Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
Circular Mail - received from the ICTSD, 10.11.2011 18:13 |
ICTSD Global Platform on Climate Change, Trade and Sustainable Energy
Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
the Global Platform on Climate Change, Trade and Sustainable Energy
is pleased to share with you a brand new piece of research, "Fostering
Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
The paper, which has been prepared by an
ICTSD-team with the lead authors being Mahesh Sugathan and Ricardo
Melendez-Ortiz, is part of a joint initiative on the promotion of
sustainable energy, undertaken by the Global Green Growth Institute, the
Peterson Institute for International Economics and ICTSD.
The issue paper highlights the role
of trade in contributing to massively scaling up and deploying renewable
energy, a crucial step in supporting a shift away from fossil fuel so
as to ensure energy security and to address climate change. It
identifies a number of barriers to trade in sustainable energy goods and
services (SEGS), while pointing to a significant governance gap in a number of key issue areas in the trade and sustainable energy interface.
The authors argue that this can best be addressed by negotiating
a trade agreement on sustainable energy. Such an agreement could initially take the form of a plurilateral agreement including a critical mass of major economies and emitters,either within or outside of the WTO.
We hope that the paper and the idea of a
trade agreement on sustainable energy will spark debate and stimulate
fruitful discussions, with the aim of contributing to a low carbon
International Centre for Trade and Sustainable Development (ICTSD)
International Environment House 2
7 Chemin de Balexert, 1219 Geneva, Switzerland
Tel: +41 22 917 8492 Fax: +41 22 917 8093
E-mail: firstname.lastname@example.org Internet: www.ictsd.org
Publisher and Director: Ricardo Meléndez-Ortiz
Programmes Director: Christophe Bellmann
Programme Manager: Ingrid Jegou
Programme Officer: Mahesh Sugathan
This research paper is part of a joint initiative on promotion of sustainable energy, undertaken
by the Global Green Growth Institute, ICTSD, and the Peterson Institute for International
Economics. It has been conceived and written by an ICTSD team comprised of Ricardo Meléndez-
Ortiz, Mahesh Sugathan, Ingrid Jegou, Christophe Bellmann, Joachim Monkelbaan and Malena
Sell. Lead authors are Mahesh Sugathan and Ricardo Meléndez-Ortiz. Background research and
editorial support have been provided by Sonja Lubecki, Sofia Baliño and Giacomo Pascolini.
The paper builds mostly on ICTSD work undertaken since 2008, including a model sustainable
energy agreement discussed and presented in the contexts of the WTO, the UNFCCC, the Global
Green Growth Forum in Copenhagen, October 2011, and the World Economic Forum’s Global
Agenda Councils initiative, in response to its proposed 2010 SEFTA.
ICTSD is grateful to Rene Vossenaar and Olga Nartova for their valuable suggestions, comments
This paper was produced under the ICTSD Global Platform on Trade, Climate Change and
Sustainable Energy. ICTSD acknowledges the support of ICTSD’s core and thematic donors
including the UK Department for International Development (DFID), the Swedish International
Development Cooperation Agency (SIDA); the Netherlands Directorate-General of Development
Cooperation (DGIS); the Ministry of Foreign Affairs of Denmark, Danida; the Ministry for Foreign
Affairs of Finland; the Ministry of Foreign Affairs of Norway; Australia’s AusAID; the Inter
American Development Bank (IADB); Oxfam Novib.
For more information about ICTSD’s work on trade and climate change, visit our website: www.
ICTSD welcomes feedback on this document. These can be forwarded to Mahesh Sugathan,
The views expressed in this publication are those of the author and do not necessarily reflect
the views ICTSD or its funding institutions.
ICTSD Global Platform vii
Chief Executive, ICTSD
The current stalemate in the WTO Doha negotiations, along with the ‘single undertaking’ approach
that requires trade-offs and links among a widely divergent set of issues, may also be working
against effectively addressing critical and sensitive energy-related issues and barriers as part of
a formal WTO ‘negotiating round’.
In such a scenario, the paper argues that it may be worth looking at the possibility of a
Sustainable Energy Trade Agreement as a stand-alone initiative that could address these barriers
and enable trade policy to advance climate change mitigation efforts and increase sustainable
This agreement could be initially pursued as a plurilateral option, either within or outside the
WTO framework. It could serve to catalyse trade in sustainable energy goods and services while
seeking to address the needs and concerns of participating developing countries, many of which
may not be in a position to immediately undertake ambitious liberalisation in sustainable energy
goods and services.
This paper was conceived and written by an ICTSD team comprised of Ricardo Meléndez-Ortiz,
Mahesh Sugathan, Ingrid Jegou, Christophe Bellmann, Malena Sell, and Joachim Monkelbaan. It
builds on ICTSD work that has been undertaken since 2008, including the mapping of key climatefriendly
goods, the identification of trade-related drivers and barriers, and the development of
a model sustainable energy agreement that has already been discussed and presented in the
contexts of the WTO, the United Nations Framework Convention on Climate Change (UNFCCC),
and the World Economic Forum’s Global Agenda Councils initiative.
This paper was produced under ICTSD’s Global Platform on Climate Change, Trade and Sustainable
Energy. One of the objectives of this Platform is to identify trade policies that contribute to a
rapid diffusion and transfer of clean technologies around the world and provide new incentives
for innovation and investment in climate-friendly technologies.
We hope that you will find the paper to be a thought-provoking, stimulating, and informative
piece of reading material and that it proves useful for your work.
Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
The transition to a low-carbon economy will require a greater switch to sustainable energy, as
conventional fossil fuel-based energy use is a major driver of greenhouse gas emissions. It will
also entail the deployment of energy efficiency measures in both conventional power generation
and end-use sectors, such as buildings, industry, and transport, in addition to the deployment
of cleaner, low-carbon transport fuels and technologies. Such measures will also contribute to
reducing countries’ dependence on certain types of fossil fuels whose supplies may be unreliable
Globally, as the Intergovernmental Panel on Climate Change (IPCC) has noted, energy supply is the
largest single source of greenhouse gas emissions. The challenge to de-carbonise production and
economic activity comes at a time of rapid expansion in energy demand, and in a context in which
half of the world’s population currently has no access to modern forms of energy.
In 2004 conventional energy supply and its related use in the buildings, industry and transport
sectors were responsible for about 70 percent of global GHG emissions. More recent estimates from
the International Energy Agency (IEA) placed such emissions at a record high of 30.6 Gigatonnes (Gt.)
in 2010 alone, making the targets set by the international community to limit climate temperature
rise to a maximum of 2 degrees centigrade (36 degrees Fahrenheit) extremely difficult to meet.
Indeed, for the “pathway to be achieved, global energy-related emissions in 2020 must not be greater
than 32 Gt. This means that over the next ten years, emissions must rise less in total than they did
between 2009 and 2010,” the IEA notes. Non-clean energy sources - i.e. fossil fuels - currently
account for about 80 percent of emissions worldwide, and existing infrastructure and projects in
construction are estimated to already lock-in to 2020 approximately 20 percent of those emissions.2
The geographical distribution of GHG emissions is highly heterogeneous, as is energy consumption.
While they only host a fifth of the world’s population, 40 percent of emissions continue to be
generated in OECD countries, and 40 percent of energy demand is located there. Meanwhile, 75
percent of the growth in emissions in 2010 came from an energy-deficient developing world that is
experiencing long-term economic growth trends.
The UN has declared 2012 as the International Year of Sustainable Energy for All, and its Advisory
Group on Energy and Climate Change - composed of major energy companies and UN agencies - has
recommended universal access and a 40 percent increase in energy efficiency in the next 20 years.
If these recommendations are implemented, this could reduce global energy intensity by 2.5 per
cent per year, approximately double the historical rate.
Cutting energy-related emissions in half by 2050 would require deep de-carbonisation of the power
sector. To maintain the same level of output, fossil fuel use would need to be offset by sustainable
energy.; the largest increase, according to the World Bank’s 2010 World Development Report,
would have to come from renewable energy sources
The World Bank report illustrates the enormous magnitude of the effort to increase the shard of lowcarbon
energy to 30-40 percent by 2050 from present levels of 13 percent. This would imply, over
the next 40 years, deploying annually an additional: 17,000 wind-turbines (producing 4 megawatts
[MW]each hence 68000 MW annually); 215 million square metres of solar photovoltaic panels, 80
concentrated solar power plants (producing 250 MW each); and 32 nuclear plants (producing 1000
MW each). As an example of comparison for wind, the biggest capacity addition in wind energy
since 1995 happened during 2008-2009 when close to 40000 MW was added, according to the
World Wind Energy Association.
ICTSD Global Platform ix
A positive development, however, has taken place in the area of financial new investment in
renewable energy, which has been growing steadily. A number of studies have also highlighted
the greater job-creating potential for sustainable energy as compared to the fossil-fuel sector.
Sustainable energy, for the purposes of this paper, includes solar, wind, small-scale hydro and
biomass-related fuels, technologies and services, but could broadly encompass any energy source
that has the potential to mitigate greenhouse gas emission. Sustainable energy usually has a high
relative cost compared to conventional fossil fuel energy. This disparity stems largely from the fact
that there is no proper pricing mechanism for carbon or the negative environmental externalities
associated with fossil fuel use. A further burden on sustainable energy is imposed through subsidies
provided to fossil fuels by governments worldwide.
Domestic policies aimed at encouraging the development of sustainable energy usually focus on
regulatory and fiscal measures such as renewable portfolio standards or on fiscal incentives such
as tax-credits. Such measures reduce both investment and production-related costs for renewable
energy producers. Domestic sustainable energy promotion policies also work to increase consumer
demand, either through a system of incentives such as tax reduction on solar home equipment or
regulations such as mandatory purchase requirements. A similar set of policies can also influence the
supply of, and demand for, sustainable transport fuels and technologies.
For a sustainable energy power plant, the upfront technology and capital equipment costs coupled
with the costs associated with support services constitute a major portion of the overall expense
burden. While many governments seek to bring down the costs of sustainable power, they may also
simultaneously try to meet other policy objectives. These objectives include creating a manufacturing
base for sustainable energy equipment and generating local jobs.
While synergies are possible, it can become difficult for policymakers to balance these oftenconflicting
objectives. It may be difficult, for instance, to seek sustainable power production at
the lowest cost possible when power producers are facing import restrictions on technologies and
equipment of the quality and prices they desire.
Global manufacturing and services companies operate through a complex network of supply chains.
These chains allow companies to optimise production costs by sourcing components and services
from their most efficient production/supply locations. Hence, policies that prevent or constrain
supply chain optimisation increase costs, and consequently prices, for sustainable energy goods and
Barriers to supply chain optimisation can be triggered by both sustainable energy- and trade related
policies. Some of these measures (such as tariffs) may be de-jure trade restrictive, while others
may have a de-facto trade restrictive impact in the way that they are designed or implemented.
On the other hand, many broader policies supportive of sustainable energy, such as the removal of
fossil-fuel subsidies, may also have a positive impact on trade in SEGS.
Non-tariff trade-related barriers to SEGS are diverse and may range from domestic support measures
for biofuels to export restrictions of critical raw materials and various modes of services supply.
Local content requirements are one policy that many countries use to create domestic jobs in
sustainable energy manufacturing, specifically by mandating the use of locally-made components
or technologies in sustainable energy projects. Countries may also link incentives or subsidies
to power producers to the use of local equipment. Such measures have already triggered trade
disputes at the World Trade Organization (WTO) and, if their use spreads, may generate further
trade frictions in the future. Other domestic sustainable energy policies may have no foreseeable
x Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
impact on trade. A number of countries that are amongst the greatest emitters of greenhouse
gases both on an absolute as well as per capita basis also figure amongst the top exporters and
importers of these goods.
Other trade and market barriers could be sparked by domestic laws and measures linked to
investment, government procurement, competition policy and trade facilitation, or possibly by
their absence. A great diversity of product-related standards or, on the contrary, an absence
of standards could also `hamper trade and diffusion of renewable energy equipment, as well as
energy efficient products.
It is imperative, therefore, for countries interested in facilitating diffusion and access to sustainable
energy goods and services to start addressing these trade-related barriers. Trade in Sustainable
Energy Goods and Services (SEGS) is affected by rules and disciplines that are developed in
multilateral, plurilateral, regional, and bilateral forums. These include the WTO as well as other
regional trade agreements and bilateral investment treaties. In addition, trade in sustainable
energy goods and services is affected by negotiating and rule-making forums set up to address
broader issues of climate change, such as the United Nations Framework Convention on Climate
Change (UNFCCC), or issues of energy transit, such as the Energy Charter Treaty.
Governing over the use of certain types of barriers can be addressed through existing WTO rules or
potentially as part of the Doha Round of trade negotiations. However, while WTO disciplines and rules
could be invoked in certain cases, they are often ambiguous as far as the energy sector is concerned.
For example, a comprehensive and universally accepted classification of energy services, including
sustainable energy services, is missing in the WTO nomenclature. Liberalisation negotiations for such
services will involve diverse sectors such as engineering, construction, maintenance and consultancy.
This could lead to an incoherent approach within WTO negotiations and ineffective outcomes as far
as meaningful market access for sustainable energy services is concerned.
Doha negotiations on environmental goods (including those relevant to trade in sustainable energy
equipment) have been bogged down by differences between members over scope and coverage, as
well as the modalities of liberalisation. Services negotiations too have been making extremely slow
progress. Issues that were originally on the table for negotiations, such as investment, competition
policy, and transparency in government procurement were dropped from the Doha negotiating
agenda following the lack of an ‘explicit consensus’ at the WTO Ministerial Conference in Cancun
in 2003. The Doha Round as a whole is presently stalled, following a lack of agreement in a number
of critical areas, such as non-agricultural market access (NAMA) – i.e. manufactured goods. The
‘single-undertaking’ approach of the WTO, whereby ‘nothing is agreed until everything is agreed’,
makes it very difficult in current circumstances to address energy-related issues as part of a large
and comprehensive set of multilateral trade negotiations.
A major forum outside the WTO relevant to sustainable energy is the UNFCCC negotiating framework.
This framework, however, faces challenges of its own and may not be the appropriate place to
negotiate trade rules and to introduce operational provisions for addressing trade and market
barriers to SEGS. Another Forum could be provided by the Energy Charter Treaty (ECT), especially
since it covers transit and investment-related provisions on energy. However, membership in the
ECT is not universal and excludes many countries that matter. Important emerging countries,
including China and India, are not yet part of the ECT. Furthermore, at a substantive level the
ECT addresses issues of transit and investment related to energy, but has no framework to traderelated
concessions on SEGS. Individual regional or bilateral trade agreements may also be limited
in terms of membership and may not include important countries that matter for SEGS trade.
ICTSD Global Platform xi
All these factors show that it is worthwhile to consider a fresh approach that takes a holistic
and integrated view of the sustainable energy sector, while simultaneously addressing a variety
of market and trade-related barriers. A Sustainable Energy Trade Agreement (SETA) could be a
way to bring together countries interested in addressing climate change and longer term energy
security while maintaining open markets. Numerous possible pathways could be conceived for
such an agreement in terms of structure, as well as the scope of issues and market barriers to
A SETA could be a stand-alone plurilateral agreement similar to the Government Procurement
Agreement (GPA) at the WTO. Alternatively, it could extend concessions on a most favoured nation
MFN) basis to all WTO Members, similar to the Information Technology Agreement (ITA), with such
an extension made conditional on the accession of a ‘critical mass’ of Members based on various
trade, climate, or energy-related criteria.
A SETA could also be conceived as a stand-alone plurilateral agreement outside of the WTO, the
advantage in this case being that membership would also be open to other, non-WTO Members.
There could also be a possibility of eventually incorporating such an agreement into the WTO
framework at some point in the future. If concluded outside the WTO, Members would need
to clarify the agreement’s relationship with existing WTO rules and agreements, including with
regard to any dispute settlement mechanisms.
Numerous possibilities also exist with regard to the manner in which the scope of issues and
market barriers could be addressed within a SETA. Issues could be addressed in two phases, with
a first phase addressing clean energy supply goods and services, starting with solar, wind, smallhydro
and biomass and eventually extending to marine, geothermal, clean coal, and transportrelated
biofuels. A second phase could address the wider scope of energy efficiency products and
standards, particularly those related to the priority sectors identified by the Intergovernmental
Panel on Climate Change (IPCC) for GHG mitigation: buildings and construction, transportation,
and manufacturing. Negotiators could take up issues as a ‘cluster’ or proceed incrementally on an
issue by issue agenda.
Each of these approaches has its own pros and cons. Whatever the approach adopted, negotiators
should ensure that the ‘development dimension’ is reflected in the modalities, including special
and differential treatment for developing countries as well as meaningful provisions on facilitating
access to climate-related technologies, technical assistance, and capacity building.
While not a ‘silver bullet’ remedy for all the trade-related issues and challenges on sustainable
energy, a SETA might facilitate alternative or innovative approaches to liberalising sustainable
energy goods and services. It could provide an environment conducive to assessing the linkages
between sustainable energy goods and energy services, and serve as an ideal ‘laboratory,’ where
rules and disciplines pertaining to sustainable energy could be clarified and take shape.
In addition to its catalysing effect on world trade in a sector of huge importance to global climate
mitigation efforts, such an agreement could constructively inform, and perhaps even shape the
course of future negotiations and work at the WTO as well as the UNFCCC.
1 Fostering Low Carbon Growth: The Case for a Sustainable Energy Trade Agreement
The challenge to de-carbonise production and
economic activity, especially when coupled
with a rapid expansion of energy consumption
(projected at 25 percent every ten years3)
has made it imperative for countries and
communities to undertake a major scale
up in the use of clean energy sources and
technologies. At the same time, half of the
world’s population currently has no access to
modern forms of energy. In 2004 conventional
energy supply and its related use in the
buildings, industry and transport sectors were
responsible for about 70 percent of global GHG
emissions. More recent estimates from the
International Energy Agency (IEA) placed such
emissions at a record high of 30.6 Gigatonnes
(Gt.) in 2010 alone, making the targets set by
the international community to limit climate
temperature rise to a maximum of 2 degrees
centigrade (36 degrees Fahrenheit) extremely
difficult to meet. Indeed, for the “pathway to
be achieved, global energy-related emissions
in 2020 must not be greater than 32 Gt.
This means that over the next ten years,
emissions must rise less in total than they did
between 2009 and 2010.”4 Non-clean energy
sources – i.e. fossil fuels – currently account
for about 80 percent of emissions worldwide,
and existing infrastructure and projects
in construction are estimated to already
lock-in to 2020 approximately 20 percent of
[p. 68] Addressing market barriers related to
sustainable energy goods and services will
facilitate cost reductions, however small, in
the provision of sustainable energy. This is a
critical step in global climate change mitigation
efforts, given the significant contribution of
the energy sector to global carbon dioxide and
other greenhouse gas emissions.
Many of the key greenhouse gas emitting
countries are developing policies to promote
the scaling up of sustainable energy generation.
While these policies are commendable,
countries should ensure that such policies do
not run afoul of existing trade disciplines and
that these policies enable fair competition
in the growing market for sustainable energy
technologies and services. Such technologies
and services are most often produced and
traded between the countries that are major
emitters and have introduced proactive
sustainable energy policies.
Given the common goals of these countries
to address climate change, as well as ensure
free and fair trade, it would make sense for
these countries to negotiate an agreement
on sustainable energy that is holistic,
comprehensive, and addresses the main
market barriers. Market and trade barriers
are addressed within the context of WTO
and regional trade negotiations; rules and
disciplines regarding such barriers are also
being developed in various other forums.
However, these rules are scattered and diffused
amongst sectors and countries and do not offer
an integrated solution.
The WTO represents the most comprehensive
approach, but the difficulties plaguing the
Doha negotiations mean that urgent action
on a trade and market-friendly response to
climate change is at risk. A sustainable energy
trade agreement (SETA) – independent of
negotiations on other issues within the WTO –
represents an alternative option. SETA could be
housed within or outside the WTO Framework
and could proceed independent of the ongoing
A SETA would certainly not be a ‘silver bullet’ for
addressing all the problems plaguing negotiations
in the WTO or the UNFCCC. For instance, the
‘dual-use’ controversy arising in the Doha
environmental goods negotiations would not go
away under a SETA approach, but the SETA might
facilitate alternative or innovative approaches to
liberalising such goods. A SETA framework would
also enable WTO members to think beyond the
confines of specific committees, such as the
CTE, NAMA, TBT, GPA, and the Services and
A SETA would allow for a holistic perspective
on sustainable energy, whether the goods
involve manufactures such as solar panels, or
possibly agricultural ones, such as ethanol. The
agreement could address a broader diversity of
barriers that may be more difficult to take up
under the WTO’s ‘single undertaking’ approach.
Because SETA would focus on a specific sector,
sustainable energy, political buy-in may be
easier to achieve than if these barriers were
to be negotiated across a wider range of goods
Furthermore, SETA could potentially bring under
its ambit high GHG emitters such as Russia and
Kazakhstan, which are not yet members of the
WTO. While these countries may not be big
players as far as trade in sustainable energy
goods and services are concerned, this could
change with the new trade and investment
opportunities that a SETA might bring.
Moreover, the SETA will provide an environment
conducive to assessing the linkages between
sustainable energy goods and sustainable
energy services, allowing for a truly meaningful
liberalisation exercise. Ultimately, the SETA
could be an ideal ‘laboratory’, where rules and
disciplines pertaining to sustainable energy
could be clarified and take shape. Like the ITA
for information technology products, the SETA
could have a catalysing effect on world trade
- this time in a sector of huge importance to
global climate mitigation efforts. All of this
could constructively inform, and perhaps even
shape the course of future negotiations and
work at the WTO as well as the UNFCCC.