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Climate deal key to unlocking trade-policy mitigation

4th November 2009

By: Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia


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In the absence of an international climate-change accord, it would be difficult to design climate-friendly trade policies and remedies, the World Trade Organisation's (WTO's) DG Pascal Lamy warned on Tuesday.

The trading system needed firm signals from Copenhagen, he said, referring to the international meeting that was due to take place in the European city in December. Failure to strike a deal would mean that some countries would resist efforts to employ trade as a source of leverage to define the "contours of the climate debate".


Lamy also argued that the relationship between trade and climate change should also not be viewed exclusively through a negative prism, as there was scope for complementarity between the two agendas.

For instance, the Doha Round included a chapter to accelerate market opening for environmentally friendly goods and services.


In addition, the International Energy Agency had already highlighted several trade barriers that stood in the way of the clean development mechanism (CDM), with clean technologies often getting stuck at the border either because of tariffs, nontariff barriers, or cumbersome customs procedures.

"Let us join hands in addressing these barriers at the WTO. All the CDM issues that I have mentioned are addressable through existing WTO rules and the current Doha mandate."

Lamy added that that it was important to distinguish between the climate mitigation measures that existed today, and those that were still being contemplated. Within the cap-and-trade schemes, some have either already been introduced, or may introduce in future, various flexibilities to reduce the compliance pain for their industries. The free allocation of pollution permits was one such example, and could be WTO-related.

Others were contemplating border adjustments of various sorts, for the future. These measures could take the form of a requirement upon importers to purchase pollution permits at the border, or of carbon tax, to encourage exporters to account for their emissions.

Options of this nature were embodied in European climate directives, and in some of the bills currently being contemplated in the US. With the Waxman-Markey and Boxer-Kerry bills being the most recent.

These border measures stemmed from the philosophy that since the Copenhagen Summit may fail, the first-movers on climate change must themselves take action to level the carbon playing field, Lamy noted. They had to offset the competitive disadvantage that their industry could suffer from enduring the costs of climate mitigation.

Intertwined with the competitiveness argument, which was the dominant argument in most political discourse, was the fear of carbon leakage, Lamy added. The fear that carbon emissions would simply shift from the part of the planet that would take commitments to the part that would not, thereby negating the environmental benefits.

"Clearly, therefore, some countries are hedging their bets against the failure of a Copenhagen accord. But should this hedging of bets translate into a trade first, climate second solution, as some of my visitors have suggested? I would say no."

"A trading system that ignores the emerging carbon price, that ignores the damage to our planet that greenhouse gas emissions cause, would reduce our welfare," he argued.

Lamy noted that there was no better way to offset a competitive disadvantage, or to fight carbon leakage, than an international accord that includes as many players as possible.

"Will a simple tax at the border here, or a simple requirement to purchase pollution permits there, level the carbon playing field? If taxes and permits could do the job, I can assure you, the world would have never embarked on the long road to Copenhagen."

It was precisely because no form of unilateral action could solve climate change, and it was because no form of unilateral action could fully address the competitiveness problem, that everyone needed to be brought on board.



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