Bridges Trade BioRes • Volume 7 • Number 20 • 16th November 2007

ENERGY CONFERENCE CONSIDERS TRADE ISSUES

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ENERGY CONFERENCE CONSIDERS TRADE ISSUES

A recent conference among major players in the realm of energy has called on the global trading system to support the stability and fairness of energy trade. Gerald Doucet, Secretary General of the World Energy Congress, suggested that the WTO should "open a new chapter" of energy negotiations, looking in particular at new issues arising due to the need to significantly increase the use of clean and renewable energy.

A new report on ‘embodied carbon’ in trade shows that consumer products imported from the emerging economies come with a significant carbon footprint, raising issues about the responsibilities of producer and consumer countries with regard to emissions reductions - and the need for a comprehensive global regime to tackle climate change and avoid leakage of carbon emissions from countries with stringent climate policies to those without.

Meanwhile, the 2007 edition of the International Energy Agency’s Global Energy Outlook is forecasting rapid growth in global energy consumption and carbon emissions, especially as the emerging economies grow even more quickly than previously projected. According to the IEA, carbon-intensive fossil fuels will continue to dominate the scene unless unprecedented action is taken to steer the world towards a low-carbon economy.

Lamy addresses World Energy Congress

Italy hosted the tri-annual World Energy Congress in Rome from 11-15 November. The congress was convened by the World Energy Council, which was established in the 1920s and has private-sector members across energy sectors and 94 countries, representing both energy producers and consumers.

The event covered a plethora of themes, focusing on issues ranging from different energy options to energy security and climate change. Among the hot items on the agenda was the global trade context, with WTO Director-General Pascal Lamy delivering one of the keynote addresses to the congress.

Lamy pointed out that while the rules of the WTO do not deal with energy as a distinct sector, trade rules apply to all forms of trade, including in energy goods and services. However, as energy is a very particular sector, the rules may not always be well-adapted to it. According to Lamy, more attention is now being focused on the issues at the interface between energy and trade rules, and as "WTO rules are living creatures, well capable of adjusting to changing realities" they could evolve to respond to new commercial and political needs and realities. He noted that "short of having a specific agreement on energy trade," energy already featured in various areas of the Doha round, such as negotiations on energy services and on environmental goods and services.

As the conference wrapped up, World Energy Congress Secretary General Doucet addressed climate change and trade, warning against a "trade war between those who are concerned over carbon emissions and those who are not." Such a trade war could come about if countries with stringent climate policies decided to make use of border adjustments with regard to imports from countries taking a lax approach to climate change mitigation. Under a climate change agreement with global by-in, such problems would be unlikely to surface.

Doucet also urged WTO Members to craft an international accord on renewable energy. Currently, standards, subsidies and other measures to encourage the development and use of renewable energy have not been considered within the WTO context in a comprehensive manner, and there is a lack of clarity with regard to the legality of some measures.

Embodied carbon in trade - who is responsible, and how should it be tackled?

A recent report from the Tyndall Centre for Climate Change Research at the University of East Anglia in the UK has raised questions regarding current carbon accounting systems, which are based on the nation state. Entitled "Who Owns China’s Carbon Emissions?," the report concluded that net exports accounted for 23 percent of China’s total CO2 emissions. This was due to China’s trade surplus and the relatively high level of carbon intensity of its economy.

The report called on developed countries to take strong first steps to tackle climate change in order to address their responsibilities both with regard to their historic and current real emissions, and to intensify technology transfer to developing countries, including economies they are sourcing large amounts of their consumer goods from.

Other commentators, such as New Economics Foundation Director Andrew Simms, has accused developed countries of ‘carbon laundering’ their economies by outsourcing polluting industries to developing countries. Trade unions and representatives of heavy industry have, on the other hand, raised concerns over jobs lost in developed countries due to industry relocating to developing countries with less strict climate standards - leading to carbon leakage and the same, or even larger, amounts of carbon dioxide ending up in the atmosphere.

At the World Energy Congress in Rome, Fatih Birol, Chief Economist of the IEA, noted the need to involve all actors, saying that "A third of Chinese emissions come from industrial activities aimed at producing goods to be exported throughout the world and this is why the problem should be tackled jointly by all countries. We have no alternative solution other than providing incentives and involving China in working towards a sustainable world."

As climate change negotiators from around the world meet in Bali from 4-13 December to create a roadmap for negotiations on a treaty to tackle climate change after 2012, when the current phase of the Kyoto Protocol expires, some of these discussions related to climate change and trade are likely to surface.

China, India key players with regard to future emissions

The International Energy Agency’s World Energy Outlook was released on 7 November, and focused on non-IEA members China and India in particular. The report noted that global energy consumption is going up, not down, and government inaction in several key policy sectors is to blame. The report confirmed that China is about to surpass the US as the world’s top energy consumer and carbon emitter, and said that India is set to overtake Japan and Russia in the next couple decades.

The IEA warned that governments must implement all policies in consideration now to have any hope of establishing a sustainable world. The World Energy Outlook showed that oil and gas imports, along with coal use and greenhouse gas emissions would rise to unimaginable heights by 2030, at rates even faster than predicted in last year’s report, unless effective policies were enacted. The world’s energy needs stood to increase by over 50 percent above present needs in 2030, said the report.

The report urged the international community to look seriously at India and China in the context of climate change mitigation, noting that their energy use was set to double between 2005 and 2030. The IEA set up an alternative policy scenario incorporating India and China, leading to a more secure, competitive and lower-carbon energy system. Under this scenario, global energy-related CO2 emissions would level off in the 2020s and global oil demand would be 14 million barrels per day lower than under a business as usual scenario.

The report encouraged governments to focus in particular on improving energy efficiency, as this would be the fastest way to curb demand and emissions growth short-term, especially for China and India.

Additional resources

To access Lamy’s speech at the World Energy Congress, see http://www.wto.org/english/news_e/sppl_e/sppl80_e.htm

To access the study on embodied carbon in trade, entitled "Who Owns China’sCarbon Emissions?" visit http://tyndall.webapp1.uea.ac.uk/publications/briefing_notes/bn23.pdf

ICTSD reporting; "Why China Could Blame Its CO2 on West," WALL STREET JOURNAL, 12 November 2007; ""The Next 10 Years are Critical - the World Energy Outlook Makes the Case for Stepping up Co-operation with China and India to Address Global Energy Challenges," IEA PRESS RELEASE, 7 November 2007; "INTERVIEW-IEA says energy outlook gloomiest ever," REUTERS, 7 November 2007; "China to Topple US as Top Energy User After 2010 - IEA," PLANET ARK, 8 November 2007; "China, India Growth Force Climate Change Action - IEA," PLANET ARK, 8 November 2007; "World to Stay Hooked on Fossil Fuels - IEA," PLANET ARK, 8 November 2007," AFP, 15 November 2007; "The Next 10 Years are Critical - the World Energy Outlook Makes the Case for Stepping up Co-operation with China and India to Address Global Energy Challenges," IEA PRESS RELEASE, 7 November 2007; "INTERVIEW-IEA says energy outlook gloomiest ever," REUTERS, 7 November 2007; "China to Topple US as Top Energy User After 2010 - IEA," PLANET ARK, 8 November 2007; "China, India Growth Force Climate Change Action - IEA," PLANET ARK, 8 November 2007; "World to Stay Hooked on Fossil Fuels - IEA," PLANET ARK, 8 November 2007."