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Time to dismantle barriers to green trade

26 November 2012
Romain Pardo (Former Policy Analyst at the EPC)



Members of APEC (including China, the US, Russia, Canada, Japan and the Republic of Korea), the forum which aims to promote free trade and economic cooperation in the Asia-Pacific region, agreed in September to significantly reduce tariffs on environmental goods. It is a promising initiative of green trade liberalisation in a period marked by international disputes over energy subsidies and other protectionist measures.

The challenges posed by the economic and ecological crises make a major rethink of global energy markets imperative. Governments and the private sector alike must consider the opportunities provided by a greener economy as a powerful driver of growth and a way to reduce environmental risks. The EU must seize this opportunity to be a driving force of global green trade liberalisation.

Trade in low-carbon and energy-efficient technology can help combat climate change by creating international markets for green technologies. Boosting these markets does not just make environmental sense: it creates huge business opportunities. According to the United Nations Environment Programme (UNEP), 2011 saw a record $211 billion of global investment in renewables: a third more than in 2009 and a 540% rise since 2004. German institute DIW (2009) estimates that the global market will grow from $1.2 to $1.9 trillion by 2020.

UNEP studies have shown that investment is taking place worldwide: China now produces half of the world’s photovoltaic solar cells and was the world leader in new investments in renewables in 2010 with an amount of $48.9 billion. In the US, new financial investment in renewable energies increased from just under $16 billion (2009) to over $25 billion in 2010. Developing countries have overtaken developed ones in terms of new financial investment ($72 billion against $70 billion). Most of their spending funds utility-scale renewable energy projects and provides equity capital for renewable energy companies. In this context, the EU must be a driving force in terms of investment in green technologies and products, especially if it is to achieve its ‘20-20-20’ objectives (a 20% cut in greenhouse gas emissions, a 20% market share for renewable energy and a 20% increase in energy efficiency by 2020).

But despite these enormous potential benefits, a significant number of barriers must still be overcome.

Trade barriers to overcome

Governments embrace the benefits of green trade on paper, but also strive to protect and promote domestic industry via subsidies, feed-in tariffs and intellectual property rights. Barriers to free trade appear when domestic producers benefit from advantages which protect them from external competition.

The reluctance to open markets is partly due to the current high levels of direct and indirect subsidies, which play a crucial role in the development and promotion of green technologies and products. 93% of all onshore wind capacity and nearly 100% of photovoltaic capacity installed by the end of 2010 in Europe were initiated by feed-in tariff systems, according to the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety.

There is a certain degree of green protectionism, as demonstrated by international disputes over trade barriers deriving from these support measures, such as the energy subsidies dispute between China and the EU. European and North American solar producers claim that their Chinese competitors, who are often accused of price dumping, have only grown so powerful thanks to the financial support of the Chinese government. China is allegedly providing its producers with cheap loans while at the same time complaining to the World Trade Organization (WTO) that green energy subsidy schemes in Italy and Greece breach international agreements.

The EU has also been criticised by the US and China for policies which they perceive to be protectionist, such as the European Biofuel Policy and the Unilateral Border Carbon Adjustments (BCAs). This situation is particularly problematic, as collaboration between these three actors is a necessary condition for the worldwide development of environmental goods and services.

The WTO’s difficult regulatory role and the APEC agreement

The WTO considers subsidies for biofuels and renewable energies to be measures that raise trade concerns; its SCM (subsidies and countervailing measures) agreement does not allow sector-specific or business subsidies if they cause adverse effects on foreign producers.

Not only are there disputes around current policy measures: the global liberalisation of green trade is not progressing fast enough either. Liberalising trade in environmental goods and services has been on the WTO’s Doha Round agenda from the beginning, yet very little progress has been made. It is symptomatic that of the 153 WTO members, nearly 60% impose a tariff of 7.4% on wind turbines and nearly 43% impose a tariff of 8.8% on solar panels.

But there is now some promising movement. APEC members reached an agreement in less than a year to list 54 environmental goods eligible for tariff cuts. Their list includes gas turbines, renewable electricity, waste recycling and air pollution control equipment. Tariffs on these products will be slashed from 35% to 5% or less by 2015. This decision is a step in the right direction towards greater liberalisation of green trade; it also drives the promotion of green growth, and clean technologies and services.

An opportunity for a global green trade liberalisation agenda

As noted by the Green Growth Action Alliance – a public-private partnership initiative comprising energy companies, international financial institutions and development finance institutions – the APEC agreement should be used to lower trade barriers worldwide. The EU should seize this opportunity to collaborate with APEC countries and make similar commitments not only to enhance its cooperation with international partners but more importantly, to give a crucial boost to the WTO’s green trade liberalisation agenda and actively contribute to the development of global agreements.

The economic and ecological crises require an ambitious framework for the liberalisation of environmental goods and services worldwide. Lowering tariffs is a necessary step which should be accompanied by other international agreements and measures to remove as many trade barriers as possible. Multilateral agreements on international property rights would stimulate innovation and research collaboration in the development of green technologies.

Countries must share experience on energy subsidies and regulations to allow cooperation to prevail over litigation. International harmonisation of standards and labelling would make it easier for exporters, who would not have to adapt to different national legislations. A more open green trade regime would also help to dispel the myth that competition and environmental standards are incompatible.

For Europe, green trade should be one of the fundamental drivers of future competitiveness, growth and jobs. It is time for the EU to become a leader in promoting the global green trade liberalisation agenda.

Romain Pardo is a programme assistant at the European Policy Centre (EPC) in Brussels.

Disclaimer: The views expressed in this Commentary are the sole responsibility of the author.

Time to dismantle barriers to green trade