Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement

Date period
4 November 2011

SummaryThis paper is part of a joint initiative on the promotion of sustainable energy, undertaken by the Global Green Growth Institute (GGI), the Peterson Institute for International Economics (PIIE) and ICTSD. The issue paper highlights the role of trade in contributing to a significant scale-up and deployment of renewable energy - a crucial step in supporting a shift away from fossil fuel so as to ensure energy security and address climate change. It identifies a number of barriers to trade in sustainable energy goods and services (SEGS), while pointing to a significant governance gap in a number of key issue areas in the trade and sustainable energy interface. The authors argue that this can best be addressed by negotiating a trade agreement on sustainable energy. Such an agreement could initially take the form of a plurilateral agreement including a critical mass of major economies and emitters, either within or outside of the WTO.

ForewordClimate change is an unprecedented challenge facing humanity today. Given that fossil fuel based energy use is the biggest contributor to anthropogenic greenhouse gas emissions, a rapid scale up and deployment of renewable or sustainable energy sources could significantly reduce the emissions responsible for global warming. A switch to cleaner and low-carbon transport fuels and technologies could also make a positive contribution toward achieving this goal. Energy efficiency measures represent a 'low hanging fruit', as far as climate mitigation potential is concerned, and will entail the rapid deployment and use of energy efficient equipment and energy management practises. These measures will also contribute to energy security for countries that rely on fossil fuel imports, the supply of which may diminish or become unreliable in the future.

Efforts to scale up sustainable energy require power producers to keep sustainable energy generation costs as low as possible. While incentives such as feed-in tariffs and tax breaks help, lowering the costs of equipment and services used to produce sustainable power could also play a critical role in facilitating the scale up process.

Trade policy can contribute in this regard by lowering barriers to market access for sustainable energy goods and services. Often, however, trade and domestic sustainable energy policies could also be designed to restrict access to competitively priced goods and services for sustainable energy producers. This is because policymakers, while striving to lower the costs of sustainable energy production, also often seek to promote the domestic manufacturing of renewable energy equipment and the provision of services. In addition, the sustainable energy sector is also seen by many policymakers as a potential engine for job creation.

Balancing these objectives may be difficult, however, especially when policymakers still need to  win local support for sustainable energy policies from their constituents. Local manufacturing and employment-driven motivations may also trigger protectionist policies for goods and services connected to energy efficiency or sustainable transport.

Trade and diffusion of energy efficient products and technologies may be hampered by diverse or conflicting technical standards and lack of harmonisation or mutual recognition efforts. Trade in cleaner transport fuels and technologies could be affected by a range of domestic policy measures, such as subsidies and product standards. While addressing trade barriers and ensuring a more open and fair trade regime for sustainable energy, policymakers will also need to be mindful of developing country concerns with regard to development priorities and access to technologies.

This paper addresses some of the most critical and challenging issues in the trade and sustainable energy interface. It highlights the diversity of trade-related barriers in sustainable energy goods and services that arise as a consequence of both trade as well as domestic sustainable energy policies.

Effectively addressing these market barriers will require a holistic and integrated approach that may not be feasible within the present framework of trade, energy, and climate-related regulatory barriers and institutions. This is because of various institutional and context-specific reasons, such as the fragmented and ambiguous nature of many existing World Trade Organization (WTO) agreements and rules, lack of effective and operational provisions both within and outside the WTO in several cases, and even the non-inclusion of key countries that matter within existing regulatory frameworks on trade as well as energy.

The current stalemate in the WTO Doha negotiations, along with the'single undertaking' approach that requires trade-offs and links among a widely divergent set of issues, may also be working against effectively addressing critical and sensitive energy-related issues and barriers as part of a formal WTO 'negotiating round'.

In such a scenario, the paper argues that it may be worth looking at the possibility of a Sustainable Energy Trade Agreement as a stand-alone initiative that could address these barriers and enable trade policy to advance climate change mitigation efforts and increase sustainable energy supply.

This agreement could be initially pursued as a plurilateral option, either within or outside the WTO framework. It could serve to catalyse trade in sustainable energy goods and services while seeking to address the needs and concerns of participating developing countries, many of which may not be in a position to immediately undertake ambitious liberalisation in sustainable energy goods and services.

This paper was conceived and written by an ICTSD team comprised of Ricardo Meléndez-Ortiz, Mahesh Sugathan, Ingrid Jegou, Christophe Bellmann, Malena Sell, and Joachim Monkelbaan. It builds on ICTSD work that has been undertaken since 2008, including the mapping of key climate-friendly goods, the identification of trade-related drivers and barriers, and the development of a model sustainable energy agreement that has already been discussed and presented in the contexts of the WTO, the United Nations Framework Convention on Climate Change (UNFCCC), and the World Economic Forum's Global Agenda Councils initiative

This paper was produced under ICTSD's Global Platform on Climate Change, Trade and Sustainable Energy. One of the objectives of this Platform is to identify trade policies that contribute to a rapid diffusion and transfer of clean technologies around the world and provide new incentives for innovation and investment in climate-friendly technologies.

We hope that you will find the paper to be a thought-provoking, stimulating, and informative piece of reading material and that it proves useful for your work.

Ricardo Meléndez-Ortiz
Chief Executive, ICTSD