WORLD BANK: TRADE LIBERALISATION COULD BOLSTER EFFORTS TO COMBAT CLIMATE CHANGE

Trade policies, especially trade liberalisation in low-carbon goods and technologies, can contribute to efforts to combat climate change, according to a new report from the World Bank. The International Trade and Climate Change (ITCC) report found that carbon taxes do not hurt countries' international industrial competitiveness, while energy efficiency standards are associated with a more detrimental effect.

The study used econometric analysis to examine two of the main policy prescriptions employed by industrialised countries to reduce emissions - carbon taxes and energy efficiency standards - and how they affect the competitiveness of energy-intensive industries.

It found that when carbon taxes have been applied, they have not hurt industrial competitiveness. However, these policies have often been accompanied by increased exports by energy-intensive industries, lending credence to the notion that the various subsidies and exemptions that most countries have granted to affected industries are overcompensating. Of specific energy-intensive industries in OECD countries, only the cement sector has seen trade reduced by the imposition of a carbon tax.

On the other hand, the report found efficiency standards - which have been implemented in many industrialised and developing countries - to be more likely to hurt industrial competitiveness. The metal and transport equipment industries were found to be particularly affected by efficiency requirements.

The report noted that border tax measures on products from countries that do not have carbon restrictions would potentially risk violating WTO rules, and raise issues related to process and production methods (PPMs). Simulation analysis suggested that the "Kyoto tariff" on US imports that some European leaders have called for could reduce US exports to the EU by about 7 percent, or even more as trade is diverted to countries that do not face the additional duties.

In addition, the report examined whether energy-intensive industries are relocating to developing countries , as a result of the implementation of climate change policies in OECD countries. This phenomenon, under which emissions may decrease in certain world regions but increase in others, is termed 'carbon leakage'. The study points to a gradual increase in the import-export ratio of energy-intensive industries in developed countries, and a gradual decline in the ratio in some developing regions, indicating that energy-intensive production is gradually shifting to the latter. This shift, the report says, is the result of many different factors, including climate change measures in developed countries. The report notes, however, that the trend is not pronounced, an indication that climate change policies in industrialised countries have been designed in such a way that minimises negative effects on competitive sectors.

The report identifies a number of tariffs and non-tariff barriers in developing countries as huge impediments to the transfer of climate-friendly technologies. It also encourages developing countries to strengthen intellectual property protection in order to stimulate the diffusion of clean technologies.

Liberalising trade in low-carbon goods, including via the WTO, could be beneficial, the report suggests, proposing a focus on specific sectors that could yield quick benefits, such as renewable energy and energy efficiency technologies.

For the climate regime, the report identifies efforts to develop a uniform approach to the pricing of greenhouse gas emissions as the most important priority.

"Overview: International Trade and Climate Change: Economic, Legal, and Institutional Perspectives," WORLD BANK, October 2007; "Global Trade Liberalization Crucial as Developing Countries Address Climate Change," WORLD BANK PRESS RELEASE, 14 November 2007.