The trade system’s contribution to the climate-energy-SDG nexus: A triple win agenda

20 December 2016

With efforts to address climate change and the transition to clean energy central to the success of the 2030 Agenda for Sustainable Development, this article explores the extent to which trade rules are supportive of the Agenda’s objectives that relate to climate change and clean energy. The authors recommend prioritising trade and trade-related policy actions in the short term in three core areas: reforming fossil fuel subsidies; dealing with clean energy subsidies; and facilitating access, dissemination and transfer of climate-friendly technologies.

 

In September 2015 the member countries of the United Nations agreed on a set of 17 Sustainable Development Goals (SDGs) to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda which is expected to guide development efforts until 2030. Addressing climate change and the transition towards clean energy, in a way, hold the fulcrum to the success of the 2030 Agenda (Agenda, henceforth). International trade is envisaged as a direct or cross-cutting means of implementation for achieving many of the SDGs. Given that climate change and clean energy are central to the Agenda, it would, therefore, be worthwhile exploring how far trade rules are supportive of the Agenda’s objectives that relate to climate change and clean energy.

Priority policy actions and the need for coherence

In our recent ICTSD think piece we have taken a deep dive to examine this question by analysing key policy challenges that lie at the interface of trade policy, climate change and clean energy. We recommend prioritising policy actions in the short term in three core areas namely reforming fossil fuel subsidies, dealing with clean energy subsidies and facilitating access, dissemination and transfer of climate-friendly technologies.

The concerns for climate change and energy have been addressed in two standalone goals – SDG 13 and SDG 7. Both are entangled with multiple dimensions of sustainable development thus directly or indirectly influencing the achievement of various other targets under the  Agenda. Although trade – as an engine for inclusive economic growth and poverty reduction – is envisaged as a direct or cross-cutting means of implementation in the 2030 Agenda, in practice it remains a considerable challenge to trade policymakers to map out the complex interlinkages between trade, trade policy and the determinants of sustainable development in all three dimensions (social, environmental, and economic), let alone ensuring that trade and trade policy positively contribute towards the achievement of the SDGs.

The need for policy coherence across regimes cannot be overemphasised in this context. Increasing concerns have been raised that trade measures purportedly addressing climate change and clean energy objectives may perversely be used for protectionist purposes. Recent years have also seen a surge in WTO disputes specifically targeting clean energy supports and policy measures, with 11 disputes in this area being initiated under the WTO since 2010. We argue that policymakers should not leave the climate and clean energy-related actions to the mercy of the WTO dispute settlement system as that not only involves high opportunity costs but creates huge uncertainty especially when it comes to undertaking investment decisions. Policymakers may rather proactively consider exploring how they could clarify the grey areas in trade law and policy and help the trade system to better contribute towards the achievement of climate and clean energy objectives and the 2030 Agenda.

Reforming fossil fuel subsidies

It needs to be recognised at the outset that fossil fuel subsidies are not only a huge drain on fiscal and financial resources as they largely fail to reach the intended beneficiaries but are also environmentally and socially harmful. Going by the estimate of the International Energy Agency (IEA), fossil fuel subsidies amounted to US$493 billion as of 2014.  SDG Target 12.c calls for fossil fuel subsidy reform. The WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) has thus far failed to discipline fossil fuel subsidies owing to their political sensitivity and inadequate disclosure by members coupled with challenges in demonstrating whether these subsidies are “actionable” in WTO parlance.

Given these complexities and sensitivities around fossil fuel subsidy reforms, WTO members could aim initially for enforcing a more comprehensive and transparent reporting of fossil fuel subsidies by the member countries under the notification provision of the SCM Agreement. They could also proactively diffuse the haze around fossil fuel subsidies by clearly stating their position on the actionability of such subsidies under the SCM Agreement, and eventually facilitate the gradual phase-out and ultimate prohibition of fossil fuel subsidies.

Dealing with clean energy subsidies

Virtually all countries that are promoting clean energy or producing clean energy products provide some kind of subsidies to the sector, although global renewable energy subsidies are relatively modest when compared to fossil fuel subsidies and amounted to US$123 billion in 2014, as reported by the IEA. SDG 7 calls, inter alia, for substantially increasing the share of renewable energy in the global energy mix, which is likely to require ongoing support from governments. However, clean energy subsidies have repeatedly been challenged under the WTO Dispute Settlement Mechanism.

In order to remove some of the legal uncertainty around these subsidies, WTO members could clarify key concepts in the SCM Agreement such as “financial contribution,” “benefit,” and “specificity” in the context of clean energy subsidies. They could also clarify whether the General Exceptions provisions of the GATT, Article XX, which can, under certain conditions, justify an otherwise GATT-inconsistent measure taken for environmental purposes, are applicable as a defence against violation of the SCM Agreement. WTO members could also establish a time-limited “peace clause” preventing WTO disputes being taken against certain carefully selected categories of climate-related subsidies. They could further consider re-introducing the category of “non-actionable subsidies” under Article 8 of the SCM Agreement, which lapsed on 1 January 2000, to create a “safe harbour” for certain types of clean energy subsidies from the disciplines of the SCM Agreement.

Facilitating access, dissemination and transfer of climate-friendly technologies.

Goal 17 of the SDGs includes three targets relating to technology and SDG Target 7.a calls for enhanced international cooperation to facilitate access to clean energy research and technology. Trade regimes assume particular significance in the context of removing distortions in global markets for clean energy technologies, which could help improve access and dissemination. In addition, tariff liberalisation in clean energy technologies, as is attempted under the plurilateral Environmental Goods Agreement (EGA), and the role of intellectual property rights (IPRs) also assume significance for technology transfer.

While the EGA negotiations have so far addressed many climate change mitigation-related goods, liberalisation of adaptation-related goods is a potential avenue for the EGA to contribute towards the SDGs which has remained rather less explored to date. Given its list-based approach, the EGA could have an in-built mechanism to create scope for the addition of new items and the deletion of existing items. This would create room for updating the EGA’s list of goods in tandem with technological progress and the commercialisation of more climate-friendly goods.

Regarding IPRs, an appropriate mechanism could be established that could address, on a case-by-case basis, any intellectual property-related barriers confronting the UNFCCC parties that are also WTO members. A Ministerial Declaration for climate-related mitigation and adaptation technologies, in line with the Doha Declaration on TRIPS (Trade-Related Aspects of Intellectual Property Rights) and Public Health, reaffirming the flexibilities already available under the TRIPS Agreement could also be adopted by WTO members. Finally, given that some developing countries, particularly China, have made significant strides in the development of some climate-related technologies, South–South cooperation is worth exploring further, not only for mitigation technologies but equally so for adaptation technologies.

 

This article is derived from the think piece Climate Change and Clean Energy in the 2030 Agenda: What Role for the Trade System? published as part of a series of papers developed by ICTSD that explore the contribution trade and trade policy could make to key objectives of the 2030 Agenda for Sustainable Development.

Kasturi Das is Associate Professor, Institute of Management Technology (IMT), Ghaziabad, Delhi-NCR, India. Kaushik Ranjan Bandyopadhyay is Senior Advisor, International Institute of Sustainable Development (IISD), Geneva.