Trade and Climate Change: WTO Negotiations on Environmental Goods and the IPR Dimension -Mahesh Sugathan EU-Civil Society Dialogue on Trade and Climate Change, Brussels,13 May 2009

Environmental Goods and Services, a Growing Market with New Players Global EGS industry: USD 650 billion. Trade in EGS estimated at roughly a tenth of that amount Few developing countries are participating but A handful of emerging economies are becoming important players China, India (wind energy, fluorescent lamps) Mexico, Hong Kong, Korea, Malaysia, Colombia, South Africa or Brazil (Bio-fuel)

The WTO Window: the DDA Negotiations on EGS Doha Ministerial Declaration: Para 31(iii) calls for “ the reduction or as appropriate elimination of tariff and non-tariff barriers to environmental goods and services.” No definition exists of what is an environmental good. This has made an agreement difficult to reach. Approaches to Liberalisation List: Bound, MFN permanent liberalisation on pre-determined products. (Friends of Env Goods: Canada, the EU, Japan, Korea, New Zealand, Norway, Chinese Taipei, Switzerland and the US). Project/Integrated: Temporary liberalisation of all goods and services for designated projects. (India and Argentina). Request-Offer: Negotiations on the basis of bilateral or plurilateral requests on products of interest. Offers extends on MFN basis to all Members. (Brazil)

Pipes The Problem of ‘Dual –Use’ Case 1: Case 2: 6-digit HS code entry (841360) : Pumps for liquids, whether or not fitted with a measuring device; other rotary positive displacement pumps Environmental Good Ex-Out: Pumps for Sewage and Wastewater treatment Non-environmental good Other pumps Pipes As an Environmental Good: Used in Solar Hot Water Systems As a Non-Environmental Good: Used in Oil and Gas Transportation The Problem of ‘Dual –Use’ Case 2: Case 1:

Climate-relevant Environmental Goods-What has been going on in the WTO? Qatar : includes natural gas fired generation systems and advanced gas-generation systems -but opposed to energy-efficient products Canada initially included hydrogen and bio-diesel;New Zealand :methanol and bio-diesel-later dropped. Brazil has informally proposed bio-fuels and bio-fuel technologies. Glass Insulation (Japan and New Zealand). Fluorescent Lamps (Japan, Canada, New Zealand and the United States). US-EU informal 2007 proposal to liberalise 43 climate friendly goods identified by the World Bank and climate friendly services on an accelerated basis. Zero tariffs on these goods by 2013. Some Members have proposed a ‘review mechanism’ to identify and extend liberalisation benefits to new technologies that would evolve.

Climate-relevant Environmental Goods-What has been going on in the WTO? 43 products identified by World Bank from an earlier list of ‘153’ environmental goods identified by a few key WTO Members. Renewable Energy products include wind turbines and solar panels. Global trade in these products have doubled from USD 67 billion to USD 119 billion. Rapid growth in imports and exports. Bound and applied tariffs higher for developing countries.

Environmental Goods in the broader « 153 list » Air pollution control Management of solid and hazardous waste and recycling systems Clean up or remediation of soil and water Renewable energy plants Heat and energy management Waste water management and potable water treatment Environmentally preferable products (based on end use or disposal charactersitics) Natural risks management Natural resources protection Noise and vibration abatement

Fairly low tariff protection unlikely to be significantly affected by Doha Round Negotiations (if not singled out for special treatment)

Factors Influencing Imports of Environmental Goods NS -1.66 2.56 -2.5 Wate water Not significant 9.67 1.09 Noise +0.005 +0.0005 1.9 -2.37 Natural risk Natural Resources EPP +2.21 9.24 -6.26 Heat +0.003 6.26 4.12 -0.90 Renewable energy -0.05* 10.45 -4.20 Clean up -2.72* -0.002 1.50 5.63 -2.8 Solid waste 0.26 3.1 0.05 Air Pollution Env regulation GDP FDI Degree of industrialisation Bot sensitivity Tariff sensitivity Category of EGS Regression Analysis: Factors Influencing Imports of Environmental Goods (Source: Veena Jha-2007) * Negative correlation may indicate an import substitution process as a result of the establishment of environmental regualtions

Findings by Veena Jha for ICTSD (2007) on the 153/43 WTO List of EGs List doesn’t address key causes of green house gas emissions in developing countries -urbanization, degradation of natural resources, desertification, poor sanitation, and to a lesser extent industrial development. Roughly 30% of products would be sensitive to tariffs. Elasticity with respect to tariffs is low: one percent reduction in tariff leads to 0.15% increase in trade. Higher the Envtal Performance Index (EPI) ranking of the developing country, higher the trade in climate friendly products. Other factors such as FDI, GDP, more important in determining trade flows than tariffs. Correlation of trade in EGs to Tech Assistance projects is particularly high. Source:http://ictsd.net/downloads/2008/11/ictsd-veena-jha_final-integrated-cover.pdf

Energy-Efficient Goods and Services Estimated that 40 per-cent of savings needed to reach Kyoto targets would come from ‘energy-efficiency’. Many energy-efficient goods problematic to liberalise in WTO context. Eg: Difficult for energy efficient refrigerator vs less energy efficient one. Easier when products are physically distinct. Eg: LEDs vs incandescent lamps. Relevant Services include designing and engineering for energy-efficiency (eg: buildings),installation and maintenance services for energy-efficient goods and technologies.

Bio-fuels Classification: Ethanol-ag product; biodiesel-industrial (due to manufacturing process) The EGS negotiating mandate does not exclude discussion of agricultural products but Members so far only proposed industrial items. Implications for trade rules (including .subsidies)? Also HS Issues-as both ethanol and bio-diesel are ex-outs-under a broader category of products liberalise only ex-out or broader 6-digit category? Envtal relevance of product important in negotiations- what if ethanol production is envtally damaging? No way to distinguish ethanol on the basis of PPMs.

ICTSD’s Further Work on Trade Liberalisation in EGS Technology mapping studies in 4 key mitigation sectors identified by the IPCC Energy Building Transport Industry Specification of technologies for mitigation and identification of corresponding goods Definition of HS codes at 6 digit and beyond; options for new classification Analysis of trade flows, tariff and non-tariff barriers, DCA, GHG mitigation potential Research and analytical insight into UNFCCC negotiations on (potential for trade to enhance) transfer of technology

Summary of Findings from the Renewable Energy Sector by Veena Jha for ICTSD [forthcoming (2009)] Only a handful of players important in trade in renewables. Any negotiating proposal for liberalising trade will need to take account of this. No matter how careful the mapping exercise, translating renewables to six digit tariff lines has serious limitations. In most cases it would include multiple use products. Emerging economies important players, though their share of trade is less than half that of developed countries.

Summary of Findings from the Renewable Energy Sector by Veena Jha for ICTSD [forthcoming (2009)] Liberalizing tariffs alone may not guarantee a diffusion of these technologies or the creation of markets for products used in these technologies in developing countries. Subsidies, venture capital investment important drivers of exponential market growth in developed countries. Given the present grip of the economic and the financial crisis it is unlikely that such venture capital will come to developing countries.

Upcoming ICTSD Work on Trade Liberalisation in EGS Study on Environmental Services request offer in GATS and Commitments in RTAs. Issue paper on LDCs interests in the Environmental Goods Geneva-based 2-3 informal dialogues and 1 multi-stakeholder dialogue in 2009 1 side-event at the UNFCCC meeting in Copenhagen.

IPRs and Climate Change So far evidence of impact of IPRs on Climate-friendly technologies uncertain. A 2006 UNFCCC report (of Technology Needs identified by Non-Annex I parties) indicated that IP-related issues were not considered a major barrier to technology transfer relative to other economic and market barriers. ICTSD study by John Barton (2006) showed that impacts of patents on access to solar, wind and biofuel technologies in 3 developing countries-China, India and Brazil would not be considered significant. However, the potential implications of the increased number and scope of patent claims in wind energy and biofuel technologies as highlighted by a European Patent Office (EPO) study are unknown.

John Barton’s Findings for ICTSD (2006) Source: http://ictsd.net/downloads/2008/11/intellectual-property-and-access-to-clean-energy-technologies-in-developing-countries_barton_ictsd-2007.pdf

Lessons from the public health negotiations Recent work by Prof. Abbott (ICTSD), forthcoming Patents do not have uniform effects across fields of technology Role of private sector in climate change technologies Meaningful ToT will require financial incentives for private sector Doha Declaration on Health (2001) is not easily transposable to CC negotiations. It has not been a panacea and has not drastically changed the structure of the pharmaceutical sector.

Forthcoming Research under ICTSD’s Climate Technology and Trade Initiative (CTTI)

CCTI Project (continued) Aim of the project is to deliver objective data and analysis to inform policymakers in the ongoing discussions and processes at the UNFCCC and, in particular, within the Expert Group on Technology Transfer (EGTT) Collaboration with various experts and institutions including European Patent Office (EPO) and UNEP.

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