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Info Service on Climate Change (Oct24/02) Trade:
BRICS rejects CBAMs, UNCTAD embraces carbon pricing policies Geneva, 25 Oct (D. Ravi Kanth) — The leaders of the expanded BRICS group of countries meeting in Kazan, Russia, on 23 October rejected “unilateral, punitive and discriminatory protectionist measures, that are not in line with international law, under the pretext of environmental concerns, such as unilateral and discriminatory carbon-border adjustment mechanisms (CBAMs).” In paragraph 83 of their Kazan Declaration, issued at the end of the 16th BRICS Summit, the leaders reconfirmed their full support “for the call in COP28 related to avoidance of unilateral trade measures based on climate or environment.” The leaders also opposed “unilateral protectionist measures, which deliberately disrupt the global supply and production chains and distort competition.” However, in paragraph 85 of their declaration, the BRICS leaders said that they “recognise the important role of carbon markets as one of the drivers of climate action, and encourage enhancing cooperation and sharing experiences in this field.” “We oppose unilateral measures introduced under the pretext of climate and environmental concerns and reiterate our commitment to enhancing coordination on these issues.” The leaders welcomed “the adoption of the MoU on the BRICS Carbon Markets Partnership as a platform dedicated to sharing knowledge, experiences and case studies of developing carbon markets and discussing the potential intra-BRICS cooperation on carbon markets to exchange views on potential cooperation under Article 6 of the Paris Agreement among the BRICS countries.” UNCTAD’S EMBRACE OF CARBON PRICING In sharp contrast, UN Trade and Development (formerly known as UNCTAD) on 23 October seemingly abandoned its “positive Trade and Environment Agenda” by embracing policies based on the controversial “carbon pricing” framework, said people familiar with the development. Under the leadership of the current Secretary-General, Ms Rebeca Grynspan of Costa Rica, UNCTAD has now joined the World Trade Organization, the International Monetary Fund, the World Bank, and the Paris-based Organization for Economic Cooperation and Development (OECD), to seemingly promote controversial policy prescriptions espoused by the Joint Task Force on Climate Action, Carbon Pricing, and Policy Spillovers, convened by these five organizations. In joining this task force, Ms Grynspan seems to be indicating that UNCTAD has disowned its past policy agenda on trade and environment issues. UNCTAD is now ready to promote the controversial climate change policies that were reckoned by the organization a year ago to be inimical to the development prospects of developing countries, said a former UNCTAD official who asked not to be identified. According to a press release posted by the WTO on its website, the report prepared by the Task Force, titled “Working Together for Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals,” comes “at a time when countries around the world are scaling up actions to curb climate change.” “Mitigation policies are on the rise, including carbon pricing policies, with 75 carbon taxes and emission trading schemes currently in effect worldwide, covering approximately 24 per cent of global emissions,” it said. According to the press release, the report provides “a common understanding of carbon pricing metrics to improve transparency on how countries are shifting incentives for decarbonization.” The report outlines how “international organizations can support the coordination of policies to foster positive and limit negative cross-border spillovers from climate change mitigation policies,” while also analysing the advantages and disadvantages of carbon-border adjustment policies, including their impact on developing countries, the press release said. Even though no approval has been given to the WTO Secretariat to undertake studies on issues like carbon pricing, the WTO Director-General, Ms Ngozi Okonjo-Iweala, appears little concerned with the WTO rules, in taking up the leadership role in promoting carbon pricing policies, said people who asked not to be quoted. The joint report by the five organizations argues that “carbon pricing” is the only abatement instrument that makes the polluter pay and creates a price signal to incentivize consumers and firms to reduce their consumption of carbon-intensive goods and services, said people familiar with the report. The report is indirectly acknowledging that carbon pricing will not only increase the cost of production for the firms in developing countries who have already invested in technologies and cannot change their production processes in the short-run to make them “green” but will also reduce the demand for their products, said a UN official, who asked not to be quoted. The report does not provide any clear analysis on “the extent of impact of carbon pricing on cost of production or demand for industrial goods of developing countries,” the official said. It merely suggests “compensatory cash transfers” as a solution to the problems that carbon pricing may create in terms of raising the cost of production for the firms. The report also does not even mention to what extent will carbon pricing impact the economic growth of the developing countries, said another climate change expert, who asked not to be quoted. “Along with the slowdown of economic growth in developing countries, which are not even responsible for climate change in the first place, there will also be a large number of social problems associated with carbon pricing,” the expert cautioned. For example, “the baleful effects include many job losses due to new technologies which will require a new set of skills, reduction in household incomes as the increase in costs due to the carbon price is passed on to the consumers, and a rise in inequalities between countries, as countries with advanced green technologies will be able to rapidly grow at the cost of developing countries which lack these technologies, etc”, the expert noted. At a time when UNCTAD has been at the forefront in highlighting the rising debt burdens of the developing countries, the report does not even mention “the constrained fiscal space of the developing countries, which will face new challenges from the Border Carbon Adjustment (BCA), which the report attempts to justify,” said people who asked not to be quoted. CARBON LEAKAGE The report also discusses “carbon leakage” and attempts to justify the actions of many advanced countries which have carbon pricing policies in place and are now considering BCA. The report quotes an UNCTAD report on the European Union’s CBAM published in 2021, which focuses on developing and vulnerable countries, showing that introducing CBAM along with a domestic carbon price of $88 per tonne of CO2 in the EU, compared to introducing only carbon pricing, would reduce carbon leakage by about two-thirds – from 15.1 percent to 6.9 percent – by returning some production to the EU. However, the results of the same UNCTAD study on the global income distribution impact of the CBAM are not apparently mentioned, said people who asked not to be quoted. According to the UNCTAD report of 2021, “with a CBAM based on a carbon price of $44 per tonne, the income of developed countries would rise by $2.5 billion, while that of developing nations would fall by $5.9 billion”. Further, according to the UNCTAD report, “the CBAM would generate a similar gap between developing and developed countries in terms of welfare. In both cases, developed countries would fare better than developing ones.” In the recent past, UNCTAD has also raised questions on the compatibility of the CBAM with the Paris Climate Change Agreement. According to UNCTAD’s Trade and Development Report (TDR) 2021, “the principle of these mechanisms is to impose on developing countries the environmental standards that developed countries are choosing. This goes against the principle of common but differentiated responsibility enshrined in the Paris Agreement. However, attempts to liberalize trade in areas of export interests of the developed world, and relying on actions like CBAM can only undermine the ability of developing countries to use trade as a means of development”. UNCTAD’s contribution to the joint report by the five organizations also seemingly fails to acknowledge the findings of its own Least Developed Countries Report 2022, which show that trade imbalances and hence revenues would be worse for the LDCs, as they tend to be both import-dependent in “dirty” sectors and significant exporters of raw materials to those sectors. The LDC report further states: “The introduction of a tax rate that takes into account embodied emissions in imported intermediate goods has a dramatic impact on relative prices for all LDCs and exposes their heavy import dependence, even in the sectors that have positive emissions.” The joint report by the five organizations argues for “carbon pricing” and attacks mainly coal-based production in developing and least-developed countries. However, it fails to take into account a recent study that estimates that “overall greenhouse gas footprints for LNG as a fuel source is 33 per cent greater than that of coal”. Advanced countries like the United States, Germany and Italy are known to pay billions of dollars in oil and gas subsidies. With UNCTAD as one of the co-authors of the joint report by the five organizations, the least one could expect is an analysis of the impact of the CBAM and carbon prices on incomes and employment in developing countries and the extent to which these could create inequality between countries. As established in several other studies, “carbon pricing will have a huge adverse impact on developing countries which are linked to global value chains,” the former UNCTAD official suggested. UNCTAD’S POSITIVE TRADE & ENVIRONMENT AGENDA In its flagship Trade and Development Report 2022, UNCTAD has offered a blueprint for a “positive Trade and Environment Agenda”. (See SUNS #9737 dated 3 February 2023.) It said that the agenda must focus on the following objectives:
According to UNCTAD, the above “multi-dimensional approach could translate into deeper economic cooperation and planning at the regional level on a series of climate-critical sectors, such as energy, waste, food and infrastructure.” More importantly, it said that “by pooling resources, capacities and expertise, regionally devised development plans could build-in resource efficiency from the beginning.” +
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