

80 CSP Power Plants producing 250 MW

each=20,000 MW

Where We Are

Where We Need to Reach: Examples of Required Capacity

Every Year until 2050

Source: Based on World Bank’, World Development Report,2010

Policy is a Key Driver of Sustainable Energy Demand and Supply

• Preferential (including Feed-in Tariffs)

• Power Purchase Agreements• Investment Subsidies/Grants• Investment Tax-credits• Production Tax-credits• VAT/Sales Tax reduction• Customs-duty reduction

• Government Procurement of SEGS

• Renewable Purchase Obligations (RPOs)

• VAT/Sales Tax reduction

Macro-Enabling Policies

Binding Emission Reduction Commitments or NAMAs

Renewable Energy and Energy-efficiency TargetsCarbon and Energy taxesRemoval/reform of Fossil-fuel Subsidies

SE Producer-Oriented Policy IncentivesSE Consumer-Oriented Policy Incentives

From a Jobs Perspective too-Sustainable Energy holds More Promise than Fossil-fuels.

The Significance of Global supply chains in the Sustainable Energy Goods and Services

Global Supply Chains are a reality for Sustainable Energy Goods and Services. They: Leverage cost-advantages in production Enable cost-optimisation Helps keep prices of RE equipment and services low and at

world market prices. Why does this matter? Because renewable power projects are sensitive to upfront equipment costs.

Lower power prices mean Greater affordability of renewable power Greater possibilities of scale-up Reduced burden on government treasuries and the tax-

payer.

Supply Chains in Action: An Example of Wind Energy in the US

All Other 48%

Mexico 4%China 4%

Canada 9%

Germany 15%

Japan 5%

United Kingdom 4%

Spain 4%

Denmark 7%

2005

All Other 31%

Mexico 15%

China 13%

Canada 10%

Germany 10%

Japan 4%

United Kingdom 3%

Spain 6%

Denmark 8%2010

US Imports of Blades and other Parts –Share of Value by Country-2005 and 2010

Source: Terence P. Stewart, Esq., Leveling the International Wind Energy Playing Field

Supply Chains in Action: An Example of Wind Energy in the US

2005

2010

US Imports of Wind–powered Generating Sets Share of Value by Country-2005 and 2010

Source: Terence P. Stewart, Esq., Leveling the International Wind Energy Playing Field

Denmark 68%Italy 2%

India 3%

Spain 9%

All Other 18%

2005

Denmark 57%

Germany 4%

Italy 7%

India 21%

Spain 7%All Other 4%

2010

Supply Chains in Action: An Example of Wind Energy in the US

2005

2010

US Imports of Towers and Lattice MastsShare of Value by Country-2005 and 2010

Source: Terence P. Stewart, Esq., Leveling the International Wind Energy Playing Field

2005

2010

Korea 10%

Vietnam 20%

Mexico 11%

China 2%Canada 19%

All Other 38%

2005

Korea 6%

Vietnam 13%

Mexico 21%

China 22%

Canada 27%

All Other 11%

2010

Trade Barrier Effect of Domestic Sustainable Energy and Trade Policies

Top Exporters of Climate-Related Environmental Goods and Other Product Groups, 2008 (Excluding intra-EU Trade)-in USD Million

Source: ICTSD Analysis based on Vossenaar, R.(2010). Climate-related Single-use Environmental Goods, ICTSD Issue Paper No. 13, International Centre for Trade and Sustainable Development, Geneva, Switzerland.

Applied Tariffs on Selected Climate-Friendly Products, 2008

Source: ICTSD

Examples of trade-related measures that could be non-tariff barriers

Measure Whether Addressed in WTO Disciplines/Relevant Agreement

Governance Gap

Local-content Measures

TRIMs/SCM Ambiguity on certain types of LCRs-eg. Those linked with Govt Procurement

Clean Energy Subsidies

SCM/Agreement on Agriculture Ambiguity on certain types of subsidies particularly conditionalities linked to feed-in tariffs, subsidies to manufacturers

Export restrictions/taxes

Article XI and XX of GATT Ambiguity on dual pricing and export taxes

Government Procurement

GPA Applies only to GPA Members, Transparency discussions dropped from ‘Doha’ round

Standards and Certification

TBT Lack of harmonisation/mutual recognition of a number of standards on SE equipment and biofuels+private standards not regulated

Services GATS No rules on procurement, unresolved classification and domestic regulation issues

Source: ICTSD

Examples of trade-related measures that could be non-tariff barriers

Measure Whether Addressed in WTO Disciplines

Governance Gap

Investment TRIMs Rules Need to be Clarified on Many Issues such as non-discrimination modalities and pre-establishment commitments, development-related provisions etc. Issue dropped from Doha Round.

Competition Policy

No. Limited coverage by GATS (Articles VIII and IX).

Further rules/disciplines may be needed on access to networks in sustainable energy, regulation of cartels. Issue dropped from ‘Doha’ round

Trade Facilitation and Transit

Articles, V, VIII and X of GATT. Negotiations stalled in Doha. Detailed regulation on transit issues such as electricity networks may be needed.

Check compatibility of domestic ‘green-policies’ policies with existing WTO Trade Disciplines and Rules

Addressing Policies for trade in SEGS autonomously-i.e. through domestic laws, regulations etc

Address barriers through collaborative strategies and approaches that are compatible with WTO rules yet is not paralysed if multilateral talks slow down or stall. Such approaches may with mutual agreement amongst WTO Members also clarify or add to WTO disciplines.

Use of Regional Trade Agreements (RTAs) to foster trade in SEGS through market aggregation and also create hubs for technology innovation.

Recognise flexibilities for developing countries. Balance need for low-cost renewable power and energy-

efficiency with domestic economic and social policy objectives of ‘green measures’.

Source: ICTSD

Ensuring a ‘Trade-friendly’ Policy Design?

Source: ICTSD

Freer and Fairer Trade May Attract Technology Flows but May Not Automatically Attract R&D

Investments or Licensing

Source: ICTSD-EPO-UNEP

A Trend of Policies to Come?

Reporting by ICTSD Bridges Trade Biores, Volume 11.No.17 at http://ictsd.org/i/news/biores/114807/

A Shape of Policies to Come?

www.ictsd.org

Thank You!

For questions, please contact: smahesh@ictsd.ch

Designing the Green Economy:Economic Principles and Guidance for Policy

Makers. UNEP-CIES WorkshopGeneva, December 14, 2011