The ICTSD Geneva China Dialogue is an annual event that brings together representatives from international institutions, governments, business and civil society from China and around the world, to explore issues related to China, trade and sustainable development. It is part of the ICTSD China Initiative which aims to promote a better understanding of China’s role in global economic governance through dialogues and research.

This 2008 meeting will focus on China’s contribution to the economic architecture of a global agreement on climate change , in the process towards the 15th Conference of the Parties to the UN Framework Convention on Climate Change in 2009 in Copenhagen. China is at the centre of a range of concerns related to the trade and climate change negotiations, particular with respect to the distribution of the economic costs and gains from climate change mitigation and adaptation.

While recognising the UNFCCC principle of common but differentiated responsibilities and respective capabilities, China’s participation in global efforts to reduce greenhouse gas emissions is regarded by many as necessary, for global cooperative action on climate change to achieve the desired objectives. China is also at the centre of worries among policy-makers and industry in industrialised countries, about potential loss of competitiveness in their trade-exposed sectors, in the absence of “comparable action” in large developing countries such as China.

On the other hand, there is agreement in the Bali Action Plan, that in order for developing countries such as China to effectively contribute to global efforts on climate change, they will need support in particular on technology and financing. Moreover, achieving sustainable development objectives, including through trade-led growth, remains a legitimate objective of developing countries that is recognised and supported by WTO Members and Parties to the UNFCCC.

Key questions to be addressed in the Geneva China Dialogue include:
• What are the global trade and climate context in which China performs?

• What are the expectations of the international community for China’s responsibility in maintaining global economic and trade stability and fostering a multilateral agreement on climate change?

• How can China contribute to achieving successful outcomes under the Doha round of trade negotiations and the UNFCCC negotiations on climate change?

• What trade-related incentives and enabling conditions can contribute to enhancing the capacity of developing countries such as China to undertake national appropriate mitigation actions and pursue adaptation efforts?

• How can trade-related competitiveness concerns be addressed in an effective and fair manner, taking into account principles underlying both the trade and climate change regimes?

The dialogue will be a good platform for those who are interested on these issues, from international organizations, policymakers, negotiators, private sectors, business associations, civil society organizations, media, universities as well as research institutions.

Seats are limited. Please kindly register your participation with your name, title/organization, full contact information, by the 5th November 2008, to Ms. Guan at china@ictsd.ch or by telephone (+41)-22 917 8838 / fax (+41) 22 917 8093. You can also register at Website www.ictsd.org or mail or Ms Guan at ICTSD, 7 ch. de Balexert, 1219 Geneva, Switzerland.

Venue:

The Geneva China Dialogue 2008 will be held at the World Meteorological Organization, Address: 7bis,avenue de la Paix, CH-1211 Geneva 2, Switzerland
Tel.: + 41 (0) 22 730 81 11 Fax: + 41 (0) 22 730 81 81

More information about the conference venue including transportation and map, please visit: http://www.wmo.int/pages/visitors/index_en.html

Emissions of greenhouse gas emissions (GHGs) between 2000 and 2006 increased on average by 3.1 percent per annum, compared to 1.1 percent in the previous decade, and are likely to continue to grow rapidly in view of high economic growth and lack of effective mitigation strategies. The impacts of climate change—such as rising temperatures and increased frequency of extreme weather events—puts severe pressure on food availability, stability, access, and utilisation.

Although rich countries are responsible for most GHGs, the impact of climate change is expected to be most severe in developing countries and on the poorest populations. Many low-income countries are located in tropical and subtropical regions, which are particularly vulnerable to rising temperatures, and in semi-desert zones, which are threatened by decreasing water availability. By 2080, agricultural output in developing countries may decline by 20 percent due to climate change, compared to 6 percent in industrialised nations. Also due to climate change, yields in developing countries could further decrease by 15 percent on average by 2080. Taking into account the effects of climate change, the number of undernourished people in Sub-Saharan Africa may triple between 1990 and 2080. Climate change shocks also erode the long-term opportunities for human development and could exacerbate inequalities within countries.

The higher susceptibility of the poor is also due to limited adaptive capacities. Low-income communities depend directly on agriculture, forestry, fisheries, aquaculture, and other climate-sensitive resources. Their vulnerability is exacerbated by inadequate complementary services, such as health, education, and insurance services, and lacking agricultural extension.

The risks climate change poses on food security are particularly pressing at a time of high oil prices. High fuel prices make agricultural production more expensive by raising the cost of fertilizers, irrigation, and transportation. This increased level and volatility of agricultural prices is negatively impacting the purchasing power and the food security of the poor. The decline of food commodity prices in the context of the financial crisis is probably only temporary. The access to capital for sustainable agricultural and water development investments is further constrained by the financial crisis.

The availability of agricultural products is also affected by climate change directly through its impacts on crop yields, crop pests and diseases, soil fertility and water-holding properties, and variable weather conditions. Last by not least, food utilisation is threatened by climate change through effects on human health and the spread of diseases in geographical areas not previously affected. As agricultural production declines, food prices rise, and purchasing power decreases, physical, economic, and social access to food is severely affected. For the poor, climate change impacts the four key dimensions of food security – availability, stability, access, and utilisation.

The problem or the solution?

While agriculture is part of the climate change problem, it is also part of the solution. However, the expansion of agricultural production as an energy source has broad and complex implications. Biofuels have raised hopes for reducing greenhouse gas emissions, mitigating climate change on a global or regional scale, and reducing the environmental risks to food security. Yet, biofuel expansion can also add to the greenhouse gas emissions problem through the conversion of forests and grassland to energy crop production. With land-use change, increased world corn-based ethanol production is estimated to increase greenhouse gas emissionsand for palm oil-based biodiesel produced even more so.

On the positive side, biofuels could benefit the poor through raising agricultural incomes, creating additional rural jobs in crop harvesting and processing, and utilising marginal lands and crop residues. The extent to which these potentials are realised depends on the farmers’ ability to access information and markets, produce at competitive prices and at sufficient economies of scale, and afford new biofuel sources. However, economies of scale in ethanol production—at least to date—favour large scale farms, while the existing subsidy regimes and import restrictions undermine the comparative advantage of developing countries. New technology such as that associated with sweet sorghum may change this pattern, however.

In terms of food availability, biofuels could unduly divert land and water resources, capital and political attention away from the production of food. Rising demand for biofuel feedstocks also puts strong upward pressure on agricultural commodity prices and thus on access to food. Further, the stability of food supplies is put at risk as volatile energy prices translate into larger food-price fluctuations, to which poor people have little capacity to adjust. These increases in crop prices are also accompanied by a net decrease in calorie consumption in all regions. The largest decrease is in Sub-Saharan Africa, where calorie availability is projected to fall by more than eight percent if biofuels expand as drastically as planned. In addition, the pressure biofuels put on water for household use could pose health risks and undermine food utilisation. At the same time, however, local biofuel production could provide cleaner and cheaper cooking and heating fuel alternatives and have positive health consequences for the poor.

A rapid, coordinated, and multidisciplinary response is needed to respond to climate change and related emerging risks. Building on the fundamentals of good development policy is essential but not enough to ensure food security under new climate change challenges and threats. Effective adaptation and mitigation strategies must be proactive and explicitly target the impacts of climate change and energy (biomass) developments on the poor. The needed response involves a combination of science, institutional, and policy innovations, which should be taken into account in global, regional, and national strategies, and should comprise three main elements:

1. A science and technology strategy

For climate change mitigation, the technological innovations needed include early warning systems for droughts, floods, and other natural disasters, better soil and water management, and seed varieties more resistant to adverse climatic conditions. For adaptation and long-term productivity, biodiversity should also be maintained and enhanced, for example through gene banks. Carbon sequestration, a process that removes carbon dioxide from the atmosphere, should be encouraged to mitigate the increase of carbon concentration. Also, more support should be given to developing clean bioenergy technologies that do not compete with food production.

To achieve long-term agricultural growth and build a more resilient food system that can meet ongoing and future challenges, developing country governments should also increase their medium- and long-term investments in agricultural research and connect to international science and knowledge-sharing systems. In addition, new approaches to scientific partnerships should be developed and expanded. Co-funding and cooperation among public institutions, foundations, and private enterprises should play an important role in building and advancing the scientific base.

2. Markets and trade policy strategies that call for global institutional arrangements of carbon and biofuels trading

Developed countries should eliminate domestic biofuel subsidies and open their markets to biofuel exporters for biofuels from sustainable production. In view of high food prices, measures to make more agricultural products available for food and feed include freezing biofuel production based on grains and oilseeds. Transparent and equitable standards of carbon and biofuels trading are needed, including sustainability and performance-based standards rather than technology-based standards that will quickly become outdated.

On the policy side, post-Kyoto Protocol rules of access must change to include activities important for developing countries such as avoiding deforestation, soil carbon sequestration, and mitigating methane and nitrous oxide. The Clean Development Mechanism rules should be refined to encourage small farmer participation and to change existing regulations that impose high costs on developing carbon markets in poor countries. Ongoing climate change negotiations under the Bali Action Plan should lead to a new binding international climate change agreement with appropriate carbon-trading and carbon-offset policies (e.g. cap-and-trade and carbon-tax instruments) that include economic incentives for engaging small farmers in developing countries. Farmers’ organisations should cooperate at the national and international level to link small farmers to global carbon markets. Ensured by efficient contracts, the private sector and small farmers can engage in mutually-beneficial projects in carbon sequestration and decentralised bio-energy crop production.

3. An insurance and social protection strategy for the food insecure poor to respond to the growing complexities of food system changes

To reduce the vulnerability of poor households to adverse climate and energy price shocks and to prevent new households from falling into poverty, there is an increased need to strengthen public and market-based social protection mechanisms. Examples of social protection policies include social safety nets (such as conditional or unconditional cash transfers, public works and school feeding programs, subsidies on items consumed by the poor, microcredit, and crop insurance), health insurance, and social security. In addition, the triggers of emergency agencies to respond to crises should be improved. New and innovative insurance mechanisms and private-public partnerships should also be introduced at a larger scale to expand coverage among the poor. Insurance and social protection must be adjusted to the individual circumstances of each country and should be supported by investment in rural infrastructure and services, and good governance.

The way forward

It is clear that action is needed to address the acute and long-term impacts of climate change, particularly in the developing world. Each country should develop and implement a viable national action plan, which takes into account future development paths, expected climate change impacts, and adaptation and mitigation costs. Appropriate prioritisation, sequencing, and institutionalisation of mechanisms are essential. Proposed solution for the short-term should also not undermine long-term climate mitigation options. Global actors should coordinate their transfer of resources, knowledge, and technology, and build a global response to address climate change risks, beyond a single post-Kyoto agreement.

Joachim von Braun is Director General of the International Food Policy Research Institute (IFPRI)

Relative to developed countries, populations in developing nations are more vulnerable to and will be more adversely affected by climate change. Their development conditions and economic resource constraints often exacerbate their economic and climate change vulnerabilities and inhibit their ability to adapt to climate change in social, technological and financial terms. The impacts of climate change will have far-reaching effects on the sustainable development of developing countries, including their attainment of the Millennium Development Goals and other internationally agreed development objectives by 2015 and in decreasing the ever-widening development gap.

The global projected impacts of climate change are severe and vary by region. Africa, where the majority of least-developed countries (LDCs) are located, is projected to be hard hit by increased water-related stresses such as droughts in large parts of the continent, which will severely compromise food production and security. Projected sea level rise is likely to affect low lying coastal areas with large populations. Many parts of developing Asia will likely see decreased freshwater availability, and many low-lying coastal areas with large populations are likely to face increased flooding from sea surges or flooding rivers.

In Latin America, projections are that the Amazon river basin will start drying out by mid-century, turning from tropical forest to savannah. Agricultural productivity is projected to decrease, and water availability could also be significantly affected. Small island developing states (SIDS) are expected to be most adversely affected by sea level rise exacerbating inundation, storm surges, erosion and other coastal hazards, threatening vital infrastructure and the livelihoods of island communities. The availability of coastal resources (such as fisheries) is projected to be adversely affected due to, inter alia, beach erosion and coral bleaching. Water availability in many small islands in the Caribbean and the Pacific is also expected to become insufficient to meet demand during low-rainfall periods by mid-century.

LDCs’ Trade Profiles and Potential Climate Change Effects

Many LDCs are being left behind other countries in terms of trade growth and competitiveness, and the quality of trade growth is neither sustainable nor equitable. LDCs’ export profiles are typically characterised by high degrees of export concentration, with only a few product tariff lines, such as mineral fuels, oil and clothing being exported. These profiles render them highly vulnerable to market demand-side volatility and other shocks – such as climate shocks – in relation to their main export products.

Climate change impacts on LDCs’ trade capacity and competitiveness are likely to vary depending on the product and the country concerned. While LDC oil exporters may benefit from the current high fuel prices, possible oil price adjustments by oil importing countries as a result of climate change-related policies may lower demand for fossil fuels and thereby reduce these LDC oil exporters’ future export earnings.

Other commodity exports of LDCs that are highly dependent on climate conditions, such as fisheries and agricultural (e.g. cotton, coffee, tea, mate and spices, tobacco, vegetables, see oils, fruits, animal skins) products could also be adversely affected due to, for example, the reduction of growing seasons, drought, and ecosystem loss.

Furthermore, the development and maintenance of trade-related infrastructure, such as roads, railways, and ports, might also become more difficult as countries struggle to match increasingly scarce resources with increasing climate adaptation demands.

SVE’s Trade Profiles and Potential Climate Change Effects

Their limited physical size and constrained natural resource and labour endowments often mean that the domestic markets of SVEs cannot support the location of large-scale industries or the production of goods subject to economies of scale at competitive prices. This means that the range of products produced in SVEs is often limited or products are not priced competitively. SVEs hence often “show a very high dependence on imports and exports and, consequently, on foreign market conditions” with trade to GDP ratios “usually much larger than the average” for other developing countries and with exports generally relying “on a very narrow range of goods and services … concentrated on the markets of a few countries.” These factors create in many SVEs a high degree of trade dependence and economic instability that both affects and is affected by their vulnerability to climate change.

The services sector, especially tourism, has become a major source for economic activity in many SVEs. Some SVEs, especially among the SIDS, have sought to overcome economic instability and their associated trade-related challenges by pursuing economic diversification strategies to become knowledge and service-based economies. For other SVEs, however, agriculture remains the dominant economic activity to supply both domestic and export markets.

Adapting to Climate Change: The Role of Development-Oriented Trade Policy for LDCs and SVEs, including SIDS

Adapting to climate change entails taking the right measures to reduce the negative effects of climate change (or exploit the positive ones) by making the appropriate adjustments and changes. There are many options and opportunities to adapt, ranging from technological options to behavioural changes at the individual level, all of which would depend on the policy choices taken by individual countries whether unilaterally or in the context of their international commitments and obligations.

The concept of adaptation to climate change is closely linked to the development of adaptive capacity, which refers to changes in processes, practices, or structures to moderate or offset potential damages or to take advantage of opportunities associated with changes in climate. National-level adaptation by developing countries will require a strong component of international cooperation from developed countries for support in meeting the costs of adaptation, as provided for in the UNFCCC. Finally, effective climate adaptation by developing countries cannot take place unless other climate-adaptive changes are also effected in other areas of international policy, such as trade and intellectual property, to make these fully supportive of developing countries’ efforts to undertake sustainable development. In short, effective climate adaptation is premised on the achievement by developing countries of their first and overriding priorities of economic and social development and poverty eradication.

With respect to ensuring the appropriate adaptation of trade policy to climate change impacts and constraints that may arise in a developing country context, especially for LDCs and SVEs including SIDS, it will be necessary for policymakers to rethink their current macroeconomic development and trade policy. The trade challenges that these vulnerable countries face stem in large part from the confluence of economic and trade liberalisation policy reforms undertaken in the past three decades, which have to a great extent exacerbated these countries’ vulnerabilities to both economic volatility and climate change.

Rethinking Trade Policy Approaches in Light of the Climate Change and Development Challenges

In light of their trade-related challenges, and the impacts that climate change is having and will have on the trade competitiveness and economic development prospects of LDCs and SVEs, including SIDS, it is clear that the key towards effective climate change adaptation by these countries lies in building domestic economies that are resilient, diversified, and more productive especially in sectors that are not as vulnerable to climate change impacts.

Further trade liberalisation by LDCs and SVEs in the sense of further increasing levels of tariff openness to imports may not necessarily be the appropriate “climate-adapted” trade policy response to climate change. Rather, adjustments are needed on the trade policies and measures of their trading partners in order to adequately reflect and respond to the trade, development, and climate change challenges that LDCs and SVEs, including SIDS, face..

In short, broadly what would be required by both LDCs and SVES, including SIDS, with respect to ensuring that their trade and development policies and measures are climate-adapted are (i) domestic sustainable development policies that incorporate trade and other economic measures designed to build up domestic productive capacity and promote economic diversification to sectors and activities that are less vulnerable to climate change than current ones; and (ii) an enabling and coherent international policy environment (in both the trade and climate regimes), which includes economic and climate policy space and flexibility, new and additional financial flows to support climate adaptation and development, research and transfer of climate friendly technologies, and external support aimed at improving these countries’ trade competitiveness and long-term climate-adapted sustainable development.

With respect to trade in goods, climate-adapted trade-related policymaking that is oriented towards sustainable development could imply a rethinking of LDCs and SVEs agricultural development policy and programmes in order to take into account climate change-related impacts. This could involve promoting shifts in both crops grown and production processes used to factor in climate change-related stressors. Domestic policy shifts may need to be effected – e.g. prioritising agricultural production for food security and industrial production of manufactured goods for domestic consumption over export-oriented production and as a means to lessen vulnerabilities to external trade, economic and environmental shocks.

Attention should be paid to the ancillary agricultural and industrial policy and infrastructure shifts that may need to be made to support diversification away from the current agricultural commodities being primarily exported by LDCs and SVEs, including SIDS. Adapting to climate change impacts on infrastructure and settlements could include scientific services to assess vulnerabilities, retrofitting buildings, raising awareness, and establishing resettlement programmes.

Climate adaptation will also require that trade-related infrastructure (such as ports, roads, etc.) be built or strengthened in preparation for climate impacts. Adaptation should include, where appropriate, the development of alternative infrastructure if existing ones cannot be climate-adapted.

As with LDCs and SVEs primarily dependent on the agricultural commodities export sector, LDCs and SVEs that are dependent on their oil and other mineral commodity exports will need to ensure that income gains coming from the current high prices for oil commodities are invested into improving the diversification level of their economies. This could be achieved by their investing in other productive economic sectors and providing sufficient resources to implement a strategic industrial development policy.

For many SIDS (both LDCs and SVEs), trade in products from their coastal zones and fisheries are major components of their economic and trade profiles. Climate change impacts on these fragile ecosystems, while difficult to combat, could be better addressed through more robust domestic regimes of resource access, control and management.

Climate-adapted agricultural and industrial diversification will also require securing adequate sources of energy to fuel existing production and expansion into new economic activities while, at the same time, not contributing more than is necessary to global greenhouse gas emissions . The development of domestically-sourced, clean, renewable, sustainable energy sources and infrastructure is therefore an important component of climate-adapted agricultural and industrial diversification.

Economic diversification into the services sectors for LDCs and SVEs, including SIDS, may provide many climate-adaptation and development benefits. Services sector expansion and diversification in a manner that is climate-adapted will, however, require not only increased domestic public and private sector investment into upgrading the country’s human resources but also investments in improving and climate-proofing the associated infrastructure for specific services sub-sectors and their various modes of supply.
Climate Change Adaptation of the Trade-Related Policies of Major Trading Partners with respect to LDCs and SVEs, including SIDS

The major trading partners of LDCs and SVEs, including SIDS, should support climate-adapted agricultural and industrial sector diversification by LDCs and SVEs, including SIDS, including but not limited to the provision of financial and technology transfer assistance for such diversification in the context of adaptation consistent with developed countries’ obligations to do under the UNFCCC and immediate action to remove barriers (both tariff and non-tariff) to these countries’ exports.

Developed country subsidies that support unfair competition with the products or production capacity of LDCs and SVEs, whether in agriculture, industrial goods, or even fisheries, should be reduced or eliminated.

Support should also be provided in terms of recognising and allowing for LDCs and SVEs’ needs for flexibility with respect to policy shifts and measures within agricultural and industrial diversification programmes. Any market access opening that LDCs and SVEs, including SIDS, may wish to undertake should be voluntary and flexible to take into account possible changing economic and climatic conditions.

The trade-related actions above should cohere with and enhance the mandatory actions that need to be taken by developed countries under the UNFCCC with respect to the provision of mandatory financing and technology transfers to developing countries (see (Arts. 4.3, 4.4, 4.5, 4.8 and 4.9 of the UNFCCC). Such actions will determine the extent to which developing countries, including LDCs and SVEs, will be able to effectively implement their own UNFCCC commitments (see Art. 4.7 of the UNFCCC)

Finally, in relation to the WTO negotiations, a genuine effort to contribute on trade and climate issues would involve responding effectively to developing country proposals for an integrated and development-oriented approach in determining the negotiated outcomes of the Doha Development Agenda.

Vicente Paolo B. Yu III is Programme Coordinator – Global Governance for Development, South Centre. The statements in this paper are personal to the author and do not necessarily reflect the official views or positions of the South Centre or its Member States.

There is also great recognition of the urgency to do so within a time-frame that will allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner - as outlined in the UN Framework Convention on Climate Change (UNFCCC). The present crisis of global food supplies and high food prices is a stark reminder of the disastrous consequences that could result from future disruptions in global agricultural production systems.

In terms of process, the UN-sponsored negotiations for finding a successor of sorts to the Kyoto Protocol are now in an intensive phase, with the deadline of December 2009 rapidly approaching.

Economics at the heart of climate negotiations

A true wake-up call, the current global economic slowdown seems to have trapped governments into a difficult choice between rescuing the economy and imposing further sacrifices by taking the hard decisions needed to prevent further global warming. Although not entirely novel, the importance of economics in addressing climate change is more pronounced and visible today than it has been in the recent past. Since the Stern Review on the Economics of Climate Change of 2006 and the Intergovernmental Panel on Climate Change’s (IPCC’s) Fourth Assessment Report in 2007, economics has been at the heart of climate negotiations.

It is now clear to all that climate change mitigation and adaptation come at a cost. But exactly what the cost is, and how it will be distributed across countries and sectors under different policy scenarios remains uncertain. The international distribution of that cost is, and has always been, at the centre of the climate change negotiations. The UNFCCC recognises that the industrialised world is responsible for mitigating past emissions, and that developing countries have contributed little to the current problem. The international community has also acknowledged the limited capacity of developing countries to adapt to the consequences of climate change - hence the cornerstone principle of “common but differentiated responsibilities and respective capabilities” underlying the Convention.
Things have changed, however, since the first international agreement on climate change was adopted in 1992. Some developing countries have become major players in the world economy - as well as significant sources of greenhouse gas (GHG) emissions. Indeed, China became the leading emitter of climate-changing gases last year.

The compromise agreement reached in December 2007 at the Bali climate talks in part reflects this reality. The Bali plan includes a delicately negotiated set of obligations for developed countries to cut their emissions in quantifiable manner, as well as requirements that they help developing countries reduce the growth of their emissions while pursuing their sustainable development objectives. The commitment made by developing countries to implement nationally appropriate mitigation actions is made contingent on the provision, by industrialised countries, of technology, financing and capacity-building, in a measurable, reportable and verifiable manner.

Economic and trade-related concerns in the run-up to Copenhagen

As the international community embarks on the road to climate talks in Copenhagen in December 2009, when a new global agreement on climate change is expected to be forged, three categories of economic and trade-related concerns are likely to influence the process and outcomes of the negotiations: incentives for developing country participation; leakage and competitiveness concerns of industrialised countries; and trade and development concerns that developing countries have raised.
The first relates to incentives aimed at encouraging participation by developing countries, in particular through transfer of technologies and provision of financial resources to support action on mitigation and adaptation. Developing countries have stated clearly that financing and technology transfer will be essential if they are going to be able to mitigate their emissions and adapt to warming temperatures.

At the latest climate change talks held in Ghana in August this year, the G-77 group of developing countries and China called for the creation of an international financing mechanism under the Convention. Under the G-77 and China proposal, funding would come from a contribution ranging from 0.5 percent to 1 percent of the gross national product of Annex I Parties (industrialised countries), to finance technology transfer, including the cost of patents. Ghana put forward a proposal to create an international framework agreement for technology development and transfer, and to establish a multilateral technology fund, to cover, among other, the licenses to support access to and transfer of low-carbon technologies and knowhow. Financing the access of proprietary technology has been the subject of controversial discussions. While it remains unclear whether, and to what extent, intellectual property might act as a barrier for developing country access to necessary mitigation and adaptation technologies, the question remains the subject of divergent views. Clearly identifying barriers to the development, transfer and diffusion of technology is thus one of the key analytical processes to be completed before relevant approaches to financing for technology can be considered in an informed manner.

Leakage and competitiveness in industrialised countries is another vital trade-related question. Industry and policy-makers in industrialised countries worry that efforts to reduce GHG emissions would negatively affect their carbon-intensive manufacturing sectors, which may be unable to cope with competition from industries in developing countries that do not have comparable obligations imposed on them. Subsequently, concerns about competitiveness loss often also extend to relocation of industries from countries with obligations to those without. Industries generally concerned are: iron and steel; aluminium and copper; cement and glass; paper and pulp; and basic chemicals.
Unilateral trade measures, while not formally part of climate negotiations, could also disrupt or complicate the climate negotiations. Such provisions could include border measures - trade barriers that target economies that lack specific emissions reductions obligations - or requirements that countries purchase carbon offsetting allowances. This is already visible in discussions on sectoral approaches to mitigation, which developing countries see as a backdoor to address developed countries’ competitiveness concerns. It is critical that these concerns be addressed promptly in the relevant fora, including through informal diplomacy, before they emerge as critically disruptive factors in the end-game towards Copenhagen.

The third set of issues relates to the trade and development concerns of developing countries in certain economic sectors that are likely to be negatively affected by either the physical impacts of climate change or the socio-economic consequences of response measures. Related to that are their adaptation needs and modalities of their financing.

The IPCC projects that climate change will result in the decline of rain-fed agricultural productivity by up to 50 percent in certain parts of the world, mainly in developing countries. Tourism, a key economic sector in many small islands and developing states, is expected to suffer from climate impacts on the one hand, and from response measures such as a regulation of emissions from international marine and air transport, on the other hand. These are likely to result in a decline of tourism-related employment and contribution to gross domestic product.

Finally, certain developing countries have found themselves caught in the middle of a fight over whether certain agricultural products should have their ‘carbon footprint’ emblazoned on their labels. Generally referred to as the ‘food miles’ debate, the labelling of certain products on the basis on the air shipment puts an economic cost on producers from poor countries - the very countries that have been recognised under the climate convention as having a minimal contribution to the problem and that have been virtually exempted from mandatory emissions cuts.

These are the concerns that developing countries have raised in the climate negotiations, as highlighted in their Technology Needs Assessments, and that may feature in their National Adaptation Programmes of Action (NAPA). Seeking appropriate responses to these anxieties in the trading system, and defining adjustment mechanisms that would help economies adapt to the physical and socio-economic impacts of climate change are likely to be key priorities for positive engagement of developing countries on the way to Copenhagen.

The next 16 months will be crucial in building global consensus towards a new climate agreement. The economic architecture of such an agreement, which could have far-reaching impacts on markets the world over, is absolutely essential.

Moustapha Kamal Gueye is Senior Programme Manager of the Environment Cluster at ICTSD

Several trade-related policies and instruments are likely to arise in the process of negotiating the architecture of the post-2012 regime and its implementation. These range from incentive-based instruments for a sustainable energy transition; the development, diffusion and transfer of clean technologies; the creation of markets for low carbon goods and technologies, to the use of border measures to address problems of carbon leakage and competitiveness.

As such, governing the use of trade-related tools and instruments in addressing climate change is poised to be a major challenge facing actors and stakeholders in the multilateral trading system in the years and decades to come. While some see trade policy as part of the solution, others are concerned about potential obstacles that trade rules may pose in the search for solutions to global warming, leading to calls, in some corners, for a fundamental reform of the international trade regime so that it is aligned with climate action objectives.

Panelists will address the following questions:

1. How will the multilateral trading system contribute to responses to climate change in an effective manner while maintaining the integrity of the system and the core principles underlying its functioning (e.g. non-discrimination, national treatment, and open trade)?

2. How will the system deal with the emerging, but rapidly developing trend of integrating a “carbon footprint” in virtually all aspects of economic activity, from production to consumption? How should long-term implications of bunker fuel costs be addressed?

3. What new forms of systemic interaction may be warranted with other policy processes, both public and private, that impact on international trade?

4. How will the multilateral trading system strengthen its arbitration function in a context of potentially growing disputes arising from the use of trade-related tools to achieve climate change objectives?

In response to the Lake Victoria Commonwealth Climate Change Action Plan, discussions by Commonwealth Finance Ministers in October 2007, and the outcome of the Informal Meeting of Trade Ministers on Climate Change on the occasion on the 2007 UN climate conference in Bali, Indonesia, ICTSD and the Commonwealth Secretariat are implementing an initiative to explore new and rapidly emerging policy concerns that need to be considered by trade, finance and climate policy-makers and stakeholders in developing countries, to ensure that their economies are ready to address the challenges and take advantage of the opportunities. This work will support developing country members of the Commonwealth – including the African, Caribbean and Pacific countries, small and vulnerable economies (SVEs) and least-developed countries (LDCs) – in understanding the opportunities and challenges they face and make informed and strategic decisions.

The overall purpose of this meeting is to consider and explore such opportunities. The meeting will bring together trade, finance and climate change negotiators and policy-makers, experts, as well as representatives of the private sector and civil society at large for two days to review and discuss a series of draft studies on the climate and trade issues developing countries are facing, with a view to address the challenges that climate change presents and take advantage of new opportunities in a well-informed manner.

The outcome of the meeting will be submitted for consideration to the Commonwealth Finance Ministers in October 2008.

For further information, please refer to:

The Final Agenda, Mauritius

The Logistical Note, Mauritius

The Complete Policy Paper, Mauritius

In the US, Texas governor Rick Perry is asking the Environmental Protection Agency (EPA) to waive the national biofuels mandate for a year, while in the EU a group dealing with environmental issues within the European Parliament has voted to revise the European mandate to derive ten percent of transport fuels from renewable sources by 2020. An EU expert group is continuing its work to hammer out sustainability requirements for biofuels.

Meanwhile, a study by the Organisation for Economic Cooperation and Development (OECD) adds to well-known concerns that biofuels, while costing tax payers billions, are not effectively addressing the climate problem, and a World Bank document suggests that 75 percent of the increase in food crop prices can be linked to biofuels production.

EPA to decide on biofuels waiver

In the US, Texas governor Rick Perry wants the EPA to cut its 9 billion gallon mandate for ethanol production - set in an energy bill from December 2007 - by half this year due to high corn and feed prices. His emergency waiver is supported by a coalition of food, livestock and environmental groups. They are, however, pitted against farmers, carmakers, ethanol and other biofuel producers. The public has been exceptionally active on the issue, submitting 15,000 comments to the EPA.

“This is a critically important decision that will determine the future of biofuels in this country,” said Brent Erickson, a lobbyist at the Biotechnology Industry Organization. “There will be a dramatic reaction from whoever loses.”

A coalition of 12 Republican Senators and 50 Republicans in the House of Representatives have also asked for a rollback of the US biofuels mandate, because it “is clearly causing unintended consequences on food prices.”

On 22 July, the EPA decided to postpone the decision on the waiver until August. The EPA can only approve or reject the waiver. Sky-high corn prices have come down in the last weeks and days.

EU biofuels mandate under scrutiny

On 7 July, the Environment Committee of the European Parliament voted to in favour of a modification the EU biofuels target. According to the Committee, Europe should derive four percent of its transport fuels from renewables in 1015, after which a major review of the target would take place.

The Committee also supported a stronger focus on electric or hydrogen cars, as opposed to just biofuels. Environmental lobby groups have stressed the need to focus on cleaner cars. Friends of the Earth, speaking ahead of the vote of the Environment Committee, said that instead of the target “we want measures that will double the fuel efficiency of new cars, a real climate change solution.”

The Committee has also eyeing imports from Brazil. “My analysis shows the only country where we can sustainably import substantial quantities of agri-fuels to the EU at the moment is Brazil,” said EU lawmaker Claude Turmes. “Such an agreement would be a test case, with tough criteria both on sustainability and social issues,” he added. “At the same time, Brazil would have to show us it can halt deforestation.”

These sustainability criteria, which would apply to home-grown and imported biofuels alike, are still being hammered out by en EU expert group. Meeting in early July, the group generally agreed on criteria related to biodiversity and human rights. The experts still disagreed on what the greenhouse gas savings of compliant biofuels would have to be. Ethanol from sugar cane - the main feedstock used in Brazil - reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels. Biofuels produced from wheat, sugar beet or vegetable oil, the main feedstocks in Europe, rarely provide emission savings of more than 30 to 60 percent. Savings from corn-based ethanol are generally less than 30 percent.

At the end of the meeting, one participant commented “I see a philosophical challenge, as we’re taking more care over the vegetable oils you put in your car than the oils you put in yourself through what you eat. He added that “If you put that same oil in chocolate, nobody would say a thing.”

Individual European countries have also questioned the biofuels mandate and made comments on the sustainability criteria. The UK government commissioned a comprehensive report on the topic. Released on 7 July, the Gallagher report detailed the knock-on effects of biofuels production and use. According to the report, indirect land use change impacts of biofuels production have not been adequately addressed. The report called for the incorporation of social issues, such as land rights, into the sustainability criteria for biofuels. While generally taking a positive stance on second generation biofuels, the report noted that their production should not displace food production on agricultural land.

The final fate of the biofuels target will be decided along with the European energy and climate package as a whole by the end of the year.

OECD report slams biofuels

In a new report, “Economic Assessment of Biofuel Support Policies,” released on 16 July, the OECD detailed how the EU, US and Canada spent EUR11 billion to support biofuels in 2006. This spending is expected to rise to EUR25 billion per year by 2015 -bringing, however, only a 0.8 percent reduction in greenhouse gas emissions from transport.

The report therefore recommended the three countries to consider implementing other, more cost-effective strategies to deal transport emissions. The OECD suggested a focus on lowering energy consumption in the transport sector, and policies to free biofuels markets and trade, which would lower costs and lead to higher efficiencies.

The report further highlighted risks posed by biofuels, which is said “will contribute to higher food prices over the medium term and to food insecurity for the most vulnerable populations in developing countries.” While the OECD linked the current use of food stocks for biofuels to higher food prices, it said the effect should not be overestimated. “Current biofuel support measures alone are estimated to increase average wheat prices by about five percent, corn by around seven percent and vegetable oil by about 19 percent over the next 10 years,” according to the report.

These figures are substantially lower than figures from a World Bank report leaked in early July, which said the percentage was as high as 75. According to the World Bank report, food prices rose by 140 percent between 2002 and February 2008. Only 15 percent of that rise was attributable to higher energy and fertiliser costs, with biofuels being the main driver. Biofuels production distorted food prices “by diverting grain away from food for fuel, by encouraging farmers to set land aside for biofuel and by sparking speculation in grains, driving prices up higher,” said the report.

ICTSD reporting; “OECD report says massive biofuel subsidies not helping to cut greenhouse gases”, AP, 17 July 2008; “OECD: Biofuels Ineffective at Curbing Global Warming,” ENS, 17 July 2007; “Biofuels Blamed for Food Price Crisis - Report,” REUTERS, 7 July 2008; “EU Backs Away from Biofuel Goal, Eyes Brazil Accord,” REUTERS, 7 July 2008; “Human Rights, Rare Species on EU Biofuels Agenda,” REUTERS, 1 July 2008; “EU launches investigation into US biodiesel imports,” EU RELEASE, 13 June 2008; “Ethanol industry braces for EPA decision on its future,” IHT, 22 July 2008; “EPA postpones decision on ethanol requirements,” AP, 22 July 2008.