Trade, Climate Change and Global Competitiveness: Opportunities and Challenges for Sustainable Development in China and Beyond

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Climate change policies aimed at controlling emissions of greenhouse gases (GHG) are leading to realignment in the production and consumption of goods and services around the world. As Annex I Parties to the Kyoto Protocol are taking up various measures ranging from energy-efficiency standards, carbon cap-and-trade programmes and carbon taxes, concerns have been raised that industries in these countries will find themselves at a disadvantageous position vis-à-vis countries where such mandatory measures may not be implemented. There is growing fear that this may lead to “carbon leakage” and industrial relocation from OECD to non-OECD countries, especially for energy-intensive industries, such as steel, cement and chemicals targeted by climate policies. As a major emerging economy not bound by mandatory GHG reduction obligations, China is at the centre of some of these concerns.

In the context of international trade, some countries are worried that by implementing stringent climate change policies they will have to compete with exports from countries where costs of production may be lowered as a result of the absence of mandatory emissions reduction obligations on producers. These concerns have prompted calls within industry as well as by politicians for the introduction of measures, including trade measures, to offset competitive imbalances and level the playing field vis-à-vis “climate free riders”. Rhetoric over the use of border tax adjustments and measures with similar effects has particularly been prominent in this regard.

China is poised to weigh heavily on the process and outcome of these debates through its domestic policies and modalities of its participation in the crafting of multilateral regulatory frameworks. In that context, a number of opportunities and challenges for sustainable development arise for China and the international community at large.

This collection of papers is meant to bring together views and perspectives from a wide range of experts and analysts both within China and internationally to contribute to the debate on issues in the trade– climate change relationship that may impact on global competitiveness, with a particular focus on the role of China. Chapter 1 provides an overview of issues in the WTO-Kyoto Protocol relationship that pertain to competitiveness. It situates the debate on the impact of climate change measures undertaken by Annex I countries on competitiveness, discusses approaches being considered in response to such competitiveness concerns and highlights some of the key questions of particular concern to China.

The second chapter presents current policies related to climate change in China and examines key elements of the recently adopted National Climate Change Programme, including challenges that China is likely to face in its implementation. The paper also discusses most likely scenarios regarding China’s role in a future climate change regime (post-Kyoto) and the implications for global efforts to tackle climate change.

Chapter 3 provides an analysis of the effects of climate change measures adopted in OECD countries on international trade and competitiveness. The chapter presents initial empirical evidence obtained on the impact of carbon taxes and energy efficiency standards on international trade flows and competitiveness. It addresses the question of whether or not “carbon leakage” is occurring and whether China is benefiting from industrial relocation from OECD countries in energy-intensive industries. The chapter finally examines to what extent climate change policies are driving positive developments in global competitiveness.

Concerns over competitiveness were invoked by the US to justify its non-ratification of the Kyoto Protocol. Such concerns have recently been common in many Kyoto Protocol Annex I countries. This has led to a debate over the need for measures such as border tax adjustments to enable industry in countries subjected to mandatory emissions reduction obligations to insure that conditions are equal vis-à-vis countries that have not accepted similar obligations. In that context, Chapter 4 discusses initiatives being considered in the EU and the US, which may have important implications for China.

As its exports to OECD countries expand, China is bound to comply with increasingly stringent energy efficiency and other climate related standards. Moreover, Chinese exports of certain products such as energy efficient light bulbs have been subjected to anti-dumping measures in the EU. Chapter 5 examines the impact of these measures on China’s exports of electric and electronic goods and discusses how industry within China is responding to trade and climate-related policy measures. Finally, the chapter discusses how these measures may be acting as drivers for improvement in resource and energy efficiency and competitiveness in China.

Technological development is a central aspect of climate change mitigation. Access to advanced technologies, including transfer of technology, will enable developing countries to enhance their capacity to reduce their emissions of greenhouse gases and “leap-frog” in their process of development. Chapter 6 examines the question of whether or not there will be barriers related to intellectual property for developing countries to access clean energy technologies. It does so by analysing the industry structure and intellectual property implications in three clean energy sectors –
solar photovoltaic, biofuels and wind energy technologies.

This paper is part of ICTSD’s Trade and Sustainable Energy series, published under its programme on Trade, Climate Change and Sustainable Energy. The programme aims to generate policy-oriented and solutions-focused knowledge on key issues at the interface between the multilateral trading system and various regimes and initiatives promoting the transition to a sustainable energy future.

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