Carbon Reduction Treaties and the World Trade Organization

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21st Feb 2019 Environmental Studies Reference this

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Trade and Climate Change: Proposal for Reconciling the WTO with Carbon-Reduction Treaties

Executive Summary

The relationship between climate change and the rules controlling the international players is an area that has elicited a lot of debate. Some of the trade agreements undermine the ability of governments to implement climate policies in their own countries. The fight for climate change is a battle for the policy makers in trade since if the conditions are not conducive for trade to happen; their profits will dwindle. Developing countries will have to suffer an extra cost on their exports if the playing field is not level with the international partners. All players in the provision of goods and services should price carbon emission costs correctly to ensure market efficiency. The policy and regulatory changes needed should affect both trade and climate change. This should be a global initiative and not just the leading partners. The effort and implement of proper policies by one party will not be sufficient, as their action will be watered down by the activities by the others. This paper looks at the effects climate change has had on business at the local and international level. It also looks at ways in which the World Trade Organization rules and regulations conflict with International conventions on climate change, especially carbon emission reduction. Finally, I attempt to make proposals on how this problem of climate change could be resolved without necessarily causing an imbalance in the markets.

Trade and Climate Change: Proposal for Reconciling the WTO with Carbon-Reduction Treaties

Introduction

Free trade could improve the welfare of many countries. This is rarely achievable though since countries have varying economic powers. They get into trade agreements with neighbors and have a sort of exchange of resources. These relationships are usually a give and take with the politics playing a major role. The inter-relation between climate change and international trade has gravely impacted developing countries. Much emphasis has not been given to provide a solution to a combined effort to reduce the effects of global warming caused by human intervention. Our actions now have far-reaching consequences and will affect generations to come.  In the quest to meet the needs of our respective countries, we are depleting the natural resources and poisoning the environment. This paper will attempt to highlight the potential areas of conflict between various economic interests and the interventions proposed by the trade partners and advocacy groups such as Wort Trade Organizations (WTO).

Background

The world stands at a crucial juncture with respect to global economic policy development. Sustainable Development Goals (SDGs) have been formulated through global governance to bring forth a new perception of the issue of climate change to protect the earth’s economy, the human race and the environment (Edouard & Bernstein, 2016). Carbon-Reduction Treaties such as the Kyoto Protocol and the Paris Agreement on Climate Change together with the SDGs are examples of currents ways through which world leaders have come together for the sake of saving the world economy by agreeing to join forces and tackle carbon emissions with one voice.

The United Nations Framework Convention on Climate Change (UNFCCC) is a body of International partners who have come together to engage on matters concerning the world’s climate. It started as a call to countries to limit global temperatures and control climate changes and working towards the impact of already existing effects of climate change (Park, 2016).

The Paris Climate Agreement is an accord within the (UNFCCC) was adopted in December 2015. This Agreement deals with greenhouse gas emission mitigation, adoption and finance commencing 2020.  The agreement was negotiated by 196 parties and signed by 195 members. The Paris Agreement reached an agreement in 2015 where the signatories concurred to restrict global warming ‘well below 2°C and to pursue further reduction of these temperatures to 1.5 degrees Celsius (Raes, Liao, Chen & Seinfeld, 2010).

Each country is expected to formulate policies and implement them the best way they see fit and finally report to the UNFCCC on their contribution towards mitigation of global warming. They agreed not to set any enforcement mechanisms of this agreement, but they would at the minimum be expected to go beyond earlier set targets. This stance was adopted after it was found impossible to ensure compliance under the Kyoto Protocol (Gupta, 2014).

The concerns about this Agreement are that the current pledges by countries are not going to meet the required quota to meet the global target. Countries are not yet effecting policies to ensure carbon dioxide reduction emissions. The lack of an enforcement mechanism means nothing can be done to anyone who fails to implement policies of engage in activities that are geared towards environmental protection. The agreement was just a promise by the heads of state with no legal binding effect. No sanctions such as carbon tax can be imposed on one for failure of compliance (Park, 2016).

Private investors are to take up the role of meeting the Sustainable Development Goal No.13 on ensuring action concerning climate change and its impact (“Goal 13 .:. Sustainable Development Knowledge Platform”, 2017). This involves low carbon ventures and clean technology. The government’s role in this instance would be limited, and hopefully, the conditions in the business environments in the countries would be conducive.

The existing trade agreements are of two kinds: Regional Trade Agreements (RTA) and Preferential Trade Agreements (PTA). The RTAs are reciprocal agreements between partners. They include customs unions, free trade agreements, etc. PTAs are unilateral preferences that mean the developed countries are given preferential tariffs on their imports from the LCDs and other non-reciprocal preferential systems. The most significant area of conflict between the rules in these trade agreements and climate change is the status of border tax adjustment within WTO’s General Agreement on Tariffs and Trade (GATT). At the moment there is no carbon pricing to enable meeting of the objectives of climate change under UNFCCC principles (Park, 2016).

Strategies to combat climate change suggested by partners are many and varied such as: (1) imposing carbon tax or border tax adjustment. These tax caps are to offset any adverse effects of capping carbon dioxide releases into countries that are not executing the Kyoto protocol. (2) Increased reliance on renewable energies thereby reducing pollution and emission of gases into the atmosphere; and offering inducements for energy efficiency and preservation; (3) lowered subsidies for fossil fuels; and (4) transnational transmissions, so developing countries shun burning coal (Park, 2016).

Effects of Climate Change on Business

Rapid climate adjustment threatens the global economy not so much for the current generation but for future generations. Under the earlier discussed treaties, countries are expected to meet their targets through national intervention. Their efforts are monitored and recorded in the International Transaction Log by the United Nations (UN) Climate Change Secretariat to ensure compliance with the protocol. The Kyoto Protocol presented 3 market-based instruments to realize the targets by members (Mechanisms under the Kyoto Protocol). These instruments would motivate sustainable growth through skill transfer and investment; remove carbon in an affordable manner and inspire the privately owned businesses and unindustrialized nations to support the decline struggle. These mechanisms included Clean Development Mechanism (CDM); Joint Implementation (JI), and Emissions Trading (ET) (“Goal 13 .:. Sustainable Development Knowledge Platform”, 2017).

A recent study by James Hansen and other co-authors indicated that the glaciers in Greenland and Antarctica could be melting faster than had earlier been predicted. This would mean that within 50 years, the sea levels would rise by 10–20 feet (2015). This means that coastal cities and countries such as New York, Haiti, etc. would suffer tremendously. This is just a simple example of what climate change can do to a country. This is the reason why in 2015, the Conference of Parties (COP21) met in France to discuss International Trade in the face of climate change. The expectation was that these partners would nurture development, create businesses and improvement progress. Developing countries that still rely on the natural habitat for their existence are being affected by global warming, therefore, perpetuating more poverty. This leaves them impoverished since they will not produce any resources to engage in trade.  For example, in Africa, tourism is the main source of income for the countries with tourists visiting from all over the world to see wild animals in their natural habitat. Due to the effects of climate change, there are wildfires and drought that ravage them killing the animals discouraging sightseers. The down at the African Coast of Indian Ocean, the fish stock has gone down due to overfishing and the fact that the sea temperatures have increased, it is no longer possible to support the once attractive marine life (Reiter, 2015).

Most of the African nations rely on agriculture for cash crops. This is slowly changing, as there has been a massive loss of biodiversity experienced. Not only will these countries find it difficult to feed their people, they will have nothing to trade with in exchange for the good and services they lack. For instance, the Tanzanian coast which is a central port for trade within the East African community is expected to rise by 70 centimeters by 2070. This would mean the government revenue will be affected and so will service delivery to the people.

Reconciling the WTO with Carbon-Reduction Treaties

In 2010, parties to the Multilateral Conventions (WTO, UNFCCC) were unable to reach consensus on reduction of emissions of heat-trapping gases at the Copenhagen climate conference and at the WTO Doha Round in 2001 since they involved complex issues. The issue of cross-linking concessions did not make the discussion easier. There are those scholars who believe that climate change is brought about by countries failing to observe the environmental cost of production, therefore, the society bears the brunt of these actions. There exists monopolies appear as a result of the absence of intervention or if they do not provide a conducive business environment. At the international level, however, market failure leads to a dysfunctioning world economy.

As a result of the failure of the Doha and Copenhagen meetings, the U.S and the European Union blamed China and India whom they say are the main emitters of CO2 for failing to commit to the reduction of the emissions under UNFCC (Hermwille, 2018). 3 Policy proposals were fronted as follows:

  • BTAFU: BorderTax Adjustment based on Foreign Unrestricted Carbon Content
  • BTADU: Border Tax Adjustment based on Domestic Unrestricted Carbon Content
  • BTADE: Scenario Efficient Border Tax Adjustment

A tax on Carbon would guarantee efficacy between producers from countries with high carbon taxes when compared to with no carbon dioxide emission (Hermwille, 2018).

Other trade policy options would include the use of domestic and export subsidies to give national companies an upper hand over international companies. Subsidizing could lead to obligations and subsequently protracted proceedings through the WTO disagreement settlement procedures. If the governments then agree on rights and duties, countries with CO2 reduction policies and existing trade measures may be tempted to reaction as a result of imagined unfair price advantage from countries with policies on carbon reduction (Hermwille, 2018).

There exist general exceptions provisions within WTO rules and agreement, which would ordinarily be considered inconsistent with mainstream obligations, which allow trade restrictions of trade to protect, e.g., animals, plants or health to safeguard finite natural resources. These processes can be implemented in a general manner avoiding tedious litigation (Hermwille, 2018).

The parties could use the Trade-Related Investment Measures Agreement (TRIMS) as a discussed and resuscitated idea. There was a list of export limitations, trade balancing requirements and home-grown/ local content requirement. TRIMS were a handy trade agreements permitting under developed countries to safeguard their industries. It could be used to now protect industries which committed to reduction of CO2 and dubbed Green Trims ++ (Hermwille, 2018).

TRIPS (Trade-Related Aspects of Intellectual Property Rights) have exceptions which could be used to help the least developed countries to advance. Technology from developed countries that aid in carbon reduction could be acquired through the “compulsory licensing” clause making it easier for these countries (LDCs). TRIPS could be widened to include TRIPS++ (Hermwille, 2018).

The other solution would be by using the Plurilateral agreements to combine three different sectors as follows:  a) energy (goods and services), b) environment (goods and services) and c) trade (Preferential Trade Agreements) and development (Aid-for-Trade, Enhanced Integrated Framework, TRTAs). This would enable the countries to align their trade and development interests to a green objective (Hermwille, 2018).

The WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement) may be applied to combat the excessive fossil fuel subsidies. This Agreement has general restrictions have previously not been effective in limiting fossil fuel subsidies since it has been seen as an expensive endeavor (Hermwille, 2018).

Plausible Solutions to Climate Changes at National and International levels

To end these problems, there has to be a concerted effort, especially by all actors both in developed and developing countries. Trade alterations, trade inducements or subsidizations that encourage wasteful and unsanctionable trade and industry activities must cease to exist. The predisposition to create new hurdles touching on renewables, comprising biofuels, needs to be addressed at the local and international level. Have strict requirements concerning the burden of trade measures, which tend to work against sustainable development goals. Doing away with fossil fuel subsidies such as tax breaks, loans, cheap land, etc. that encourages big corporations to deplete the non-renewable energy sources as opposed to investing in alternative energy sources. 

Carbon emissions have increasingly gotten out of hand with the fossil fuels burning such as gas, oil or coal. Carbon dioxide is released into the air when these fuels are being produced. It should thereafter be re-absorbed by plants and animals, but it is too much in the atmosphere making the global temperatures rise. This is global warming. These players need to be incentivized to reduce carbon emissions. Trade and investments are important in making a difference in markets and spreading them. If the players could be allowed to engage in an open trading system, with agreed rules, the producers of fossil energy would increase on efficacy and reduce wastage.

As shown in the below, low carbon investment may possibly be attained at domestic echelons through state intervention, industry players, civil societies, private sector etc.


(International governance options to strengthen WTO and UNFCCC1, 2011)
Source: (Saner, 2011)

At the international level, International production organizations should go green. This should be felt at all levels of production and putting in place a verifiable process to ensure strict compliance of the final outcome or process. Multilateral agreements and covenants such as Multilateral Environmental Agreements (MEAs) have attempted to achieve this but with little success.

Financial markets both local and international could be rewarded for investing in climate adaptation and mitigation. They could be compelled to have an environmental and social governance performance report. This will push them to perform in a more responsible way.

Tariffs on environmental technologies should be abolished to encourage innovation of environmentally friendly technologies accessible to many. Wind turbines, solar panels are some of the examples that come to mind that would help developing countries. The Montreal protocol is viewed as one of the most successful multilateral environmental agreements ever. It has received funding from UNDP, UNEP, and the World Bank and spent this money through environmental conservation programs.

The Clean Technology Fund is guided by UNFCC principles and finances clean technology transfers, which was to be used for financing technology transfers. These are all good actions by the World Bank, but this has not stopped them from also funding carbon-demanding projects in line with their normal procedures. These funds are in the form of loans so they will eventually have to be paid off at a steep cost especially to the developing countries. This cannot, therefore, be said to be a self-actualization of the Kyoto commitments.

Conclusion

To reconcile trade rules and climate policies would require the effort of all global partners including the Least Developed Countries. Governments must take it upon themselves to implement the proposals stated herein and other dictates in the WTO agreements. Bearing in mind that WTO is no longer an efficient negotiating partner, countries should engage in regional, bilateral or Plurilateral agreements that support their policies on climate change but at the same time do not stifle international change. A balance can be found where positive climate provisions could find their way in trade policies and vice versa.

References

Edouard, L., & Bernstein, S. (2016). Challenges for Measuring Progress towards the Sustainable Development Goals. African Journal Of Reproductive Health20(3), 45-54. http://dx.doi.org/10.29063/ajrh2016/v20i3.9

Goal 13 .:. Sustainable Development Knowledge Platform. (2017). Sustainabledevelopment.un.org. Retrieved 22 April 2018, from https://sustainabledevelopment.un.org/sdg13

Gupta, A. (2014). Clean development mechanism of Kyoto Protocol. International Journal Of Climate Change Strategies And Management6(2), 116-130. http://dx.doi.org/10.1108/ijccsm-09-2012-0051

Hermwille, L. (2018). Making initiatives resonate: how can non-state initiatives advance national contributions under the UNFCCC?. International Environmental Agreements: Politics, Law And Economics. http://dx.doi.org/10.1007/s10784-018-9398-9

Park, D. (2016). Legal issues on climate change and international trade law. Springer.

Raes, F., Liao, H., Chen, W., & Seinfeld, J. (2010). Atmospheric chemistry-climate feedbacks. Journal Of Geophysical Research115(D12). http://dx.doi.org/10.1029/2009jd013300

Reiter, J. (2015). What does climate change mean for the future of trade?World Economic Forum. Retrieved 22 April 2018, from https://www.weforum.org/agenda/2015/12/what-does-climate-change-mean-for-the-future-of-trade/

Saner, R. (2011). International governance options to strengthen WTO and UNFCCC. Retrieved from http://www.diplomacydialogue.org/images/files/20110611-International%20governance%20options%20to%20strengthen%20WTO%20and%20UNFCCC.pdf

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