|
||
|
TWN
Info Service on Climate Change (Apr24/05) Geneva, 22 Apr (D. Ravi Kanth) — A recent report issued by the World Trade Organization to advance the controversial carbon-pricing mechanism appears to be an alleged attempt to justify the European Union’s carbon border adjustment mechanism (CBAM) and other such measures being considered by the United States and other industrialized nations, after trade and climate issues were rejected at the WTO’s 13th ministerial conference (MC13) in Abu Dhabi in March, said people familiar with the development. The report could further vitiate the fragile negotiating climate following several setbacks suffered at MC13, and exacerbate frictions among members, said people, who asked not to be quoted. Strangely, the report was authored by several economists/persons, including Mr Bright Okogu, who is currently the Chef de Cabinet at the office of the WTO Director-General, Ms Ngozi Okonjo-Iweala. His involvement in penning the report raises issues of credibility and integrity of the report’s findings and recommendations, said several people familiar with the findings of the report. At MC13 that concluded in Abu Dhabi more than a month ago, members remained sharply divided on trade and climate issues. Consequently, there was no mention of trade and climate issues in the outcome document of MC13, said a South American trade envoy, who asked not to be quoted. Against this backdrop, the WTO’s recent publication “A Global Framework for Climate Mitigation Policies – A Technical Contribution to the Discussion on Carbon Pricing and Equivalent Policies in Open Economies” appears to be an attempt to justify the CBAM being imposed by the EU and being considered by many advanced countries, the trade envoy said. The report, seen by the SUNS, has come with a disclaimer: “The opinions expressed in this paper are those of the authors” and that “they do not represent the positions or opinions of the WTO or its Members and are without prejudice to Members’ rights and obligations under the WTO.” Yet, the report is being seen as an alleged attempt by the WTO Secretariat to justify the controversial trade- related environmental measure, which is now being pushed by the EU, the United States, and several other industrialized countries, said several representatives from developing countries, who asked not to be identified. The report was issued on 6 March, immediately after the rejection at MC13 of the trade and climate change issues to be pursued in a work program for the next two years. The authors of the report include Eddy Bekkers, Ayse Nihal Yilmaz, Marc Bacchetta, Mateo Ferrero, Kirti Jhunjhunwala, Jeanne M’etivier, Bright Okogu, Daniel Ramos, Enxhi Tresa and Ankai Xu. To start with, the report says that “the carbon price is determined by a global average carbon price to achieve emission reductions required to remain on a 1.5-2 degrees Celsius global warming trajectory.” According to the authors, “the framework further incorporates a set of economy-level criteria determining variation in carbon prices between economies: historical emissions, the current level of economic development, and the economic costs of climate change.” The second feature of the report is that “a moderate share of carbon pricing revenues is allocated to support lower-income economies, economies with higher costs of climate change and economies with higher economic costs of carbon pricing.” It says that “the framework allows economies to achieve equivalent carbon emission reductions through the implementation of alternative policy instruments,” suggesting that “simulations with the Global Trade Model show that, under the framework, the projected economic costs of carbon pricing are in proportion to the economy-level criteria, implying higher costs for economies with higher historical emissions, a higher level of development and lower projected costs of climate change.” Further, according to the report, “the projected reduction in output and exports in emission-intensive trade- exposed sectors (EITEs) displays only a weak negative correlation with the carbon price level.” The authors maintain that “the framework is not meant as a policy proposal but as a contribution to the discussion on coordination of carbon pricing policies.” Such coordination, the authors say, can help to inform the discussion about policy options to prevent fragmentation of carbon pricing and other climate change mitigation policies. Such fragmentation is costly and could lead to the introduction of complementary policies which could come with trade frictions. QUESTIONS In a rule-based and member-driven WTO, unlike other international multilateral financial institutions, clearly there is no mandate for such a report, and it violates the WTO rules, said a trade envoy, who asked not to be quoted. In an apparent attempt to justify this trade-related environmental measure, which is being challenged by several developing countries, including Brazil, India and South Africa, the WTO argues that “to address carbon leakage and competitiveness concerns as a result of differences in the level of carbon prices, economies consider the introduction of border carbon adjustment (BCA) measures”. More importantly, the report seemingly “ignores the fact that tariffs perform similar functions in developing countries as it raises their competitiveness and encourage domestic production, but WTO rules do not allow countries to raise/impose arbitrary tariffs beyond the bound rates, which is what CBAM/carbon tariffs is effectively doing,” said another trade envoy, who asked not to be quoted. While the EU maintains that the CBAM is WTO-compliant, it adversely impacts the exports of developing countries to the EU with no impact on reduction in global emissions, said the trade envoy, citing UNCTAD’s Trade and Development Report 2021. In fact, according to the envoy, the LDC Report of UNCTAD in 2022 concluded that the net effect of a CBAM policy on LDCs would be negative even if they were directly exempted from the application of this policy. “LDCs are mainly exporters of primary natural resources and are less integrated into regional markets, making them more vulnerable to the negative externalities of new environmental polices of major trading partners,” said an Asian trade official, who asked not to be quoted. The Carbon Border Adjustment Mechanism (CBAM) adopted by the European Union in 2022 provides an example of the impact that climate-related policies of developed countries can have on LDCs and developing countries, the official said. The latest WTO report uses a WTO Global Trade Model to develop a global carbon pricing framework. “The model is nothing but a dynamic extension of the static GTAP model,” said a UN trade official, who asked not to be quoted. The WTO model “uses regional averages by clubbing diverse countries within the region to arrive at per capita figures,” the official said, suggesting that Hong Kong (China) and New Zealand are clubbed together with countries like Bangladesh, Nepal and Sri Lanka. The report calculates “the current level of development, CDit, calculated based on the current GDP per capita of the region” and “historical contribution to global warming ,HCit, calculated based on the cumulative emissions per capita of the region,” the official argued. CONTROVERSIAL MODEL The WTO model used in the report further makes the following assumptions: “In each region, a so-called regional household collects all income and then spends on three final goods: government, private, and savings. Savings are used to finance investment goods via a so-called global bank which collects each region’s savings into a global pool for eventual investment allocation across regions depending on the chosen closure rule. On the production side, producers employ factors of production (capital, labor, natural resources and land) and demand goods from other firms, reflecting intermediate linkages. Commodities are either sourced locally or from abroad, with the latter reflecting international trade. Regional income consists of the sum of factor income and tax revenues” and “Savings in each country are collected by a global bank. The global bank spends the total amount of savings on aggregate investment goods in different countries”. “Such unrealistic assumptions while clubbing diverse countries in the region makes little sense,” the official said. According to several members who have seen the report, the report allegedly makes “erroneous aggregations and assumptions but it also provides an unrealistic solution through provision of 20 per cent financial support to the region.” Referring to its formula for a global carbon price, the report says, “Payments into a fund to finance support by region i are proportional to CO2 emissions in region i and thus by approximation proportional to the level of income.” It also admits that if financial support is not brought into the model, the results of the model do not hold true. According to the report, “Although without support the relation between economic costs of carbon pricing and the economy-level criteria is weak, a moderate share (20%) of carbon tax revenues allowed to support is sufficient to make this relationship positive”. It ignores the fact that developing countries know that industrialized countries failed to fulfill their financial commitments, whether it is ODA or the $100 billion climate pledge, said a trade envoy, who asked not to be quoted. Removing the financial support from the model breaks the claims of the report that the global carbon pricing framework will help developing countries, the envoy said. That is the reason why the report also claims that, “The framework is not meant as a policy proposal but as a contribution to the discussion on coordination of carbon pricing policies” and puts in the disclaimer that the views expressed in the paper are not the views of the WTO Secretariat but the personal views of the authors, the envoy suggested.+
|
||
