The current gap between existing financing and what is needed, as well as the institutional arrangement to manage climate financing, pose two of the greatest challenges to the negotiations. As countries discuss the sources and governance of finance, re-enforcing synergies with existing programmes under the trade regime could bolster funding effectiveness. Aid for Trade is a development assistance approach that focuses on enhancing the trade opportunities of the most vulnerable countries, thus improving their economic resilience.

The two predominant issues in Copenhagen will be mitigation and financing. These topics are fundamentally related. Increased and immediate mitigation efforts will avert climate impacts and reduce the costs of adaptation. At the same time, an immediate upscaling in financing is critical to support these measures as well as address adaptation needs in developing countries. 

Climate finance - Great needs and great expectations

Securing new and effective financing for climate change adaptation and mitigation is critical to the Copenhagen agreement, as is ensuring an equitable and effective delivery of each element of that agreement over the long term. Addressing the global challenges that climate change poses will require strong political commitment in Copenhagen, but also enormous and costly structural changes for every country. These changes, which would be difficult and costly for any country to undertake, pose particular challenges to developing countries.

Because climate change is caused by emissions from a broad spectrum of economic activities, mitigation of those emissions will impact the way goods and services are produced and traded around the globe. Furthermore, the inevitable impacts of a changing climate implies vast social, environmental and economic challenges, especially in the most vulnerable areas of the world, such as in Least Developed Countries (LDCs), Small Islands Developing States (SIDS) and Small and Vulnerable Economies (SVEs - an important category in the trade context, which partly overlaps the two categories mentioned above). For these countries, effective and predictable sources of funding are fundamental to ensuring their economies can transition to low-carbon development while adapting to the impacts of climate change or, in the worst of cases, respond to disasters.

Mitigation: Enabling developing countries to implement mitigation measures required to avoid the global warming of more than 2°C - the scientifically determined level at which the would can avoid catastrophic impacts - will cost between US$140 billion and US$175 billion annually over the next twenty years (World Development Report 2010). Financial studies estimate that an extra US$ 563 billion above and beyond business-as-usual investments will be needed to jump-start the process, yet note that these figures are within the capacity of the global financial markets (McKinsey 2009).

Adaptation: Investments necessary to assist developing countries in meeting the costs of equipping their countries for the inevitable could average between US$30 to $100 billion, above and beyond the current development assistance of US$100 billion. Nevertheless, the allocation of adaptation funding in 2007 was a mere US$279 million.[1]

The relationship between the sources and objectives of development and climate finance is distinct, yet inseparable. For example, even slight rise in mortality rates in developing countries due to droughts or food shortages can result in increased costs to the development of those countries, slowing efforts for poverty reduction and setting counties back in terms of their development paths. At the same time, slow economic development increases the vulnerability of these countries to eventual climate impacts. Thus, sufficient and coordinated support for both adaptation and development is key.

Current financing for both mitigation and adaptation falls far short, amounting to less than five percent of estimated requirements. The financing chasm is evident on both sides of the climate change equation, yet political promises from developed countries indicate that there may be a change in tides. In addition to G8 and G20 statements earlier this year, political leaders have individually indicated their understanding that financing can make or break the deal in Copenhagen and have signaled readiness to come to the table with concrete proposals.

Tapping the public and private wells for financial support

Identifying new and additional sources of financing has been one focus of the climate negotiations. There is a general acceptance that developed countries will need to scale up financial resources, yet there is little agreement on the levels and reliability of support over the long term. Many developing countries assert that financing for climate change - and especially for adaptation - should come primarily from the public sector. But most rich countries counter that public monies should only be used to leverage the much greater levels of financing that are available through the private sector.

Countries also continue to debate whether climate financing should be bundled into overseas development assistance (ODA) or kept strictly separate. Proponents of the former stress the efficiency of using existing institutions and the clear overlap of objectives and activities. Opponents assert that the intermingling of ODA and climate funds will result in less per-country financing for each objective, that current institutions already struggle to deliver finance effectively, and that ODA decision-making is an inherently unbalanced process.

According to the OECD, the total volume of private investment flows that aim to mitigate greenhouse gas emissions is between six and ten times larger than the amount of public money devoted to the same cause. At the same time, OECD member countries currently give around 0.3 percent of the GDP in ODA; if they devoted 0.7 percent, as they have promised to do by 2015, there would be an extra USS$150-200 billion of public financing available a year. 

Further exploration of how to catalyze foreign direct investment (FDI) to help finance the climate fight is critical. According to the OECD, FDI in developing countries amounted to US$259 billion between 2003 and 2005. However, over half of that financing did not involve emissions mitigation-related activities. Likewise, less than a quarter of bilateral ODA between 2003 and 2007 included mitigation-relevant activities.

UNFCCC - Proposals for additional financing currently under consideration by Parties:

• a uniform global levy on CO₂ emissions (LDCs would be exempted);
• levies on international aviation and maritime transport, except for journeys from or to LDCs;
• extending share of proceeds from the Clean Development Mechanism to Joint Implementation and emissions trading;
• external debt swap/relief for sustainable development in developing countries.

Additional sources of financing: Exploring the Aid for Trade Agenda

Discussions on additional sources of international financial support for climate change under the Un Framework Convention on Climate Change (UNFCCC) address the fundamental issues of principles, sources, and governance of future funds. Developing countries place much importance on principles of equity, transparency, direct access, sufficiency, among others. Notably, these principles are echoed in the Paris Declaration on Aid Effectiveness of 2005, set out by global development agencies and developing countries, indicating that countries could ally on these issues. Nevertheless, a continued tendency from developed countries to steer financing through traditional financial institutions and a lack of support for proposals from the Group of 77 and China developing country negotiation block has cast a shadow over potential consensus on these issues at the global level.

An unexplored option for leveraging additional financial support to developing countries in a way that is coherent with development policies and that respects developing country guiding principles is through “Aid for Trade” and its supporting Enhanced Integrated Framework for Trade-Related Technical Assistance (EIF). Aid for Trade is a development assistance mechanism established during the 2005 WTO Hong Kong Ministerial. Its main aim is to help developing countries build the supply-side capacity they require to link to the world economy on better terms and strengthen their ability to assess and represent their interests in trade negotiations. Aid for Trade focuses on and channels financial resources mainly into four areas: 1) trade-related technical assistance and capacity building (e.g. training trade officials and helping governments implement trade agreements); 2) trade-related infrastructure; 3) building productive capacity; and 4) trade-related adjustment programmes.

The Integrated Framework, which provides additional support to LDCs and dates from 1997, was enhanced at the Hong Kong Ministerial to work coherently with the Aid for Trade programme. The Enhanced Integrated Framework supports LDCs through capacity building and mainstreaming trade issues into national development plans. It also facilitates the disbursement of funds based on LDCs’ own assessment of their productive capacities and identified priorities for trade-related assistance. Ultimately, both Aid for Trade and the EIF projects intend to foster economic resilience in developing countries, and in particular the least developed and vulnerable ones.

Aid for Trade and climate change financing address many common objectives. If conceived and implemented in a coherent and supportive manner, Aid for Trade and EIF could be crucial to establish and  strengthen the economic resilience that developing countries, and in particular LDCs and SIDS, need in order to address both climate change challenges and promote their effective trade performance in world markets.

Two major Aid for Trade categories in which climate change adaptation objectives could be targeted are economic infrastructure and building productive capacity. In the case of economic infrastructure, strengthening transport and storage (road transport, rail transport, water transport, storage) and building effective energy supply and generation capacities (power generation/renewable resources and hydro-electric power plants) through Aid for Trade projects can clearly support both mitigation and adaptation objectives in developing countries. Moreover, in terms of building productive capacity, key sectors such as agriculture, fisheries, and industry could be bolstered from the perspective of economic resilience and climate change. 

In the case of agriculture - a sector of strategic importance for many LDCs, particularly in Africa - adaptation measures such as soil rehabilitation, water conversation, and land terracing and fertilization could be furthered through Aid for Trade. Targeted projects could effectively foster agricultural diversification - including improvements in the mix of livestock breed, fish species, and crop mix - by helping build national and/or regional agricultural research and development centres, fostering education and training capacities, and strengthening the links between and improving the bargaining power of agricultural cooperatives and associations vis-a-vis large national and transnational agricultural companies.    

Another synergistic opportunity involves linking National Adaptation Plans of Action (NAPAs under the UNFCCC are plans that assist developing countries to identify their adaptation needs and integrate them into national planning) and Aid for Trade. NAPAs could be cross referenced with trade-related technical assistance projects and funds aimed at integrating trade into national development strategies in order to build economic resilience, explore economic diversification, and identify the most viable options for adaptation (as well as mitigation). Notably, financial support to implement NAPAs is insufficient.  Well targeted and additional EIF and Aid for Trade funds could be used to supplement existing NAPA development and implementation funds, while strengthening the supply-side capacity of LDCs and SIDS in a reinforcing manner.

Overcoming capacity restraints and claiming ownership

For LDCs, SIDS, and SVEs, ownership - in the sense of exercising control over the determination and implementation of strategies - of Aid for Trade projects and resources represents a fundamental challenge. Due in part to technical capacity and institutional challenges, most of these countries end up having little say over project conception and delivery, leaving donors to prescribe or impose Aid for Trade projects. In this sense, integration with NAPAs might offer a more equitable and inclusive approach. Although they only reflect countries’ specific short-term priorities in terms of climate change, they are crafted on the basis of national consultation processes with stakeholders.

Constructing and strengthening the absorptive capacities in SIDS, LDCs and SVEs will be fundamental to addressing pressing climate change challenges and concurrently foster sustainable development. Many LDCs face significant institutional challenges in terms of human resources and effective national financial mechanisms. These can be addressed through a range of programmes involving among other: capacity building, transfer of know-how, establishment of collaborative research centres, and strengthening information systems. As many of the same challenges impair both dealing with climate change and strengthening trade capacity, they may be concurrently addressed through collaborative approaches.

The potential sustainable development gains of climate change projects in SIDS, LDCs and SVEs are the touchstone of effectiveness for building both economic and climate resilience.  In order to maximise the mutual supportiveness of climate financing and existing development instruments, such as Aid for Trade, it is critical to evaluate, and where possible align, the needs, development priorities, and implementation strategies of developing countries. Alternatively, lack of coordination can lead to lost opportunities, higher costs, and impaired effectiveness in terms of climate readiness and poverty reduction - a lose-lose equation for all involved. Ultimately, a collaborative spirit and careful planning can exponentially improve results of all objectives in developing countries, and especially the most vulnerable ones, and increase chances of achieving the win-win solutions the whole world needs.

Ana Maria Kleymeyer is Senior Advisor on Climate Change Negotiations and Gloria Carrión is Development Programme Officer at ICTSD

[1] United Nations Development Program (2007), p 25.

The EU has played a leading role in the international efforts to combat climate change since the issue emerged on the agenda in the 1980s. The EU was the first party to commit to a stabilisation target in 1990; it assumed the toughest target under the 1997 Kyoto Protocol; and it has made the most ambitious offer for Copenhagen with an autonomous target of 20 percent emission reductions by 2020 relative to the 1990 level, or 30 percent if its key counterparts join in. The EU has also indicated a willingness to contribute significant funding to support adaptation and mitigation actions in developing countries.

The EU has emerged as a leader on climate change against all odds. Collectively, the EU is responsible for 13.8 percent of current emissions of greenhouse gases, with individual country shares ranging from 0.01 to 2.8 percent. None of the member states is large enough to influence the global emission trajectory in any significant way, nor is the EU as a collective able to do so, since global emissions are growing faster than what the EU can offset alone. The leadership is intriguing also in that the member states have veto power over key aspects of climate policy, including fiscal measures and energy policy. The EU cannot order member states to phase out fossil fuels in favour of renewable energies. Nor can the EU impose a carbon tax or cap-and-trade system without the agreement of all members.

This raises a number of questions that are of potential interest for climate negotiators and NGOs. What formula did the EU use to get all member states in line? How did the EU deal with competitiveness concerns, carbon leakage and the distribution of burdens among the member states? Can the internal formula be transposed to the global level? With these questions in mind, this article reports the findings of a study that followed the paper trail of the internal EU climate change negotiations from the first stabilisation target in 1990 to the adoption of the 2008 energy and climate package, which is the basis for the EU negotiations in Copenhagen. The analysis generates two interlinked lessons:

Lesson one: The EU cannot move further

First, it will not be easy for other parties in Copenhagen to squeeze out more concessions from the EU than what the member states have agreed beforehand. The EU will speak with one voice in Copenhagen, but behind that voice there are 27 voices with different national interests to protect; all with an effective veto power. It would be a mistake to assume that the EU can be pushed to the 30 percent conditional target without significant commitments from other industrialised countries as well as economically more advanced developing countries. Even the 20 percent target was the result of difficult bargaining. The energy-intensive industry had to be “bought off” with free emission allowances; less developed member states with generous allocation of emission rights and redistribution of the auction revenue; and developed member states with flexible rules on clean development mechanism (CDM) credits. No formula has been agreed for the sharing of the burdens if the target were to be raised from 20 to 30 percent. If the negotiation breaks down in Copenhagen, it may be difficult enough to maintain the political support for the 20 percent target. Even the current Kyoto target has been difficult for the EU to meet. Less than half of the distance has been covered thus far, and four member states are 20-35 percent above their national assignments. The appetite for taking on additional burdens for the 2013-2020 period is likely to be low if other parties shirk their responsibility in Copenhagen. A breakdown will also increase the pressure from industry and some member states to introduce a “carbon equalisation system” (border tax adjustment), an option that was included in the revised ETS Directive. The climate stakes are thus very high in Copenhagen, as are the stakes for the global trading system. The EU may be leader on climate change, but it cannot move much faster than “competing” nations.

Lesson two: Elements for an international agreement

Secondly, to the extent that the “microcosm” analogue is valid, the analysis may give some insights on what elements are needed to conclude a comprehensive international agreement. The internal negotiations suggest that four ingredients are necessary to make any progress:

Leadership

The first ingredient is strong leadership. In the EU, this is provided by the Commission and some climate-conscious member states in northern Europe, with support from green members of the European Parliament. It is more difficult to see where this leadership will come from at the international level. The secretariat of the UN Framework Convention on Climate Change (UNFCCC) does not have the executive powers of the European Commission, although it provides invaluable intellectual leadership together with the Intergovernmental Panel on Climate Change (IPCC). The leadership must instead come from the parties themselves. It would be particularly valuable if some developing countries would step forward in order to break the unfortunate “north-south” divide. The EU example clearly shows that progress can only be made by a multi-polar effort that speaks both for and to different constituents. The Annex I countries cannot halt climate change alone.

Burden-sharing

The second ingredient is an “equitable” burden/effort sharing formula. The first stabilisation target of the EU12 in 1990 was made possible because of the pledges of a handful of member states, in particular Denmark and Germany that had adopted national plans to reduce emissions by 20/25 percent by 2000/2005. This allowed the less developed member states to take on a lighter burden in accordance with their social and economic needs, subject only to an undertaking to enhance their energy efficiency per unit of output. The burden sharing dispute became more difficult under the Kyoto protocol, requiring a reduction of the overall emissions by 8 percent. Member states that were not in a position to reduce emissions in absolute terms had to accept a cap on their emission growth. The national assignments under the 1998 burden sharing agreement ranged from minus 28 percent for Luxembourg to plus 27 percent for Portugal. The latter, while being far more generous than for any other Annex I country, represented a significant cut from the business-as-usual scenario. The sticking point of the internal negotiations was to find a formula that ensured some degree of “comparability of efforts”. A similar solution was used in the 2008 energy and climate package. The global burden sharing formula in Copenhagen would presumably have to be based on a similar equation, factoring in both per capita incomes and “comparability of efforts”.

Financial support

The third ingredient in the internal recipe is financial support to the less developed member states to ease the transition to a low-carbon development path. The financing issue was solved in an ingenious way in the EU, through redistribution of auction rights under the EU Emission Trading System. Specifically, 12 percent of the auction rights will be redistributed to the member states in the lower income brackets. Some member states will receive more than 50 percent more auction rights than their basic allocation (”needs”). The additional revenue may be worth 0.5 percent of GDP by 2020, depending on the market price of the allowances. The income transfer is earmarked for climate investments. The financing issue would have to be solved also at the global level, somehow. One could for instance imagine that a share of the revenue from a future global carbon market could be set aside for mitigation and adaptation actions in developing countries, as within the EU. But a global carbon market is a long way off. In the meantime, the EU has proposed a formula for sharing the financing burden based on (a) ability to pay and (b) responsibility for emissions. It remains to be seen if such a formula, or version thereof, will be accepted in Copenhagen.

Dealing with competitiveness and carbon leakage

The fourth ingredient in the internal recipe is provisions that reduce the competitiveness and climate leakage concerns. This is bound to be a controversial issue in Copenhagen (and in the WTO) but there is no way around it. Competitiveness and carbon leakage concerns have been a restraining factor for the climate policy of the EU from the early days in the 1990s. (It was also the reason for why the US backed down from the Kyoto protocol). In the absence of such concerns, the EU (and other Annex I parties) would have moved both faster and more forcefully. As explained by the President of the Commission, José Manuel Barroso, when introducing the energy and climate package to the European Parliament, “there is no point in Europe being tough [on itself] if it just means production shifting to countries allowing a free-for-all on emissions.” For its part, the EU left the option of a “carbon equalisation system” in the bottom drawer in wait for the outcome of Copenhagen. But it came at the cost of having to concede free allowances to sectors and sub-sectors exposed to a significant risk of carbon leakage. The forgone auction revenue would have gone a long way towards financing EU´s contribution to the international climate finance.

In the best of all worlds, Copenhagen will be a success, with all parties making meaningful commitments in accordance with the principle of common but differentiated responsibilities. Auctions could then be phased in at a faster rate in the EU and other countries considering domestic cap-and-trade systems. A share of the revenue could be used to finance mitigation and adaption actions in developing countries, which would reduce the cost for developing countries to undertake ambitious commitments in the first place. And there would be no need to reach for the bottom drawer (border tax adjustments), with all the tensions it would create for the global trade system.

The full study this article is based on is available online at http://www.icsd.org

Håkan Nordström is Chief Economist at the National Board of Trade, Sweden

Climate change presents a momentous challenge for developing countries. Water scarcity in arid regions, island inundation, bacterial contamination and immunity deficit, food shortages, expensive energy and infrastructure collapse due to energy shortages are all foreseeable crises with catastrophic consequences for poor people. Developing countries need to employ climate change technologies in order to avert climate catastrophe.

Effectiveness of some approaches in question

Various approaches have been suggested for facilitating access to climate change technology by developing countries, including compulsory licensing, patent pools, patent databases and structured voluntary licensing “mechanisms”. These are, however, non-solutions, or at best partial solutions, because they would not achieve adequate results.

In this regard, some of them could potentially be detrimental to developing countries. For example, in some cases patent pools may cover patents not legally valid in many developing countries, while requiring developing countries to contribute their own intellectual capital and/or pay royalties for the use of patents that they otherwise would not be legally required to pay. Patent information databases are compilations of public material that is already accessible to developing countries, while diverting funding opportunities to lucrative information technology (IT) contracts (to change the search parameters or organization of the data) to developed nation enterprises and experts. Proposals for structured voluntary licensing mechanisms entail royalties, and they place too much reliance on management by developed country professionals, international bureaucratic arrangements (of what must be an agile business process), expensive software, and packaged technology portfolios selected by developed country parties.

A new approach: Climate change innovation strategies and ‘win-win’ contracts

What can work to secure access to climate change technology for developing countries is a sustained two-pronged effort to implement a climate change innovation strategy (CCTIS) in developing countries, and to enter into mutually beneficial development collaboration and IP licensing agreements between developed country companies and research institutions and their counterparts in developing countries.

Under the first prong, developing countries should target climate change research in their universities and research institutions, strengthen innovation infrastructure to support their researchers, claim the economic value of their human capital as intellectual property (IP), and participate as owners in the growing global market for climate change technology. An innovation strategy should target the funding and infrastructure deficit that cripples research, development and commercialization by developing country actors in developing countries. International funding initiatives should support developing country-originated CCTIS.

CCTIS is the foundation for the second prong of this approach: mutually beneficial technology transfer contracts. Such contracts, generally technology licences and development collaboration agreements should  be “win-win” contracts. A win-win contract results when the material terms of the contract provide that both parties contribute relatively equal value to a technology transaction and stand to gain relatively equal benefit. Without the support of a realized innovation strategy, attempting to negotiate beneficial technology transfer agreements is like constructing a building without a foundation.

BOX: Win-win Technology Contracts

• Example 1: A licensing agreement whereby a scientific team at a university owns a patent, which it licenses to a business that will pay royalties to the university upon sale of products using the claims of the patent.
• Example 2: A joint venture whereby both parties invest human capital, funds or use of facilities, and other items of value, in order to develop a wind turbine design for high rainfall climates, and the parties agree to joint ownership of IP with distribution rights in different geographic territories.
• Example 3: A developing country puts out a bid for a magnetic, high-efficiency public transport system and accepts an offer from a developed country company that offers an IP license to patents and documentation relating to the transport system, plus engagement with engineers from the local university.

Climate change technology development will benefit developing nations directly by providing useful technologies, and bargaining power in negotiation of licensing and collaboration agreements, but also indirectly by providing jobs and other spillover effects. Regional research and development (R&D) networks will extend opportunities to least developed countries (LDCs). China and Cuba provide examples of developing countries that have successfully implemented innovation strategies.

Developed country responsibilities

CCTIS is not an excuse for developed countries to place responsibility solely on developing countries for solving their own economic and climate change problems. Developed country actors must also be willing to commit to change, opening towards open innovation with developing country partners. One reason why open innovation in new markets is attractive today is the scarcity that has hit the developed world with the global economic crisis, concomitant with the gradual realisation that traditional            sources                of financing may have shifted. Another is the critical need for markets for climate change technologies in order to achieve the traction that new technologies need to pull through to mature commercialization. Developing countries are potential markets with additional customers that developed countries need in order for their green industries to survive and grow. Further, technology is not a zero sum game: the larger the green platform, the more space there is for many players.

Consensus can be achieved on this practical strategy for several reasons. It respects the logic of the IP system: that human capital is valuable and creates technical solutions to human needs as well as economic effects. It is hard to argue with the premise - once it is squarely posed - that developing countries should participate in the IP system as owners and traders in technology.

This is a medium- to long-term strategy that is likely to work. The tendency to insist on immediate technology transfer by shallow devices and ineffective measures has proven illusory in the past.

This does not mean that project-oriented approaches for prompt results should not be attempted (e.g. a solar photovoltaic field installed in a developing country), but rather that such initiatives should be implemented as part of a longer-term strategy (e.g. the solar facility agreement includes explicit terms to engage the local university).

Elements of change

In order to implement this strategy, including initiatives appropriate for the Copenhagen agenda, five elements stand out as being important: support for endogenous climate change research and development; management of developing country intellectual assets; climate change technology commercialisation; awareness programmes; and periodic assessment.

Each country must tailor innovation strategy to its own needs and policies. Still, innovation strategies have common elements, including identification of one or more target technology clusters (e.g. biomass or solar or waste to gas or geothermal).  Including funding for related science education at primary, secondary and tertiary levels in national budgets, as well as funding graduate student research is also important. In terms of providing a conducive business environment, countries can operate technology incubators to provide legal and business services, train professionals in key skills such as patent drafting and contract negotiation, bridge financing and loan guarantees for small and medium-sized enterprises (SMEs) in target areas, and clarify laws and policies on technology commercialization at research institutions.

Small, very poor countries will have a more difficult time than BRICS  (the emerging economies - Brazil, Russia, India, China and South Africa) in trading on their human capital, but these  handicaps would be true for any programme of development. Least developed countries (LDCs) will need to tailor innovation strategies to their needs and capacities. LDCs can join networks and engage in south-south collaborations as a way to gain economies of scale and participate in larger regional innovation strategy. IP, far from hindering that participation, can be helpful because small actors can claim economic value in intellectual capital.

The need for action

Finally, the international climate change discussions leading to Copenhagen and beyond present an opportunity to link climate change technology transfer with development of national innovation systems in order to achieve concrete results for developing countries. Theoretical and legalistic discussion concerning IP and technology in developing countries, without action and application, does not yield concrete results. Mythologies that have failed should not be repeated, such as the notion that enforcement of IP laws per se promotes innovation (the favoured myth of developed countries), or that “technology transfer” can occur       in a one-way flow (the favoured myth of developing countries).

To date, the developing country scientist is the “invisible man” in the big picture of the pre-Copenhagen negotiations. Scant attention has been paid to climate change technology R&D in developing countries.

Urgent action to implement CCTIS is critical because the human capital of developing countries is the sine qua non for their access to climate change technology. Furthermore, only full engagement of all human beings in the search for climate change solutions will make our collective survival feasible.

Cynthia Cannady is principal attorney and founder of IP*SEVA, a California-based law firm concentrating in representation of sustainable energy ventures.

The full study this article is based on is available online at http://ictsd.net/i/publications/58385/

Two factors complicate the analysis. First, while the state of the science is indisputable in some areas, much remains to be done. Shaping trade policies, as well as climate mitigation and adaptation measures, will call for a good deal more analytical precision than has ever previously been employed. This is an area where models build on other models, both in the international trade and in the international climate context.

Second, the role of trade measures in the context of international negotiations on climate change stabilization is unclear. While some refer to trade measures as a useful incentive to promote adherence to climate goals, others see them as a potential threat to mutually agreed climate solutions.

Climate change impacts on agricultural production

Climate change is estimated to affect agricultural ecosystems in many ways, but perhaps most notable is that it will affect different regions of the globe differently. Tropical regions - and thus developing countries - will generally be more severely affected than temperate regions, primarily because growing temperature ranges and changes in precipitation regimes will add to water use demand. Also, while moderate warming actually benefits crops in the short term in mid and high latitudes, even slight warming would decrease yields in seasonally dry and low-latitude regions.

Densely populated developing countries in tropical and drought-stressed regions could experience increased food insecurity. While total potential world food production is projected to increase with increases in local average temperatures of 1 to 3C (but to decrease at higher temperatures), world food security is very vulnerable to extreme weather events and socioeconomic factors.

Food security and the role of trade

In this context, trade in agricultural products may be vital to food security even in low and moderate climate change scenarios. The principal impact of climate change on trade in agricultural products will likely be higher trade flows of mid-to-high latitude products to the low latitudes, where production and therefore export potential will be reduced.

Volatility will continue to be part of agricultural trade patterns. Climate change is projected to increase wide variations in the net global food supply, as droughts and extreme weather events become more common. This will both increase prices, at least on local levels, and volatility of supplies.  Resource and food scarcity may become more common.

It should be noted that the Intergovernmental Panel on Climate Change’s (IPCC’s) dire predictions about agricultural productivity in low latitude countries are not backed by detailed and country specific studies, nor do they sufficiently factor in potential adaptation measures. However, the implications for food security are very sobering. All four dimensions of food security (food production, trade, stability of food supplies, access to food and food utilization) would be affected. Climate change would add to the burden of developing countries already faced with serious food insecurity problems and it would exacerbate them.

Many of the issues at the forefront of the Doha Round trade negotiations will assume new relevance considering climate change. Dealing with food security is not new to the trading system, and safeguard mechanisms exist to deal with an influx of imports and collapsing prices for domestic producers. Whether new special safeguard mechanisms are needed has been the subject of much debate in the Doha Round, but climate change underscores their relevance. It also underscores the need to help developing countries deal with food and energy price increases.

Also relevant to volatile food supplies and food and energy prices are differential export tariffs and export prohibitions. The former are disciplined by WTO Agreements, but some countries feel that the latter need to be limited to cases where countries act to prevent or relieve critical shortages, and applied on a temporary and non-discriminatory basis.

Given current projections, an open trading regime for food and agriculture will be vital for global food security in that it can allow for increased productivity in some regions to offset - via trade - climate-induced constraints in other regions.  However, it would be unwise to believe that trade alone is a sufficient adaptation to climate change.

Mitigation strategies examined: biofuels, biotech and nitrogen fertilizer

Climate change mitigation measures that will affect food production and agricultural trade, as well as food security, involve emissions reductions from many sources. The following section reviews mitigation measures related to biofuel production and subsidies, biotechnology and intellectual property protection, and how reducing emissions from fertilizer production could negatively affect global productivity and food security.

Biofuels: Ambitious biofuel mandates in both the European Union and the United States were created in part to act as a climate change mitigation tool by substituting biofuels for fossil fuels in transport fuels.  In time, cellulosic feedstocks and other processes and crops are projected to substitute current biofuel feedstocks, but existing capacity using present agricultural feedstocks (rapeseed, maize, canola, sugarcane, soy, palm oil) will likely be in production for the next 20 years.

The significance of biofuels in mitigating climate change is currently the subject of much research involving complex life cycle analyses and questions surrounding indirect land-use change caused by biofuel development and other factors increasing global demand for arable land. Biofuels have also been blamed for hiking up food prices and contributing to food insecurity. In addition, the extent to which biofuel production distorts agricultural production and trade systems has yet to be definitively assessed.

Most governments have more recently become more cautious in their approach to biofuels. Overall, development has been scaled back due to the global economic recession and a growing portfolio of other renewable energy supplies.

Biotech:  Three aspects of agricultural biotechnology are relevant to tradeoffs between climate change mitigation and agricultural trade: the potential of biotechnology to intensify production of food and biofuel on existing agricultural land (and thus reduce pressure to develop additional land for agriculture); the restrictions on trade that apply to the technology; and the implications for food security of the technology transfer required by the climate change agreement.

Many kinds of new technologies will be important to mitigating and adapting to climate change, agricultural biotechnology among them. New traits include pest and drought resistance and carbon sequestration, and varieties to produce increased yields and survive on marginal lands.

However, biotechnology dissemination has been controversial and limited by demands for extensive product labeling and tracing, and by environmental concerns requiring an extensive and complex international system of approvals and controls under the Biosafety Protocol to the UN Convention on Biodiversity. Whether governments can be encouraged to find ways to monitor and enable biotechnology without detracting from their mitigation potential is an important question for climate change mitigation. 

To what extent biotechnology developers will be called on to transfer these technologies is an issue yet to be discussed. Protection of intellectual property did not become an international trade obligation until the completion of the Uruguay Round Agreement. In the climate change context, transfer of technology is critical to implementation of widespread and effective mitigation and adaptation, and it is an obligation under the Convention.

Nitrogen fertilizer: Reducing emissions related to the production and use of nitrogen fertilizer will inevitably increase its cost. This will have important implications for agricultural producers in developed and developing countries alike, and for existing patterns of trade in fertilizer. The dilemma is that although use of, and emissions from nitrogen fertilizer may decrease, so might crop yields. This would come at a critical juncture when increasing crop yields is vital to global food security for increased populations.

It is not, however, simply a food production vs. climate change mitigation dilemma. Since land-use change is such an important contributor to climate change, the question may also be whether intensifying agricultural production with the use of fertilizers and thus averting land-use change is a more effective mitigation tool than reducing emissions from fertilizer production, which may lead, in turn, to stagnant yields and pressure on forests and grasslands.

The right balance will have to be struck: intensification of agricultural productivity is a key component for meeting food security needs and climate change mitigation. Fertilizers should not be priced out of reach for agricultural producers, yet their use must become more sophisticated. Good fertilizer practices, including adjusting fertilizer rates to crop demand and synchronizing application to crop uptake, can reduce fertilizer use without negatively affecting yield. In the long-term, agricultural production is expected to rise in response to high prices and technology enhancements, but there will be limited ability to expand planted area, and inputs - particularly tied to energy costs - will increase in price.

Climate change mitigation and trade rules

A number of climate change mitigation policies are potentially affected by trade rules. Among these, some may also have implications for agriculture trade, food security and development.

Border taxes to deal with competitiveness and leakage: National mitigation measures that make the production of carbon-intensive products more expensive in the domestic market and therefore less competitive relative to imports may cause such production to move to other countries without mitigation measures. In order to counter such “leakage,” countries may seek to impose measures on imports. More specifically, countries implementing a carbon tax may opt to impose border tax adjustments, and those implementing a cap and trade system may impose corresponding allowance adjustments at the border. Without international agreement on climate policy, the potential for border tax adjustment to become the focus of WTO litigation is relatively high.

Border tax adjustments in the agricultural context could focus on the most carbon-intensive or greenhouse gas-emitting parts of the sector, with implications for agricultural chemical and fertilizer production, or livestock.

Standards and labeling schemes: Standards and certification systems are important tools in climate change mitigation and adaptation, but their use, particularly by governments, is somewhat vulnerable to interpretation of WTO rules.

The status of standards as international or national, public or private, and voluntary or mandatory, will influence their uptake and use. Standards and labels have assumed new significance in the WTO context as a source of non-tariff barriers. This is particularly relevant to the food and agriculture context, where private sector standards systems used by large retailers now dominate in some sectors of the global produce market.

The challenge of creating viable standards for use in a global climate change context should reinforce the utility of existing WTO disciplines requiring that they be transparently developed and applied. 

Standards and certification systems have added value in agriculture and forestry because they can unite a number of disparate producers in long global value chains in adherence to generally acknowledged best practices. If they are suitably tailored, they can also provide a basis for award of offsets, or tax rebates and other benefits from reduced emissions. However, they can discriminate against producers in developing countries and small producers without abilities to generate data necessary to provide a basis for certification, and they can be expensive to join and costly to maintain.

Environmental payments: Environmental payments have significant potential to address climate change mitigation. The negotiations on (Reduced Emissions from Deforestation in Developing Countries) REDD are based on the proposition that payment for avoided deforestation can sequester significant amounts of forest carbon and avoid the release of existing carbon stocks. Agriculture has been discussed somewhat differently in the international climate change negotiations, but will clearly be a significant source of soil carbon sequestration in some national climate mitigation schemes.

Payments for forest and soil carbon sequestration, if granted by governments, could be viewed as subsidies in the WTO context. If so, they could be subject to trade disciplines. The situation could be different for a voluntary market for carbon offsets. In this case, the carbon offsets - likely viewed as financial instruments - could be covered by the General Agreement on Trade in Services (GATS).

Assessing tradeoffs: resolving conflicts and creating opportunities

In principle, there are no conflicts between trade and environmental protection, including climate protection. Yet there is considerable apprehension that climate change-related measures can distort trade, and alternatively, that trade rules could stand in the way of greater progress on climate change.

In the short term, opportunities for conflict exist in terms of the political choices countries have made and are preparing to make to stabilize emissions through regulatory regimes, taxation and other instruments.

In the longer term, trade rules that do not allow internalization of the cost of carbon would negatively affect climate change mitigation. Both the future climate and the future trade negotiations provide ample operating space for eliminating confusion and streamlining coherence in this regard.

Using the trade agenda to assist in climate change mitigation and adaptation

The objectives of the current trade negotiations in the realm of agriculture - reducing and eventually eliminating tariffs, phasing out export subsidies and trade-distorting domestic support - would also serve the climate change agenda well. Yet, many issues would need to be resolved in order for the negotiations to yield climate-friendly results.

Considering the predictions that developing countries will experience particularly severe effects from climate change, it could be argued that lower tariffs in these countries would be consistent with climate change adaptation. As North-South trade in agricultural products is likely to become important for food security, this should be enabled without high costs in the form of agricultural tariffs. Issues surrounding developing country tariffs and import safeguards are highly controversial, however.

Besides the agriculture negotiations, an expansion of the mandate of the Environmental Goods and Services negotiations to include all biofuels would advance more efficient and resource-friendly biofuel production. Yet, these negotiations are fraught with disagreement.

In the future, climate change mitigation policies will include measures designed to internalize the environmental costs of resources. The question may arise whether tariff structures should be tailored towards internalizing the cost of carbon and greenhouse gas emissions so that countries assess higher tariffs on carbon-intensive goods than on goods with lesser carbon footprints.

Also central to existing trade policies are domestic subsidies (for both production and export performance) in agriculture, biofuels and forest products. WTO members have committed to reduce them, yet climate change will undoubtedly exacerbate the need to provide domestic support for agriculture and biofuels.

Jane Earley is Senior Partner, Earley & White Consulting Group, LLC

The world is facing a situation in which temperatures are rising as a result of human activities involving unprecedented levels of emissions of greenhouse gases. Climate change is already causing and will continue to cause a rise in sea levels, a decrease in snow and ice, more frequent droughts, more intense tropical cyclones and other extreme phenomena. This in turn is affecting, and will affect, living conditions all over the world. Poor countries, which have contributed the least to climate change and are the least equipped to deal with the consequences, are being hit the hardest.

The key to success:  A global solution

Further climate change seems inevitable. However, the damages can be limited if concrete and substantive action is taken to significantly reduce carbon and other green house gas (GHG) emissions. This response has to be global. If the industrial countries alone were to severely restrain from emitting greenhouse gases it would not be enough. This is a big challenge. The last attempt to curb emissions through a global deal among nations, the Kyoto Protocol, failed to include the United States of America, the world’s biggest emitter of carbon dioxide at the time. Under the Kyoto Protocol, developing countries were exempt from making binding reduction commitments based on the principle of “common but differentiated responsibility.” Moreover, although marking an important first step, reductions resulting from the Protocol have so far been very modest. Hence, the international community has embarked on a quest for a global arrangement that will entail considerably larger reduction commitments and much broader participation, while respecting historical responsibility and the differences in capabilities among nations. 

Although the optimal solution, a global deal resulting in the necessary cuts in global emissions, is well understood, it is by no means certain that world leaders will be able to achieve it. Views differ on who bears the responsibility and who should pay.

Risks inherent to a partial solution

If only some countries take action, this may result in distortions to competitiveness particularly for energy- and emission-intensive industries, as producers in mitigating countries would face costs for reducing emissions and compete against firms without or with less such costs. The efforts of mitigating countries risk being rendered futile as some emissions could simply move to countries with less strict climate-change regulations, thereby resulting in so-called carbon leakage. In response to these considerations and in order to leverage participation of developing countries in an eventual global deal, legislators, industry leaders and lobbyists have come up with the idea of using measures at the border, so-called border carbon adjustments (BCAs). Such measures appeal to politicians as they allegedly protect both the environment and domestic jobs. At the same time, they are hard to accept by countries whose trade is likely to be affected. In the US, there are concrete proposals for border measures in the American Clean Energy and Security Act of 2009 (based on the “Waxman-Markey bill”) and in the Boxer-Kerry bill, currently being debated by the US Senate. In France, president Sarkozy recently proposed a carbon tax, which should be accompanied by border measures. Other OECD countries are to an increasing extent discussing along similar lines.

How do border carbon adjustments work?

BCAs could either take the form of a tax at the border, or, as discussed more frequently, a requirement for importers to purchase allowances in the cap-and-trade system of the importing country. The tax or emission allowance would be calculated based on the quantities of carbon that have been emitted during the production process.

Multiple objections have been raised against such measures. These objections are based on questions of effectiveness as well as economic and legal concerns.

Theory and economic modelling give some support to the effectiveness of BCA in addressing carbon leakage and competitiveness concerns. High administrative costs risk marginalizing the benefits, however. In order for BCAs to be effective, a number of criteria regarding their design would need to be fulfilled. For example, product coverage would need to be broad to avoid firms trying to bypass the BCAs by further transforming the goods. Calculating the emissions related to the production of highly processed goods would - as one can easily imagine - be a daunting task, and associated with considerable administrative costs.

Moreover, in order to fully address competitiveness issues, exports would need to be rebated as competition takes place not only at home but also to a high degree in export markets. This criterion is not fulfilled in any existing proposal on BCAs. In other words, as most existing proposals do not fulfil the criteria, border carbon measures would probably not be fit to do the job they are intended to do.

Looking at the compatibility of border measures with the obligations of the WTO, the situation is unclear. The legal option that seems to have the most support as a ground for border carbon measures would be to show that they are necessary deviations from the general principles of the WTO in order to protect exhaustible natural resources. However, the discussions related to the existing proposals on BCAs have focused mainly on the protection of domestic jobs and economies. Therefore, it may be difficult to persuade a WTO panel that the environment is the real reason for restricting trade.

The high political price of border measures

More worrying is that there seem to be important political risks associated with BCAs. In particular, BCAs risk creating bad will both in the climate change negotiations and in the multilateral trading system. Indeed, many countries that have done little historically to contribute to the problem of climate change and now risk facing taxes at the border, claim they are being unfairly pushed in the climate change negotiations. Additionally, some have indicated that they are reluctant to further open their economies through trade liberalization if industrial economies plan on raising new barriers to trade. Moreover, BCAs could risk opening a Pandora’s box of protectionist measures, which could lead to a veritable trade war.

Should BCAs be the last straw in causing climate change negotiations - and maybe even the trade negotiations in the WTO - to collapse or to seriously lower the ambitions and fall back on second or third best alternatives, the real consequences would be considerable both for climate change and for the world economy.

Development implications of BCAs - the big unknown

The effects of BCAs on developing countries would need to be studied in great detail by countries imposing such measures. The debate today focuses mainly on China and India as likely targets for BCAs. However, preliminary analysis of the Waxman-Markey bill indicates that as many as some 25 countries could be targeted. What would that mean to the trade and development of those countries? Would other developing countries also be affected, through changed world market prices of energy-intensive goods or through altered trade patterns following the new trade restrictions? These questions should be studied in order to avoid adverse effects on the trade and development of poor. Indeed, the world is committed through the Agenda 21, the Millennium Development Goals as well as through the UNFCCC and the WTO to strive for sustainable development. Policies that protect the environment at the expense of welfare and opportunities for the poor and poor countries cannot be sustainable.

Today, we lack knowledge of the consequences of BCAs. We simply have no experience to fall back on. Dealing with carbon and greenhouse gas emissions, economy-wide, has never been done before and lacks precedents. Therefore, we must rely on simulations and prognostics. However, as long as we do not know what the final design of the measures will look like, and how much trade is likely to be affected, all simulations and prognostics must be based on a great number of assumptions.

Understanding the possible merits and impacts of the eventual use of BCAs is particularly relevant in the current context of uncertainty with respect to the outcome of the Copenhagen Climate Conference in 2009. If a full-fledged global deal cannot be secured, national policies and measures, eventually including BCAs, may end up acting as the primary instruments in curbing global carbon emissions.

The full paper is available at http://www.ictsd.org

Ingrid Jegou is Global Platform Research Fellow at ICTSD

A number of renewable energy generation technologies are commercially available and many others under development. This article, based on a comprehensive trade analysis, focuses on trade flows and barriers to commercially available renewable energy generation technologies and their associated goods. It seeks to identify and examine the role of various market and trade drivers including tariffs in the uptake of these technologies.

Background

The trade analysis builds on a 2008 mapping exercise[i]  that identified key climate mitigation technologies and associated goods relevant to the renewable energy supply (RES) sector. The technologies covered included: solar energy; wind energy; ocean energy; geothermal energy; hydro power; and biomass/biofuel technologies. These were classified under relevant customs codes within the international ‘Harmonised System (HS)’. For the purposes of the trade analysis, the authors added a few additional categories, namely: bio-ethanol, bio-diesel, solar air-heaters, solar water-heaters as well as parts and components deemed important to include in certain cases, notably hydraulic turbine parts (for hydroelectric generation) and wind-turbine parts.

Customs classification is a key challenge for the trade analysis of RES goods. Trade analysis on the basis of more general, so called HS ‘6-digit’ codes is relatively easy, as common codes and product descriptions are used by all WTO members. At a more detailed product level (8 or 10 digit) - which might capture the specific RES good in question - different countries use different codes and product descriptions. The trade figures produced in the current analysis, based on 6-digit HS codes, have to be interpreted with extreme care, as most 6-digit HS codes that cover ‘single end-use’ RES products also include unrelated products. Further, in the case of components, total trade under a particular 6-digit HS code is included although only a small part, if any, may be related to renewable energy technologies and products. For instance, ball bearings are included because ball bearings are used in the production of wind turbines, but the trade figures inevitably include total trade in ball bearings for any purpose.

Europe dominates renewables trade; China tops developing country trade

Only about six percent of global energy is supplied by renewables. European firms dominate the production of renewable energy and Europe is also a leading exporter of RES goods.

Based on the analysis of trade flows, it appears that intra-European trade in RES is among the highest in the world. Developing countries accounted for only 30 percent of global exports of RES products in 2007 and among these China accounted for 40 percent. In terms of imports, developing countries account for a slightly higher 38 percent, although the top importers by and large also are OECD countries. Other prominent developing countries - particularly in solar and wind energy technologies - include India, Mexico, Hong Kong, the Republic of Korea, Malaysia, South Africa, Singapore and Thailand. Brazil and a few other developing countries also figure among the top ten exporters of bio-ethanol.

Solar and wind figure quite prominently in terms of traded technologies. Wind-power generating sets (HS 850231) provide the main example of a ‘single end-use’ good (meaning it can only be used for one specific purpose) at the HS-6 digit level in the RES sector. Going beyond the 6-digit level, solar panels stand out as important single end-use items, categorised as ‘ex-outs’ (including photovoltaic cells whether or not assembled in modules or made up into panels, and light-emitting diodes) under the 6-digit HS item “Photosensitive semiconductor devices.” With a few exceptions, the same countries that are among the top exporters for ‘single end-use’ products are also top exporters of a much larger list of products. This does not come as a surprise as exports of RES products are closely correlated with the capacity to export industrial goods in general.

Traders and users of renewable energy technology

An interesting finding is that the top deployers of renewable energy may not always be the same as the top traders of the technologies and components. This implies that the products being exported and imported are multiple-use items and only a part of them are used in the RES sector. Products may also be exported in response to conducive conditions in external markets, but may be too expensive to deploy on a large scale locally. The export of solar panels from China to take advantage of the feed-in tariffs in Germany and Spain are a good example. In some cases, exports are driven by factors that are largely unrelated to the deployment of renewable energy capacity in the exporting country, such as preferential access to export markets. For example, some Central American and Caribbean countries are among the top 20 exporters of bio-ethanol because the US import regime allows them, within certain limits, to import “wet” bio-ethanol from Brazil and Europe and export dehydrated ethanol to the US market.

Similarly, there may or may not be a correlation between imports of RES products and local deployment of renewable energy. For example, nine of the ten countries that expanded their wind energy capacity the most in 2008 are also included in the list of top importers of wind turbines. In cases where this correlation is not found, it again suggests either that the imports are made up of multiple-use items or that major parts of the industry are not tradeable. In wind, however, Asian manufacturers have increased their share of the market and two Chinese manufacturers (Goldwind and Sinovel) and an Indian manufacturer (Suzlon) presently comprise 18 percent of the global supply.

In hydroelectricity, the top producers also feature among the top exporters of hydroelectric equipment (with the exception of Canada and Brazil). However, the equipment imports of top hydroelectric generating countries do not appear to be very high.  While major countries that produce geothermal appear do appear on the list of key exporters, several countries that deploy geothermal energy, including Iceland and New Zealand, do not figure on the list of top exporters or importers. The correlation between the top traders in ocean energy equipment and deployers of ocean energy also seems to be very weak. Overall, this appears to indicate that for hydro, geothermal and ocean, traded components of technologies may not be the most important items with regard to the deployment of these technologies.

Tariffs on renewable energy technologies

Applied tariffs on most RES products in the top trading nations are in the single digits. India provides an exception in this regard. For solar technologies and components, the global average tariff is around 15 percent. Major importing countries such as China have applied tariffs of about eight percent and most developed countries have low or zero tariffs. One should keep in mind that most of the RES products considered are ‘multiple end-use’ products and many developing countries may be applying higher tariffs as part of their industrial development strategy or possibly to attract ‘tariff-jumping’ investment.

Most developing countries have higher applied tariffs on the whole than developed countries do, and with the exception of China, many developing countries also have some ‘tariff water’ between bound and applied tariffs. Ethanol is an exception to this trend. The US, a major importing country, has an ad-valorem tariff of 2.5 percent, and more significantly, a specific tariff of 14.27 cents per litre. On the other hand, tariff-free access is granted to ethanol imports to the US from Central American and Caribbean countries as part of the Caribbean Basin Initiative (CBI) and the Central American Free Trade Agreement (CAFTA) if they are produced from at least 50 percent local feedstock. Up to seven percent of the US market may be supplied duty-free and without local feedstock. This enables wet ethanol to be shipped from Brazil to dehydration plants in CBI countries for reprocessing and re-exportation to the US.

What drives the market and trade in renewable energy technology?

Subsidies: Public policies and subsidies are key drivers for renewable energy. The main measures used in developed countries to stimulate markets have been laws requiring utilities to purchase all electricity generated from renewables, laws requiring a certain percentage of renewables within all power generation, subsidies for investments and exemptions or reductions of taxes in component manufacturing, and preferential tariffs for electricity from renewables. 

While supportive measures are required for the development of a renewable energy market, many of these measures are also likely to provide an unfair competitive advantage to developed country manufacturers of RES products. On the other hand, the main developing country exporters have traditionally relied on tariff protection - and in the case of China, localisation requirements - to stimulate their domestic RES industry. A lowering of tariff protection on RES goods without a reform of the subsidies affecting the trade in such goods is therefore likely to expose developing countries to subsidised competition. Tariff liberalisation should therefore be accompanied by subsidy reform. A number of policies also act as important non-tariff measures. Localisation measures are particularly notable in this regard. In China, localisation regulations require 70 percent of the equipment used for a renewable energy project to be sourced and built domestically.

IP: Intellectual property rights may also affect the diffusion of technologies. The number of patents registered in the renewable sector in different countries could also provide an indication of the dissemination of renewable energy technologies across borders. Patent holders usually register patents in a particular country if they want to commercially exploit the particular technology in that country. The difference between developed and developing countries in terms of the number of patents registered has been wide but is narrowing fast. Even more striking is the difference between groups of developing countries. A small group of emerging market economies account for nearly all the patents registered. China is particularly notable for the rapid growth in the number of resident-owned patents between 1998-2008. In China, 40 percent of the sampled technology patents are locally owned, while in India less than 14 percent are.

Fuel cell and solar energy patents account for 80 percent of the growth in global patents from 1998-2000, with wind energy a distant third. The export rate of climate technology inventions - measured by the share of technologies that are patented in at least two countries - is around 25 percent. Most transfer flows still occur between developed countries, although north-south flows are increasing. Flows between emerging markets are very small. Imports of technologies seem to crowd out local innovations. The higher the number of imported inventions, the lower the share of contemporaneous local inventions in the set of technologies used in the recipient country.

The relationship between trade flows in RES goods and the key market drivers

A regression analysis was conducted on the sensitivity of exports and imports of RES goods to four variables - namely tariffs on imports, the percentage of renewables in the electricity grid, the percentage of inventions as shown by the share of the country in global patents, and subsidies provided to renewables (using a dummy variable showing the presence or absence of subsidies). The regression results show that in general, the major exporting and importing countries of RES goods are also likely to patent inventions, use a high percentage of renewables showing high deployment of renewable energy, provide subsidies and have low tariffs. Tariffs were, however, found to be less significant as an explanatory variable for increased exports or imports as compared to a composite variable comprising the share of renewables in a country’s grid and subsidies. This appears to indicate that tariff reduction by itself may not generate trade in RES goods without supportive market drivers and policies, such as feed-in tariffs and other forms of subsidies. Markets in developed countries have grown exponentially during the last few years in response to the subsidies provided for renewable energy consumption, tax breaks, subsidies for components and the huge volume of venture capital investment.

While subsidies are important in generating a market for renewable energy, some may serve to distort trade and create an unlevel playing field. Such subsidies look set to increase further, as part of fiscal stimulus packages, given the economic crisis at the time of writing and the consequent drying up of venture capital. Discussions at the WTO should therefore address the two pillars of the RES sector, subsidies and tariffs.

However, as technology develops, other countries join in production, bringing down costs and increasing the divisibility of the supply chain. Thus there is a logical case to be made for liberalising trade in these components as they are likely to generate win-win solutions. Production particularly for the Chinese and Indian markets will also serve, through the economies of scale involved, to bring down the costs of RES technologies and goods.

Lessons for the future

In terms of trade negotiations at the WTO, one should bear in mind that only a handful of developing countries are important players in the markets or trade in renewables. This implies that negotiations on environmental goods could involve a ‘request and offer’ approach in order to achieve quick and effective results among the top 20 exporters and importers. This is the case in particular where the environmental end-use of products may not be as significant at the HS 6-digit level as for predominantly single end-use products. In the latter case, a larger group of countries could participate in reducing tariffs and non-tariff barriers.

Further barriers to the dissemination of RES technologies need to be identified and addressed. While patents may not pose an insurmountable barrier to the dissemination of renewable energy technologies, other forms of intellectual property (IP) protection, such as trade secrets, may be important. Patents have been seen to correlate positively with trade in renewable energy components. 

Many other non-technological and economic factors many hinder developing countries from achieving their  carbon abatement objectives, such as insufficient technical knowledge and absorption capacity to produce these innovative technologies locally, insufficient market size to justify local production units, and insufficient purchasing power and financial resources to acquire the innovative products. Each of these factors deserves considerable discussion. Solutions should be sought in policies that aim to overcome these insufficiencies. Creating the right enabling environment for the market drivers for renewable energy in developing countries should therefore be a key deliverable of the climate negotiations at the UNFCCC and a necessary complement to any trade liberalisation initiative on climate-friendly environmental goods and services at the WTO.

Veena Jha is  Dr. Veena Jha is a Visiting Professorial Fellow at the Institute of Advanced studies, University of Warwick, UK, and a research fellow at the International Development Research Centre, Canada.

The full study this article is based on is available online at http://www.ictsd.org

[i] Accessible at: http://ictsd.net/downloads/2009/09/ictsd-ecn-renewable-energy-supply-mapping-report.pdf

[ii] Dechezleprêtre, A., Glachant, M., Hascic, I., Johnstone, N., and Ménière, E. (2008). “Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data.” CERNA, Paris, France.

[iii]

Visit http://ictsd.org/i/events/dialogues/59085/

ICTSD Resources

SECTORAL APPROACHES TO CLIMATE CHANGE MITIGATION: COMPETITIVENESS, TRADE AND DEVELOPMENT ISSUES IN SMALL DEVELOPING COUNTRIES. ICTSD Trade and Sustainable Energy Series Information Note 11. October 2009. To access this paper, visit http://ictsd. org/i/publications/57607/

TECHNOLOGIES FOR CLIMATE CHANGE AND INTELLECTUAL PROPERTY: ISSUES FOR SMALL DEVELOPING COUNTRIES. ICTSD Programme on Intellectual Property Rights and Sustainable Development, Information Note No.12. To access this paper, visit http://ictsd.org/i/ publications/57611/

TRADE AND CLIMATE CHANGE ADAPTATION: SUSTAINABLE DEVELOPMENT OBJECTIVES FOR LDCS, SVES, AND SIDS. ICTSD Programme on Competitiveness and Sustainable Development, Information Note No. 13, October 2009. To access this paper, visit http://ictsd.org/i/ publications/57631

THE LIBERALIZATION OF ENVIRONMENTAL GOODS AND SERVICES: ISSUES FOR DEVELOPING COUNTRIES. ICTSD Programme on Trade and Environment, Information Note No. 14. To access this paper, visit http://ictsd.org/i/publications/57644/

CLIMATE CHANGE AND FISHERIES: POLICY, TRADE AND SUSTAINABLE DEVELOPMENT ISSUES. ICTSD Programme on Competitiveness and Sustainable Development, Information Note No. 15, October 2009. To access this paper, visit http://ictsd.org/i/publications/57654

AGRICULTURAL SUBSIDIES IN THE WTO GREEN BOX: ENSURING COHERENCE WITH SUSTAINABLE DEVELOPMENT GOALS. ICTSD, October 2009. This information note summarises some of the findings of the forthcoming ICTSD book “Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals”, eds. Ricardo Meléndez-Ortiz, Christophe Bellmann and Jonathan Hepburn. To download the paper, please visit http://ictsd.net/i/publications/56284/.

Other resources

CLIMATE AND TRADE POLICIES IN A POST-2012 WORLD. By the United Nations Environment Programme, 2009. This publication, a joint effort by UNEP and the ADAM project (”Adaptation and Mitigation Strategies: Supporting European Climate Policy”). The full publication may be accessed at http://www.unep.ch/etb/publications/index.php.

At the core of the debate is the fact the intellectual property (IP) provisions in TRIPS may generate incentives for the incorporation or use of genetic recourses, its derivatives, or associated traditional knowledge (TK) in new patentable inventions or breeders’ rights. Also, there has been a lot of criticism linked to the fact that the TRIPS Agreement has not incorporated the necessary mechanisms to avoid illegal access and use of genetic resources and TK - so-called ‘biopiracy’ - and address low patent quality examination in biotechnological patents.

Recently, however, a few small steps addressing trade and biodiversity-related concerns have been seen in bilateral Free Trade Agreements (FTAs). For example, non-binding - yet valuable in terms of coverage - language can be found in the now ratified US-CAFTA, US-Peru FTA, the US-Colombia FTA - which is still in process, the Canada-Peru FTA, and the EU’s Economic Partnership Agreement (EPA) with the Caribbean Forum for African, Caribbean, and Pacific States (CARIFORUM). In each of these trade agreements, certain objectives, limited implementing mechanisms, and some level of cooperation to improve patent quality were recognised. Nevertheless, there was reluctance and lack of will on the part of industrialised countries to effectively address biodiversity until the issue was addressed seriously for the first time in the recent FTA between the European Free Trade Association (EFTA)[3] and Colombia.

Colombia, Peru sail into uncharted waters

One of the main reasons why so few FTAs between developed and developing countries contain provisions on the relationship between intellectual property and biodiversity is that developing countries never broached the subject. This silence on the part of developing countries is likely due to a lack of clarity on how to address the issue in a bilateral context. This suddenly changed during US FTA negotiations with Colombia and Peru, when the two Latin American countries made text proposals aimed at incorporating provisions on biodiversity-related issues into the chapter on IP. These proposals included the following measures:

• The recognition that IP rights should be granted in respect of CBD and national biodiversity and TK legislation;
• The incorporation a disclosure mechanism of origin/source mechanism and evidence of prior informed consent (PIC) and benefit sharing arrangements;
• The inclusion of a mandate to develop at the national level an effective sui generis (of its own kind) system to protect TK, and;
• The incorporation of enforcement measures and cooperation arrangements in patent examination and exchange of information.

These four measures were rejected by the US and only two carefully worded ‘side letters’ (understandings attached to the agreement) were produced. These side letters have been heavily criticised by civil society actors and even former Colombian and Peruvian negotiators because of what they call “exhortatory” language and the lack of specific obligations. Nevertheless, the fact that the issue was put on the table and an outcome - however small - was realised provided an impetus for these and other biodiversity rich countries to make more precise text proposals in subsequent negotiations.

Biodiversity section appears for first time in FTA

Switzerland[4] has a prominent international reputation in this unexplored field. The country’s progressive legislation regarding a requirement to disclose the source of genetic resources and traditional knowledge in patent applications, demonstrates its ability to be open and responsive to these concerns in absence of an international agreement or possible commercial benefit to their own constituencies. As such, the Swiss have submitted several proposals[5] regarding the introduction of declaration of source requirements in WTO and WIPO.

Due to their expertise in the field, Switzerland - along with Norway[6] - were directly involved in Colombia and Peru’s FTA negotiations with EFTA. They reviewed the Latin American countries’ proposals and proposed specific adjustment to the chapter on IP and have been closely involved throughout the process.

The EFTA-Colombia FTA was ultimately signed in November 2008 and is currently in the ratification process. In a recent interview with the BioRes, the Swiss Federal Institute of Intellectual Property (IPI) and Swiss Secretariat from Economic Affairs (SECO) revealed that the ratification process may be wrapped up by mid-2010. While Colombia and Peru had initially been engaged in joint negotiations with EFTA, they later split the process, thereby allowing the Colombian Agreement to be finalised first.

The EFTA-Colombia agreement contains a section in the IP chapter called “Measures Related to Biodiversity” - it is the first time such a section has been included in an FTA. The inclusion of the heading implies an active stand on the matter, pointing directly at specific “Measures.” According to the IPI and SECO, the inclusion of this text was the result of a specific request from Colombia and Peru.

What’s included?

The “Measures Related to Biodiversity” section includes provisions recognising the importance of the objectives and main obligations under the CBD, recognition of basic principles such a sovereign rights over genetic resources, and the respect for access and benefit sharing in light of principles and provisions in national and international law. It also recognises the contributions of indigenous peoples, local communities and their knowledge to economic and social development[7]. The IPI and SECO insist that the chapter emerged as a response to demand for such a clause from Peru and Colombia, rather than it being suggested by Switzerland. The Swiss have also indicated the IPR Chapter of the EFTA-Colombian FTA is very similar to the text in the Peruvian FTA, but will not necessarily be replicable in other negotiations.

One important issue emerging from the incorporation of the new section in the EFTA-Colombia FTA, are the implications of the application of Most Favoured Nation and National Treatment principles. Some observers say that some aspects of the new section on biodiversity related measures should be subject to article 4 of the TRIPS Agreement, which automatically extends any privilege granted to one party to all other WTO members. This would also be the case in regard to national treatment when the same privilege is already incorporated in national legislation. The ultimate answer depends on whether these new measures are considered as part of any of the intellectual property categories stipulated in the TRIPS Agreements[8] or certain WIPO treaties such as the Paris Convention. It would also depend on whether the provisions in question are creating or increasing the protection of intellectual property rights for the citizens of a given WTO member country.

One could argue that some of the measures in this chapter fall into the patent/sui generis rights-related provisions section. The “Measures Related to Biodiversity” section can affect the patentability criteria examination (e.g., novelty and inventive step), the description of the invention, and the evaluation of the claims made in a particular patent.  Others might consider these types of requirements as foreign to the patent system and that countries can even exclude some types of life forms from patentability. This line of argumentation can be supported by diverse documentation and statement in the long debate of article 27.3 b) reviewed in the TRIPS Council. Also, TK rights recognition can be considered a “sui generis” (of its own kind) form of intellectual property protection that covers plant genetic resources. Some supporters also argue that the TK protection in the new section implies the new positive “IP rights” to local and indigenous communities. Regardless of the ultimate long-term answer, there are some interesting aspects of this debate due to its systemic implications for future FTAs.

Conclusions

The new section on “Measures Related to Biodiversity” in the IP chapter of the EFTA-Colombia FTA, shows that it is possible to generate synergies between IP provisions and CBD objectives and principles without affecting the rights of patent holders. It provides certain recognition of the demands made to date by biodiversity-rich countries and the language proposed incorporates many of the proposals made in the TRIPS Council, WIPO, and in previous FTA negotiations. In that sense, it includes - for the first time - precise biodiversity measures backed with some enforcement provisions. This precedent sheds a positive light over future FTAs with EFTA and could be used as reference for future EFTA FTAs as well as EU commercial and cooperation agreements being currently negotiated with Central America and Andean countries. While the honest broker role of Switzerland - and the individual support of Norway - to find balanced outcomes in this particular FTA have brought some limited effect in terms of countries involved, it nonetheless stands as an important example to other negotiations when addressing biodiversity issues in IP negotiations.

David Vivas-Eugui is Deputy Programmes Director at the International Centre for Trade and Sustainable Development (ICTSD).

Biodiversity-Related Measures in the EFTA-Columbia FTA

Measures
Commentary

To collaborate in specific cases of non compliance[9]
While this rule is of a ‘best endeavour’ nature, if implemented in an effective manner it could generate joint efforts toward actual cases of illegal access and use of genetic resources and TK. This would facilitate clarifications and bilateral agreeable solutions.

To require, according to national law, that patent applications contain a declaration of the origin or source of genetic resources to which the inventor has had accessed[10]
This is may be the most ‘novel’ IP provision in this FTA, being also the main measure proposed by biodiversity rich countries to tackle the lack of TRIPS/CBD synergies. This requirement implies that patent applicants must indicate, when appropriate, the country of origin of any genetic resources (in order to assess geographical provenance, linked ecosystems, and more importantly to some countries jurisdiction) or the source - meaning who has provided the resources[11].

To require, as far as provided for in each Party’s national legislation, the fulfillment of the PIC and to apply these provisions to TK as applicable”[12]
This provision is relevant to the fulfilment of CBD objectives and their implementation. The PIC concept is already a solid principle of international environmental law and common to many multilateral environmental agreements. Prior informed consent implies more than simple agreement, it implies the full release of relevant information and consultations between all stakeholders in order to generate an informed formation of the will. This principle is especially relevant in the case of weak parties as is the case of indigenous peoples. This point has also been part of proposals already made in the TRIPS Council by several developing countries that also demand the submission of relevant evidence of PIC and of benefit sharing in patent applications. The objective of the measure in this particular case goes beyond the purpose of improving the patent quality and the avoidance of ‘biopiracy’. The objective here is directly related to the fulfilment of basic requirements for legal access according the CBD and national biodiversity laws.

To take legislative and administrative measures, as appropriate, with the aim of ensuring fair and equitable sharing of benefits provided they are based on mutually agreed terms[13].
This provision, which looks more like an access provision than an IP one, somehow responds to demand by stakeholders on the need to ensure benefit sharing actually happens.

To provide civil, administrative, or criminal sanctions in case the inventor or the patent applicant wilfully or wrongfully misleads the declaration of origin or source[14].
This is the first time rules for providing an erroneous or false declaration of origin source are incorporated into an FTA. This text is an essential part of an effective set of provisions designed to address biodiversity concerns as it provides teeth for their implementation. Additional, strength will be provided by the dispute settlement rules in chapter 12 of the Agreement.  The text is consistent with Norwegian and Swiss positions on these issues as the misleading or lack of disclosure will not affect the validity of the patent.

To take policy, legal and administrative measures, with the aim of facilitating the fulfilment of terms and conditions of access established by the Parties for such genetic resources[15].
This provision implies important obligations on the country providing genetic resources by requesting them to facilitate the fulfilment of terms and conditions of access. Many cases have shown that such a situation is not unreal and problems related to burdensome regulations and administrative inefficiency has occurred. This provision could generate some pressure in a providing country to better manage and implement their own internal legislation and to not only seek control but to facilitate the legal flow of genetic resources.

To undertake reasonable efforts to make  patent protection available to plant inventions [16]
This is a best endeavour clause that seeks to generate some coherence between the need to insert a disclosure of origin/source requirement and patent law. The argument is that if there are no patents available for plant inventions, what are you going to disclose? A possible answer could be: parts of plants or chemicals derived form. Nevertheless, it is logic that to achieve benefit sharing from the use of biodiversity both incentives should be put in place.

[1] Intergovernmental Working Group on Genetic Resources, Traditional knowledge and folklore (IGC).

[2] Negotiation of an international regime on access and benefit sharing.

[3] EFTA Members include Liechtenstein, Iceland, Norway, and Switzerland. The first EFTA FTA with a developing country was the Agreement with Morocco in 1997 and the latest the one with Colombia in 2008. Advanced negotiations are currently underway with Peru.

[4] See Article 49a) of the Swiss Federal Act on Patents for Inventions, rev. 2007.

[5] See WTO document IP/C/W/433 of November 2004 and IP/C/W/447 of May 2005.

[6] Norway is another of the few industrialised countries that have already introduced a disclosure requirement at the national level.

[7] Ibid, article 6.5.1 to 3.

[8] See TRIPS Agreement, article 1.2.

[9] See EFTA Colombia FTA, article 6.5.4.

[10] See EFTA Colombia FTA, article 6.5.5.

[11] In the case of Switzerland this would imply who is entity competent to grant the access or to participate in the sharing of benefits. See WTO document IP/C/W/433 of November 2004.

[12] See EFTA Colombia FTA, article 6.5.5.

[13] Ibid, article 6.5.8

[14] Ibid, article 6.5.6 and 7.

[15] Ibid article 6.5.9.

[16] Ibid article 6.9.3(b)

Emotions run high on both sides of the debate. Animal rights groups - which have campaigned for the ban for more than three years - cheered the vote, but officials in Canada, home to the world’s largest seal hunt, say the embargo is unfair and have vowed to take their complaint to the WTO.

The European Parliament passed the embargo in a 550-49 vote in May, and the endorsement by EU foreign ministers on 27 July sealed the deal. The ban applies to all seal products, which includes pelts, meat, and omega-3 diet supplements derived from seal oil. But the regulation includes an exemption for seals taken by Canada’s Inuit communities, which consider the seal hunt vital to their cultural heritage.

Animal rights activists were jubilant. “Barbaric annual displays of animal cruelty will no longer be tolerated,” said Caroline Lucas, a Green Party Member of the European Parliament and long-time supporter of the EU ban, in a statement after the vote. The embargo “represents the will of European citizens,” and is “one of the most effective ways of shutting down demand” for seal products, Lucas stated in an interview.  

Canada defiant

The vote drew a fierce reaction from Canada, where the sealing industry serves as a key source of income for some 6,000 families, mostly in the eastern coastal province of Newfoundland and Labrador, according to the Canadian government. Canada exports roughly 25 to 30 percent of its seal products to the EU, says a spokesman from Canada’s Department of Fisheries and Oceans; Norway, Russia and China are also major markets.

“The seal hunt is a major economic venture in many of our eastern and seaboard communities,” Canadian Trade Minister Stockwell Day told the BioRes. Day insists that the practice serves as a critical source of income and provides employment in a range of related industries including processing, ship-building and transportation.

Even before the EU ban was passed, many Canadian seal hunters were struggling to make ends meet. Fishing communities along the country’s eastern coast were hit hard by the collapse of Canadian cod stocks in the early 1990s and have never fully recovered. With other fishing options limited, seal hunting has offered many fishermen a critical income supplement, even though the hunting season provides employment for only two months each year.

“The seal hunt is tremendously valuable to those people in our remote Aboriginal, coastal, and northern communities who use it as a source of income at a time of year when economic opportunities are very limited,” Canadian Fisheries Minister Gail Shea said in an email message. “In Newfoundland and Labrador, for example, several coastal communities can typically derive between 15 percent and 35 percent of their total earned income from the seal hunt.”

But with demand for seal products dwindling - thanks both to the global economic downturn and the threat of the European embargo - seal hunters are now hurting more than ever. This year, the price of seal pelts tumbled to C$14, down from a high of C$105 in 2006, and total income generated from the hunt took a nose dive. With the EU ban in force next year, demand for seal products will likely drop further, perhaps driving even more of the fishermen out of the industry.

A drop in prices resulting from the ban would also impact Canada’s Inuit communities, even though the EU regulation includes a specific exemption for the seals they hunt. Most of the products generated from the Inuit seal hunt are consumed locally and never make it onto the international market, says Duane Smith, President of the Canadian branch of the Inuit Circumpolar Conference, but a fall in world pelt prices would mean lower profits for aboriginal seal hunters, even if their products never leave Canada.

‘It’s just politics,’ animal rights groups say

Such arguments fall on deaf ears among animal rights activists, who say that the economic importance of the hunt has been exaggerated and that the hunt itself is simply indefensible. The International Fund for Animal Welfare (IFAW) argues that the seal hunt is characterised by “unacceptable cruelty”: seals are beaten with spiked clubs, impaled with steel hooks, or shot from moving boats - but rarely killed immediately. Such practices have no place in the Canadian economy, they say, and should not be allowed to continue.

“Economically, it doesn’t make any sense” to fight the EU ban, says Sheryl Fink, Senior Researcher and Projects Specialist at IFAW. In Newfoundland and Labrador, seal hunting represents less than half of a percent of provincial GDP, and the landed value of seal pelts ranked ninth among all fisheries in the two provinces in 2008. This year’s seal hunt, which ran from late March to late May, generated just C$1.2 million in income, Fink says, thanks in large part to the low pelt prices.

Instead of providing a boost, the hunt may actually be a drain on the Canadian economy, IFAW has argued, given that the government subsidises the industry by sending delegations overseas to promote the seal hunt, providing sealers with icebreaking services, and offering up federal grants for seal product development and marketing. All of this, Fink says, is done despite national surveys indicating that a majority of Canadians oppose the hunt.

“It’s just politics,” Fink says of Ottawa’s fierce opposition to the EU ban. Speaking out against the seal hunt is unthinkable for most Canadian lawmakers, who want to appear to be on the side of the country’s struggling blue-collar workers, she speculates. The lawmakers are just “trying to play to the home crowd.”

Indeed, opposing the seal hunt is a political non-starter in Canada. In March, Senator Mac Harb of Ontario introduced a bill to ban the country’s commercial seal hunt, while allowing the traditional Inuit hunt to continue. The legislation went nowhere; not a single other lawmaker came forward to support it. “This bill was stillborn,” a Liberal spokesman told Agence-France Presse at the time.

WTO case to come this autumn

Canada is wasting no time with its WTO challenge to the ban; the official request for consultations - the first step in the WTO’s dispute settlement process - should be filed at some point this autumn, says Trade Minister Day. Ottawa will be pushing the EU to allow seal imports from countries whose seal hunts meet strict international guidelines, Day says - he and other Canadian officials insist that the country’s hunt should easily qualify for such an exemption.

“We take our responsibility to ensure animal welfare very seriously,” says Fisheries Minister Shea. “We put in place strict guidelines to ensure that the seal hunt in Canada is carried out humanely and in line with advice from independent veterinarians.”

But winning such an exemption seems unlikely at best. Animal rights groups and some European legislators have called the seal hunt “inherently inhumane” and the EU resolution itself leaves little room for compromise:

“Given the conditions in which seal hunting occurs, consistent verification and control of hunters’ compliance with animal welfare requirements is not feasible in practice or, at least, is very difficult to achieve in an effective way,” the text of the ban reads.

‘No bearing’ on FTA talks

With a protracted seal dispute on the horizon, some observers have speculated that the trans-Atlantic tensions could derail ongoing EU-Canada free trade talks, but Canadian officials insist otherwise.

The seal dispute will have “virtually no bearing” on EU-Canadian trade talks, Day insists. “At a political level, people understand that it’s a stand-alone dispute on a particular product.”

A free trade pact would be a big win for Canada. One study predicted that an ambitious free trade pact could bring an additional US$8.2 billion into the Canadian economy each year and boost the country’s exports to the European market by 20 percent. The EU is Canada’s second-biggest trading partner, while Canada ranks eleventh on Europe’s list.   

“As with any bilateral relationship, there are always some issues on which we don’t agree, but we must not let these disagreements get in the way of building a stronger economic partnership between Canada and the EU,” Minister Shea said. “During these times of economic difficulty, such relationships are all the more important.”

Paige McClanahan is Editor of Bridges Weekly Trade News Digest at the International Centre for Trade and Sustainable Development.

Despite the formation of this sizable coalition, informal consultations on the matter have continued under the coordination of WTO Director-General Pascal Lamy without substantive progress. While these negotiations are important for their own aims, there are overlapping concerns that need to be addressed and which may be slipping through the cracks in the emerging international legal framework.

Although biopiracy is often discussed in terms of injustices relating to patent monopolisations, there are other cases where biological materials and traditional knowledge are appropriated and commercialised without sufficient authorisation and/or compensation. Do these cases deserve the title of biopiracy? Certainly other forms of intellectual property protections may offer unfair monopolisation of plants through, for example, plant variety protection that free-rides on the knowledge and innovations of others. These other cases of ‘non-patent biopiracy’ also need to be considered and addressed.

American scientists cool off spicy pepper

A new case of interest has been identified in the US Plant Variety Protection (PVP) Office database with PVP number 200400329 for the ‘TAM Mild Habanero Pepper’. This certificate was issued on 25 January 2007 to the Texas Agricultural Experiment Station. The main ‘biopiracy’ concern in this case is that the pepper (Capsicum chinense) cultivar was bred from a cross between an orange habanero pepper from the Yucatán Peninsula and a pepper from a US Department of Agriculture (USDA) genebank with Plant Introduction (PI) number 543188 collected from Bolivia.

The Texas A&M University System Agriculture Program put out an ‘AgNews’ press release on the pepper on 12 August 2004, describing it as a successfully bred mild version of the infamously hot and piquant habanero pepper. From a five-year breeding program the progeny of a cross “between a hot Yucatán habanero and a heatless habanero from Bolivia began to show promise”[i]. Due to the mildness of the normally piquant habaneros, those breeders from the Texas Agricultural Experiment Station have indicated their excitement at the possibility of selling the habaneros to salsa companies and as a fresh product at between US$3 and US$4 per pound; while the comparable jalapenos peppers fetch around 50 cents per pound[ii].

Mild variety has long history in Latin America

Despite tampering in Texan laboratories, much of the uniqueness of this mild habanero can likely be put down to the variety collected in Bolivia. The US Genetic Resources Information Network (GRIN) database record indicates that the original variety is ‘not piquant’ and that it is ‘said to be grown locally’ in Bolivia. The original variety was purchased by a USDA official from a Brazilian vendor in the Cobija market of Nicolas Suarez Province (Pando Department) which borders Brazil, on 13 November 1988. The plant material was then transferred to the USDA Plant Genetic Resources Conservation Unit in Georgia where the Texan breeders appear to have obtained the germplasm (GRIN PI 543188).

There are a number of documents that indicate the extent of breeding and use of cultivars of the Capsicum chinense species, including the habanero pepper in South and Central America. Archaeological excavations have placed sedentary people practicing agriculture east of the Andes, possibly as early as 2000 BC[iii], indicating that it was probably these people who first domesticated cultivars of the Capsicum chinense species. Evidence also indicate that the likely place of origin of the domesticated Capsicum chinense cultivars are the lowland Amazon basin with a potential range across Central America, South America and the Caribbean[iv].

Thus, there is extensive evidence of the domestication and breeding of habanero peppers for use as a food in the region bordering Brazil and Bolivia, which has continued through to the present day. Despite these documents, due to the limited requirements for grant of a plant breeder’s right in the US (and elsewhere) the examiners do not need to consider prior art as a registration criterion in the same way as a patent, and therefore these documents do not invalidate the plant breeder’s right bestowed by the PVP certificate.

In the PVP documents there is some evidence of breeding, although the so-called ‘new’ non-piquant trait of the ‘TAM Mild Habanero Pepper’ is likely to be a direct result of the breeding by local growers in Northern Bolivia. Because the USDA admits that the original plant was bred locally in Bolivia and found already with this trait, it seems likely that the direct contribution to the ‘new’ variety made by Bolivian breeders would be substantial. According to the Bonn Guidelines for Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization, the individual Texan breeders should consult with the USDA and local agriculture authorities in Nicolas Suarez Province to establish a process of engagement and benefit-sharing with the original breeders at the very least.

The genebanks of the USDA should also be much more cognizant of these issues and should be establishing material transfer agreements like those required by the international research centres of the Consultative Group on International Agricultural Research (CGIAR), including recognition, consultation and benefit-sharing arrangements with indigenous and local provider groups as well as placing restrictions on IPRs over germplasm collected directly from foreign sources. 

More protection needed

For the most part, international attempts to resolve issues of biopiracy have focused criticisms and proposals on the need for amendment of the patent system. But a ‘disclosure of origin’ requirement might also need to be extended to PVP systems, particularly through the International Convention for the Protection of New Varieties of Plants (UPOV), to be effective against cases such as the one described above.

Regarding the prevention of biopiracy, the other main area of focus has been on closely regulating ‘access to genetic resources and benefit sharing’ as well as genetic material transfer agreement rules in the Convention on Biological Diversity (CBD) and the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) respectively. However, there is still some way to go before the Parties to the CBD are likely to be able to fully develop an International Regime on Access and Benefit-Sharing.

Additionally, the ITPGRFA only covers certain crops under its Multilateral System on Access and Benefit-Sharing. In this case, the Capsicum genus has not been listed for inclusion in Annex 1 on the ITPGRFA and so is not regulated by the Standard Material Transfer Agreements required of Contracting Parties under the Multilateral System. These international laws also do not apply retrospectively. Consequently, there are still many gaps in the evolving international legal framework which mean that biopiracy is still likely to be an ongoing problem.

That this case is so recent, suggests that researchers are still not aware of the ethical implications with regards to indigenous knowledge and breeding of plant varieties, and are ignoring the current legal developments in international fora. However, because the US has not ratified the CBD or the ITPGRFA the US government is essentially legitimising these sorts of malpractices so long as the so-called ‘innovators’ comply with the word of the domestic intellectual property laws in question. With the recent accession of Iraq bringing the total number of Parties to the CBD to 191, almost every country in the world is on board - the US being conspicuously absent.

The Permanent Mission of Bolivia to the UN in Geneva has been notified of the case and is investigating.

Dr. Daniel Robinson is a Lecturer at the University of New South Wales’ Institute of Environmental Studies. This article is based on an extract from his forthcoming book ‘Confronting Biopiracy: Cases, Challenges and International Debates’.

[i] Santa Ana III,R (2004) ‘Texas Plant Breeder Develops Mild Habanero Pepper’ AgNews - News and Public Affairs. Texas A&M University System Agriculture Program. 12 August, 2004.

[ii] Kevin Crosby cited by Santa Ana III,R (2004) ‘Texas Plant Breeder Develops Mild Habanero Pepper’ AgNews - News and Public Affairs. Texas A&M University System Agriculture Program. 12 August, 2004.

[iii] See Pickersgill, B. (1971) “Relationships Between Weedy and Cultivated Forms in Some Species of Chili Peppers (Genus Capsicum)’ Evolution Vol 25, No 4, pp683-691.

[iv] See Bosland, P.W. (1996) ‘Capsicums: Innovative Uses of an Ancient Crop’ in Janick, J. (ed) Progress in New Crops. ASHS Press, Arlington, VA and McLeod, M.J., Guttman, S.I. and Eshbaugh, W.H. (1982) ‘Early Evolution of Chili Peppers (Capsicum)’ Economic Botany Vol 36, No 4, pp361-368.