World Trade Institute, Bern What can WTO Law do for Climate Change Mitigation: Potentials and Limits Thomas Cottier Sadeq Bigdeli Olga Nartova Sofya Berkutova NCCR – Trade Regulation    IP6 Project on Energy in WTO Law and Policy World Trade Institute, Bern

Agenda Tariff Issues Border Tax Adjustment Subsidies TRIPS Energy Services Potential of EGS Negotiations

Tariffs A new function for tariffs to achieve level playing fields? How to define environmentally non-friendly goods? (How to link tariffs with emissions?) Would this be allowed under GATT XX (b) or (g) or the TBT (necessity test)? How to avoid sheer protectionism? or should Article XXVIII procedure be sought? Don Regan: “If we now compare sanctions to an emissions-related import restriction, we see a number of differences. (1) The embarrassment to general political and economic relations with affected exporting countries may be much the same – no difference there. (2) With regard to disruptions to supply chains, however, there is a difference. There will of course be disruptions from the import restriction, possibly substantial ones, but by hypothesis, the importing country already decided to confront precisely such disruptions when it adopted its restrictions on domestic production (at least, if the import restriction takes the form of a tax). (3) There is also a difference with regard to the overall harm to the economy. The sanction-tariff creates no benefit except the benefit to domestic producers and the benefit to the treasury; on the conventional understanding, these benefits are outweighed by the loss to consumers (or other users) of the product. In contrast, the emissions-based import restriction creates a distinct benefit in the form of reduced world-wide emissions. Whether or not the import restriction induces the exporter to change its production methods, it will (normally) reduce the demand for goods made with high-emission processes; it will thus reduce the intensity of use of such processes and the total damage done by such processes. The emissions-based import restriction might still be “irrational” for the importing country in the sense that the extra cost to it of producing goods with the low-emissions process (or buying only goods produced with the low-emissions process) is less than the benefit that accrues to it from the reduced use of the high-emissions process, since the benefit of that reduced use is spread over the whole world. But still, that sort of irrationality – which from another perspective is mere global good citizenship – is something the importing country has already committed itself to when it decided to limit its own use of the high-emissions process in advance of comparable commitments by other countries. Finally, (4) in the case of the emissions-based import restriction, there is a particular producer group that can expect to benefit, and they have a very plausible claim of right to protection from high-emissions imports. This will affect both their motivation to lobby and the motivation of the political system to respond to their lobbying. There will also be another important lobby in favor of the restrictions, namely environmentalists, who occupy a role that has no analogue in the case of sanctions.”

Border Tax Adjustment GATT II:2 (a) allows for BTA not in excess of an internal tax on a product or a tax on input articles GATT superfund in principle allowed for an adjustment for a tax on ‘certain chemicals’ used in the process of producing products the polluting effect of which happened abroad (a PPM-based tax?) However, the AB may find a violation of Article III (Alcohol cases and likeness issue) raising the question of permissibility under ‘general exceptions’.

Production Process Methods Trade and environment debate Did the AB on Shrimp give a carte blanche for PPM-based measures? Article III national treatment violation to be justified under GATT XX? Implication: burden of proof shifted to the importing country Back to aims and effect?

Industrial Subsidies: ASCM Disciplines Prohibited subsidies: export subsidies and import- substitution subsidies Actionable subsidies: all ‘specific’ subsidies if they cause ‘adverse effect’ Non-actionable: expired in 1999 limited R&D, Environmental subsidies and regional subsidies

Agricultural Subsidies: Agreement on Agriculture 1) Export subsidies (Article 9) 2) Domestic support: Amber Box Blue Box Green Box Domestic Support Trade distortive (Commitment levels) Reduce distortion (production-limiting programme) Zero/minimal distortion Images source: WTO

Potential Constraints of Subsidies Do the ASCM and AoA allow for climate-friendly subsidies? -- Kyoto 2.1.a (iv): Subsidies for energy conservation Subsidies for RE production or consumption Subsidies for R&D grants for climate technologies Subsidies for carbon capture & storage Kyoto 2.1 subsidies are not excluded by ASCM (actionable subsidies – yellow light) Reviving the green light category (non actionable subsidies) in the ASCM agreement?

WTO and (post)-Kyoto Coherence Kyoto 2.1.a (v): “Progressive reduction or phasing out of … subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention…” High political sensitivity: Developed countries: linked to energy security (and vested interest: Bush’s veto threat) Developing countries: energy consumption subsidies are a major source of CO2 emissions

TRIPs and Climate Change Art 66.2 TRIPS – LDC’s technology transfer obligation (“shall”) MEAs weak technology transfer obligations CDM: incentive for technology transfer Incentives schemes for knowledge transfer required (tax reductions v. export subsidy)

Energy Services Liberalization of services, energy efficiency and environment – a triple win agenda UR insufficient classification in the field of energy New classification proposals and climate change: promotion of cleaner energy - less CO2 emissions harmonisation of standards - common energy efficiency thresholds

Energy and Environmental Services Both have influence on efficiency of climate change mitigation measures Both underwent structural reform and open to private operators Both need more appropriate classification under GATS Both imply considerable investment For both the issue of public service is crucial

EGS Negotiation - Art. 31(iii) DDA With a view to enhancing the mutual supportiveness of trade and environment, we agree to negotiations, without prejudging their outcome: ….. (iii) The reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services.

The Environmental Area Initiative (EIA) Approach Multilaterally agreed environmental area Services, goods incl. EPPs, TBTs, IPRs, domestic regulation and other areas‏ Goals and targets may be adopted from Millenium Development Goals (MDGs), MEAs, and other international agreements Result in binding WTO commitments (GATT and GATS)

Possible Target Areas and Clusters Supply of drinking water Drainage Sanitation and disposal of sewage Waste disposal, in particular hazardous waste Reduction of carbon emission Promotion of renewable energies, in particular water, solar, wind and tidal

(2) Modalities within an Environmental Area Members may negotiate any of the following Definition of relevant services and scheduling minimum number of relevant goods subject to mandatory reduction (sectoral initiative) Tariff elimination on relevant goods an overall average tariff cut with minimum cuts at tariff line level minimum number of goods with minimum tariff cut Separate modalities for EPPs where reductions will be mandatory Coordination across negotiating

(3) Drafting an EGS Framework Agreement Framework and modalities for undertaking commitments Linkages with existing commitments and scheduling Issues relevant to the environmental sector (technology transfer, TBTs, IPRs, etc) Provisions on transparency, notification, and dispute settlement

Linking EGS Negotiations and Climate Change Sectors covered by Kyoto Protocol may provide specific environmental areas and targets; may adopt from other parallel initiatives, e.g. Global Environment Facility Under the Kyoto Protocol, Members can unilaterally define priorities and seek CDM projects within the given structure of service regulations, tariff and NTBs relating to corresponding products EAI approach offers a basis and methodology to do this multilaterally Members can decide on the selection and prioritization of above project areas for inclusion in EGS negotiations

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