WTO-UNEP Report Trade and Trade and Climate Change This book was printed on paper certi ed by the Forest Stewardship Council (FSC). 9 789287 035226 ISBN: 978-92-870-3522-6 Climate Change What do we know about climate change? What is the relationship between trade and climate change? How does trade affect greenhouse gas emissions and can more open trade help to address climate change? What is the range of national measures that can contribute to global mitigation efforts? These are just some of the questions discussed by this report by the World Trade Organization and the United Nations Environment Programme. The Report aims to improve understanding about the linkages between trade and climate change. It shows that trade intersects with climate change in a multitude of ways. For example, governments may introduce a variety of policies, such as regulatory measures and economic incentives, to address climate change. This complex web of measures may have an impact on international trade and the multilateral trading system. The Report begins with a summary of the current state of scienti c knowledge on climate change and on the options available for responding to the challenge of climate change. The scienti c review is followed by a part on the economic aspects of the link between trade and climate change, and these two parts set the context for the subsequent parts of the Report, which looks at the policies introduced at both the international and national level to address climate change. The part on international policy responses to climate change describes multilateral efforts to reduce greenhouse gas emissions and to adapt to the effects of climate change, and also discusses the role of the current trade and environment negotiations in promoting trade in technologies that aim to mitigate climate change. The  nal part of the Report gives an overview of a range of national policies and measures that have been used in a number of countries to reduce greenhouse gas emissions and to increase energy ef ciency. It presents key features in the design and implementation of these policies, in order to draw a clearer picture of their overall effect and potential impact on environmental protection, sustainable development and trade. It also gives, where appropriate, an overview of the WTO rules that may be relevant to such measures. Trade and Climate Change A report by the United Nations Environment Programme and the World Trade Organization Ludivine Tamiotti Robert Teh Vesile Kulaçoğlu Anne Olho Benjamin Simmons Hussein Abaza © World Trade Organization, 2009. Reproduction of material contained in this document may be made only with written permission of the WTO Publications Manager. With written permission of the WTO Publications Manager, reproduction and use of the material contained in this document for non-commercial educational and training purposes is encouraged. WTO ISBN: 978-92-870-3522-6 UNEP ISBN: 978-92-807-3038-8 - Job number: DTI/1188/GE Also available in French and Spanish: French title ISBN: 978-92-870-3523-3 Spanish title ISBN: 978-92-870-3524-0 WTO publications can be obtained through major booksellers or from: WTO Publications World Trade Organization 154, rue de Lausanne CH-1211 Geneva 21 Tel: (41 22) 739 52 08 Fax: (41 22) 739 54 58 Email: publications@wto.org WTO online bookshop: http://onlinebookshop.wto.org WTO website: http://www.wto.org UNEP website: http://www.unep.org Printed by WTO Secretariat, Switzerland, 2009 For the WTO: Any opinions re ected in this publication are the sole responsibility of the World Trade Organization (WTO) Secretariat.  ey do not purport to re ect the opinions or views of Members of the WTO. For UNEP:  e designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the United Nations Environment Programme concerning the legal status of any country, territory, city or area or of its authorities, or concerning delimitation of its frontiers or boundaries. Moreover, the views expressed do not necessarily represent the decision or the stated policy of the United Nations Environment Programme, nor does citing of trade names or commercial processes constitute endorsement. Disclaimers i Part IPart IIPart IIIPart IV ACKNOWLEDGMENTS iii FOREWORD v EXECUTIVE SUMMARY vii I. CLIMATE CHANGE: THE CURRENT STATE OF KNOWLEDGE 1 A. Current knowledge on climate change and its impacts 2 1. Greenhouse gas (GHG) emissions and climate change 2 2. Observed and projected climate change and its impacts 9 3. Projected regional and sectoral impacts of climate change 16 B. Responding to climate change: mitigation and adaptation 24 1. Mitigation and adaptation: de ning, comparing and relating the concepts 24 2. Mitigation: potential, practices and technologies 26 3. Adaptation: potential, practices and technologies 38 4. Technology and technology transfer in the context of climate change mitigation and adaptation 42 II. TRADE AND CLIMATE CHANGE: THEORY AND EVIDENCE 47 A. Effects of trade and trade opening on greenhouse gas emissions 48 1. Trends in global trade 48 2. Scale, composition and technique effects 49 3. Assessments of the effect of trade opening on emissions 53 4. Trade and transport 58 B. Contribution of trade and trade opening to mitigation and adaptation efforts 61 1. Technological spillovers from trade 61 2. Trade as a means of economic adaptation to climate change 62 C. Possible impact of climate change on trade 64 Contents ii Trade and Climate Change III. MULTILATERAL WORK RELATED TO CLIMATE CHANGE 67 A. Multilateral action to reduce greenhouse gas emissions 68 1. Framework Convention on Climate Change 68 2. The Kyoto Protocol 71 3. Post-2012 UNFCCC and Kyoto Protocol negotiations 76 4. Montreal Protocol 78 B. Trade negotiations 80 1. Improving access to climate-friendly goods and services 80 2. Mutual supportiveness between trade and environment 82 IV. NATIONAL POLICIES TO MITIGATE, AND ADAPT TO, CLIMATE CHANGE, AND THEIR TRADE IMPLICATIONS 87 A. Price and market mechanisms to internalize environmental costs of GHG emissions 90 1. Domestic measures 90 2. Border measures 98 3. Relevant WTO rules 103 B. Financial mechanisms to promote the development and deployment of climate-friendly goods and technologies 110 1. Rationale 110 2. Scope 112 3. Type of support 112 4. Relevant WTO rules 115 C. Technical requirements to promote the use of climate-friendly goods and technologies 117 1. Key characteristics 118 2. Key compliance tools 120 3. Environmental effectiveness 123 4. Relevant WTO rules and work 124 CONCLUSIONS 141 BIBLIOGRAPHY 143 ABBREVIATIONS AND SYMBOLS 161 FULL TABLE OF CONTENTS 162 iii Part IPart IIPart IIIPart IV  e Report is the product of a joint and collaborative e ort by the WTO Secretariat and UNEP. From the WTO, Ludivine Tamiotti and Vesile Kulaçoğlu are the authors of Section III.B on “Multilateral Work related to Climate Change: Trade negotiations” and Part IV on “National Policies to Mitigate, and Adapt to, Climate Change and their Trade Implications”, and Robert Teh is the author of Part II on “Trade and Climate Change:  eory and Evidence”.  e Report also bene ted from the valuable comments and research assistance of a number of colleagues and consultants in the WTO. From UNEP, Anne Olho and Ulrich E. Hansen from the UNEP Risoe Centre on Energy, Climate and Sustainable Development are the authors of Part I on “Climate Change:  e Current State of Knowledge”, and Benjamin Simmons from UNEP, and Xianli Zhu, John M. Christensen, John M. Callaway from the UNEP Risoe Centre are the authors of Section III.A on “Multilateral Work related to Climate Change: Multilateral action to reduce greenhouse gas emissions”. Hussein Abaza, Chief of the UNEP Economics and Trade Branch, managed the preparation of UNEP’s contribution. UNEP would also like to thank for their comments and assistance Ezra Clark, James S. Curlin, Kirsten Halsnaes, Blaise Horisberger, Adrian Lema, Anja von Moltke, Gaylor Montmasson-Clair, Gerald Mutisya, Mark Radka, John Scanlon, Megumi Seki, Rajendra Shende, Fulai Sheng, Lutz Weischer and Kaveh Zahedi.  e authors also wish to thank the following individuals from outside UNEP and the WTO Secretariat who took the time to review and comment on the earlier versions of the di erent parts of the Report: Niranjali Amerasinghe (Center for International Environmental Law), Richard Bradley (International Energy Agency), Adrian Macey (New Zealand’s Climate Change Ambassador), Joost Pauwelyn (Graduate Institute of International Studies, Geneva), Stephen Porter (Center for International Environmental Law), Julia Reinaud (ClimateWorks Foundation) and Dave Sawyer (International Institute for Sustainable Development). Vesile Kulaçoğlu, Director of the WTO Trade and Environment Division, led the overall preparation of the Report.  e production of the Report was managed by Anthony Martin and Serge Marin-Pache of the WTO Information and External Relations Division. Gratitude is also due to the WTO Language Services and Documentation Division for their hard work. Acknowledgments v Part IPart IIPart IIIPart IV Climate change is one of the greatest challenges facing the international community. Mitigating global warming and adapting to its consequences will require major economic investment and, above all, unequivocal determination on the part of policy-makers. With a challenge of this magnitude, multilateral cooperation is crucial, and a successful conclusion to the ongoing global negotiations on climate change would be the  rst step towards achieving sustainable development for future generations. As we march towards Copenhagen, we all have a responsibility to make a success of these negotiations. Climate change is not a problem that can a ord to wait. It is a threat to future development, peace and prosperity that must be tackled with the greatest sense of urgency by the entire community of nations.  e WTO and UNEP are partners in the pursuit of sustainable development. As the principal UN agency for the protection of the environment, UNEP has years of experience in the  eld of climate change.  e WTO has also launched its  rst ever trade and environment negotiation under the Doha Development Agenda. Certain climate change mitigation measures intersect with existing WTO rules and recent discussions in various fora have brought to the fore the importance of better understanding the various linkages between trade and climate change.  is report is the outcome of collaborative research between the WTO Secretariat and UNEP. It reviews how trade and climate change policies interact and how they can be mutually supportive.  e aim is to promote greater understanding of this interaction and to assist policy-makers in this complex policy area.  e report uniquely examines the intersection between trade and climate change from four di erent but correlated perspectives: the science of climate change; trade theory; multilateral e orts to tackle climate change; and national climate change policies and their e ect on trade.  e report underlines that, as a critical  rst step, governments must urgently seal a scienti cally-credible and equitable deal in Copenhagen: one that addresses the need for both signi cant emission reductions and adaptation for vulnerable economies and communities. Moreover, it highlights that there is considerable scope and  exibility under WTO rules for addressing climate change at the national level, and that mitigation measures should be designed and implemented in a manner that ensures that trade and climate policies are mutually supportive. With these  ndings in mind, we are pleased to present this report. It is an illustration of fruitful and increasing cooperation between our two organizations on issues of common interest. Foreword Pascal Lamy Director General WTO Achim Steiner Executive Director UNEP vii Part IPart IIPart IIIPart IV  is Report provides an overview of the key linkages between trade and climate change based on a review of available literature and a survey of relevant national policies. It begins with a summary of the current state of scienti c knowledge on existing and projected climate change; on the impacts associated with climate change; and on the available options for responding, through mitigation and adaptation, to the challenges posed by climate change (Part I).  e scienti c review is followed by an analysis on the economic aspects of the link between trade and climate change (Part II), and these two parts set the context for the subsequent discussion in the Report, which reviews in greater detail trade and climate change policies at both the international and national level. Part III on international policy responses to climate change describes multilateral e orts at reducing greenhouse gas (GHG) emissions and adapting to the risks posed by climate change, and also discusses the role of the current trade and environment negotiations in promoting trade in climate mitigation technologies.  e  nal part of the Report gives an overview of a range of national policies and measures that have been used in a number of countries to reduce greenhouse gas emissions and to increase energy e ciency (Part IV). It presents key features in the design and implementation of these policies, in order to draw a clearer picture of their overall e ect and potential impact on environmental protection, sustainable development and trade. It also gives, where appropriate, an overview of the WTO rules that may be relevant to such measures. Climate change: the current state of knowledge Climate change trends  e scienti c evidence regarding climate change is compelling. Based on a review of thousands of scienti c publications, the Intergovernmental Panel on Climate Change (IPCC) has concluded that the warming of the Earth’s climate system is “unequivocal”, and that human activities are “very likely” the cause of this warming. It is estimated that, over the last century, the global average surface temperature has increased by about 0.74° C. Moreover, many greenhouse gases remain in the atmosphere for long periods of time, and as a result global warming will continue to a ect the natural systems of the planet for several hundred years, even if emissions were reduced substantially or halted today. When greenhouse gases emitted in the past are included in the calculations, it has been shown that we are likely to be already committed to global warming of between 1.8° and 2.0° C. Most worrying, however, is that global greenhouse gas emission levels are still growing, and are projected to continue growing over the coming decades unless there are signi cant changes to current laws, policies and actions.  e International Energy Agency has reported that global greenhouse gas emissions have roughly doubled since the beginning of the 1970s. Current estimates indicate that these emissions will increase by between 25 and 90 per cent in the period from 2000 to 2030, with the proportion of greenhouse gases emitted Executive summary [...]... to trade, ensuring the harmonization of regulations and standards and on transparency Part I Climate Change: the Current State of Knowledge A Current knowledge on climate change and its impacts 2 1 2 Observed and projected climate change and its impacts 9 3 B Greenhouse gas (GHG) emissions and climate change 2 Projected regional and sectoral impacts of climate change 16 Responding to climate. .. Responding to climate change: mitigation and adaptation 24 1 Mitigation and adaptation: defining, comparing and relating the concepts 24 2 Mitigation: potential, practices and technologies 26 3 Adaptation: potential, practices and technologies 38 4 Technology and technology transfer in the context of climate change mitigation and adaptation 42 Trade and Climate Change The scientific... The scientific evidence on climate change and its impacts is compelling and continues to evolve The Fourth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC 2007a) states that our planet’s climate is indisputably warming, and the Stern Review (2006) on the economics of climate change concludes that climate change presents very serious global risks and demands an urgent global response... overview of the current knowledge on existing and projected climate change and its associated impacts, and discusses the available options for responding to the challenges of climate change through mitigation and adaptation While specific analyses of the linkages between climate change and trade are not covered in this part, any aspects which are pertinent from a trade perspective will, to the extent possible,... gases and how various regions and activities contribute to total emissions Projections of greenhouse gas emissions and the associated scenarios for future climate change are subsequently addressed, including observed and projected temperature and precipitation changes, sea level rise and changes in snow, ice and frozen ground, as well as changes in climate variability and extreme weather events This... by changes in the mean and/ or the variability of its properties, and that persists for an extended period, typically decades or longer It refers to any change in climate over time, whether due to natural variability or as a result of human activity” (IPCC 2007a).2 A Current knowledge on climate change and its impacts 1 Greenhouse gas (GHG) emissions and climate change a) Greenhouse gases and the climate. .. carbon sink and can help to adapt to climate change by slowing land degradation Part IV there are expected to be major impacts on coastal ecosystems, including the disappearance of coral and the loss of marine biodiversity Trade and Climate Change emission-reduction technologies and practices Policies and measures at the national level are also essential for creating incentives for consumers and enterprises... from the negative consequences of climate change; and to conserve not only the planet’s climate, but also certain plant and animal species that may disappear as a result of global warming Part IV responds to the concerns of domestic industries while still contributing to the wider goal of global climate change mitigation Part I Executive summary Trade and Climate Change and/ or cleaner energy technologies,... the basis for scientific climate change modelling and for economic analysis of climate change impacts and mitigation in different regions and countries (IPCC, 2001a, 2007a) 7 Part II Part III In order to predict future climate change and assess its likely impacts, it is necessary to estimate how greenhouse gas emissions might increase in the future, and what impacts, such as changes in earth-surface... non-tariff barriers to environmental goods and services” The objective is to improve access to more efficient, diverse and less expensive environmental goods and services xvi on the global market, including goods and services that contribute to climate change mitigation and adaptation Climate- friendly technologies can be employed to mitigate and adapt to climate change in diverse sectors Many of these . between trade and climate change from four di erent but correlated perspectives: the science of climate change; trade theory; multilateral e orts to tackle climate change; and national climate change. knowledge on climate change and its impacts 2 1. Greenhouse gas (GHG) emissions and climate change 2 2. Observed and projected climate change and its impacts 9 3. Projected regional and sectoral. economic adaptation to climate change 62 C. Possible impact of climate change on trade 64 Contents ii Trade and Climate Change III. MULTILATERAL WORK RELATED TO CLIMATE CHANGE 67 A. Multilateral