EGS and Climate Change: China a case study

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EGS and Climate Change China a case study

• Veena Jha

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Structure of the presentation

• What framework policy is China following to
  control implications of climate change?
• How does this link with trade?
• Linking trade flows in the list of 80 EGs with
  Environmental problems related to Climate Change
  and its associated technologies
• Trends in trade of EGS related to Climate Change
• Policy implications

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Policy of co-control and co-benefit

• Earlier local pollution control policy and
  climate change policy were considered
  independently without links
• Ancillary benefits or secondary benefits of GHGs
  reduction were found to be also beneficial for
  controlling local air pollution.
• The joint benefits of controlling GHGS were
  measured.
• Thus it was decided to design policies/programs/pr
  ojects in order to maximize joint benefits of GHG
  reduction and local pollution.
• These joint control policy and projects were
  designed and implemented for the five year period
  2006-2010

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Joint benefit program
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Success of the Co-Control Policy
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Foreign trade policy challenges

• Environmental accounting of the trade balance
  between China and the rest of world, using
  DRC-CGE model simulation 1.2 billion ton of
  carbon deficit, taking up about 23 of total
  direct emissions
• 5.3 million ton SO2 deficit, taking up about 39
  of total industrial emissions
• 61.5 billion ton of water resources, taking up
  about 12 of industry and agriculture consumption

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What is green trade for China

• Green trade is one of the measures to achieve the
  goal of 11th five year plan
• Suggestions include
• Put tariff on export goods with high energy and
  pollution intensity
• Encourage eco-labels on exported products
• Encourage imports of environmental goods and
  services as well as technologies

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Liberalization of Environmental Goods and
Services (EGS) trading

• Low carbon EGS products are the core of low
  carbon economy, which have co-benefits associated
  with high/low sulphur/PM etc
• High carbon product trading sanction Vs Low
  carbon product trading liberalization
• CDM investments mode 3 of trade in service 49
  shares limitation
• Visa a barrier of mode 4 of trade in service for
  co-benefit consulting service
• Carbon-friendly equipments importing limitation
  for co-control projects
• Liberalization of EGS trading is the key barrier
  of actions with co-benefits for low carbon, low
  sulphur, low PM society

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Liberalization of EGS trading

• Who should and how to deal with the barrier of
  EGS trading?
• WTO Doha Round negotiation on EGS
• The problems of EGS negotiation
• Trade interest driven but environment demand
  driven
• Environment is used by trade officials as an
  excuse to promote exports
• National interest driven but should be global
  interest driven. Its very necessary to have
  global environmental goods to improve global
  environment

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What to Liberalise? Issues of Product Coverage

• Difficult to
• Isolate climate-friendly products from others
  for easier trade liberalisation. Dual-use
  categories includes environmental and
  non-environmental products.
• Deal with intrinsically dual-use products

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What to Liberalise? Issues of ProductCoverage

• (iii) Present HS classification also difficult to
  operationalise faster liberalisation for
  relatively friendlier products especially if
  product remains the same but embedded technology
  changes. Eg Energy efficient products.

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Where are the Environmental Hotspots

• The developed countries have higher per capita
  carbon emissions than developing countries. If
  carbon emissions from agriculture are included
  then their emissions would increase
  substantially.
• However, reducing carbon emissions is not merely
  a matter of technology or products but patterns
  of consumption too, especially food.

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Technology

• Substantial convergence in technological
  achievement between China and the developed
  countries according to a World Bank study.
• This is attributed to the openness of China to
  foreign trade, foreign direct investment.
• Returning Chinese migrants have also dramatically
  increased both exposure to new technologies and
  the opportunities to use foreign markets to
  exploit increasing returns to scale.
• Hence both exports and imports of EGs important
  for China.

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Trade in EGS products in general

• Top ten importers of EGs identified by job 54 of
  the WTO prominently includes China. China
  accounts for roughly 10 of total imports and
  exports at the global level.
• China along with Hong Kong accounts for over half
  of the developing countries exports and imports.

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Exports of Climate mitigation products and
technologies in the area of energy

• China a major exporter, i.e among the top twenty
  countries in almost all categories of climate
  friendly energy products.
• However, its volume of exports much lower than
  those of developed countries in a range of
  products.
• Its exports are highest in small hydro plants and
  turbines and products associated with solar
  energy.
• In addition a number of Climate friendly energy
  technologies use electronic components in which
  China has a comparative advantage.

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Exports of Climate mitigation products and
technologies in the area of energy

• China also is the number one exporter in a number
  of geothermal energy exports.
• It has a comparative advantage in a number of
  solar energy exports as demonstrated by the fact
  that it is among the top 5 exporters of nearly
  twenty products in this category.
• It is a relatively small exporter of wind energy
  products and technologies.

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Imports of climate mitigation products

• In almost 66 of the 84 categories of energy
  products, China is among the top twenty
  importers.
• However, Chinas rank as an importer among the
  top twenty is much lower than that of its
  exports.
• This indicates that China has a net comparative
  advantage in value terms in the production of
  most products which are climate friendly energy
  products.
• Nevertheless, the gap between China and the
  developed countries remains wide in terms of both
  exports and imports.

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Tariffs of top ten Developing country importers
of EGs
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An analysis of tariff profiles

• Applied tariffs of most high level importers
  fluctuates between 0 and 12. While these are not
  very high, on specific tariff lines they can be
  as high as 40.
• Chinas tariffs on an average for these products
  is between 5 and 8.
• Liberalisation through cutting tariffs would
  yield real market access benefits to China as far
  as intra-developing country trade is concerned.
• However, these benefits would only accrue if
  imports of developing countries sensitive to
  tariff cuts.

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Linking trade flows with Climate Change

• Essentially climate associated technologies
  scattered around 84 product categories for energy
  efficient products.
• If we use the World Bank identification of
  climate friendly technologies and products as the
  starting point, around 43 products identified as
  being associated with climate change.
• About 30 of these products do not show any
  sensitivity to tariff changes.
• A number of these products are also dual use, so
  difficult to identify how many would be put to
  environmental end use.

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Linking trade flows with Climate Change

• An important shortcoming of the world bank as
  well as the WTO list is that both do not identify
  technologies or products associated with
  agriculture which could reduce carbon emissions.
• According to some studies if the EU reduces its
  meat consumption by just 5, the reduction in
  carbon emissions would be equivalent to removing
  21 million cars off the road.
• Thus Carbon emissions associated with intensive
  agriculture, particularly intensive meat
  production needs to be calculated.

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Policy Implications and proposals

• While the Doha Mandate puts environment at the
  centre of the EGS negotiations, it is difficult
  to see how products classified in the HS code can
  be directly related to Climate Change.
• Thus the next logical step is to examine the
  trade implications for developing countries of
  the lists proposed as EGs to the extent that they
  are relevant to climate change.
• While additional tariff lines identified by other
  studies may be more relevant to climate change,
  the process of isolation and agreement on what
  would be considered as climate friendly may be
  somewhat cumbersome.

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Policy Implications and proposals

• Examining the list of 84 EGs, China has a clear
  comparative advantage in a number of products.
• The list can be further examined in light of
  dynamic comparative advantage of China.
• In this case, the comparative advantage of
  climate friendly technologies and products would
  not shift in favour of China in the near future.
  (2015).
• In addition, if NAMA negotiations are successful,
  they would achieve the liberalisation of a number
  of climate friendly goods too.

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Policy Implications and proposals

• However, other factors such as FDI, GDP,
  Environmental performance and technical
  assistance projects are much more important
  determinants of trade flows than tariffs.
• The elasticity with respect to TA of trade in
  Energy products is particularly high.
• This shows that international and bilateral
  donors would have a large role to play in
  directing the trade of EGs, rather than tariff
  negotiations.

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• Thank you very much
• Please send comments to
  jhaveen_at_gmail.com