Sumario: 18 September 2008, Oslo - Speech by Peter Mandelson, EU Trade Commissioner, "Is climate change policy incompatible with free trade?", at the Seminar on Climate Change
Trade is just one of the many areas of our lives in which we will have to do things differently to address the climate crisis. Like almost all of our transport, trade is powered by carbon-based energy. That will have to change. But transport is only one part of trade's environmental impact - and it is not always the case that locally produced goods have a lower carbon footprint. It depends on the energy and efficiency with which they can be made in different places. A tomato grown and
shipped to Europe from Senegal produces less carbon than a tomato grown in an artificially-heated greenhouse in Europe.
Making economic growth as carbon neutral as possible is a technical challenge, but it is also an issue of global equity. Why do I say that? Because any strategy for addressing climate change that does not respect the right of developing countries to a level of economic prosperity broadly equivalent to ours simply will not fly in the developing world. An approach to climate change that kicks away the ladder from the developing world simply won't work. So we are going to have to break the link
between economic growth and rising carbon emissions through new power sources, more efficient energy use and new patterns of behaviour, not by stifling economic growth.
The question I'd want to address is: how can trade policy help us make those changes? I see two important areas where it can.
Firstly, trade is our basic means for spreading green technology. Carbon emissions targets rely on the political and social will to change the way we do things. But they also rely on the technologies that will enable us to change. Those technologies are goods and services that are traded like any other.
One of the biggest challenges of climate change is not just powering new innovations in generating and using energy, but transferring those innovations from market to market. Especially into the industrialising developing world. Technology transfer is driven by cross-border investment and trade.
An example that should motivate us is mobile telephony in India. Markets are spreading mobile phone technology at the rate of about 6 million new phones every month - even into remote rural areas, even where there are no conventional fixed phone networks. The same has got to be possible for solar panels, or energy-saving water heaters or wind turbines for generating electricity.
That's why the EU has been a key advocate of a new multilateral green goods and services agreement as part of the Doha Round and as a support to any global deal on climate change. In fact, without an open global market in green technology, any new global emissions reduction deal would start life with at least one hand tied behind its back. This is, in my opinion, the most important potential contribution of trade policy to the climate agenda. So we have to get it right.
What the EU has been pushing for is an agreement that would eliminate all tariffs on a range of key basic environmental technologies identified by the World Bank. It would also open up markets for investment in green services - like expert advice in managing environmental waste, or building energy efficient buildings.
These are competitive strengths shared between developed and developing countries. China is developing into one of the world's biggest producers of wind turbines. India has strong advantages in energy saving water-heating technology. There is a generation of waste management firms that have become world leaders by managing the growing cities of Latin America. So there is a convergence of responsibility and shared opportunity between North and South.
Secondly, trade policy can help us incentivise good environmental policy, at home and in others.
Through our trade preferences the EU offers lower tariff rates to developing countries that have ratified and implemented environmental agreements like the Kyoto Protocol.
In the area of logging we are currently working on legislation that will create obligations for traders to monitor the sourcing of timber to be sure that it comes from certified legal sources that are managed responsibly.
We also use our FTA negotiations to encourage climate change goals: we prioritise liberalisation of environmental goods and ask for commitments on sustainable management of natural resources.
The elephant in the room when we talk about trade incentives for the right climate policy is of course the idea of a carbon border tax. This is intended to punish free-riders who don't sign up to a global climate deal and who therefore don't bear the competitiveness costs of paying for the carbon they emit. In the jargon they benefit from 'carbon leakage' - carbon that is used without being paid for. The Commission recognised the potential risks of free riding in its January package - in
particular in relation to energy intensive industries.
Clearly the best way to stop carbon 'leaking' out of a global regulatory system is to make sure that nobody stays outside of the system. That is why the Commission's priority has always been a comprehensive international climate agreement that has no free-riders.
There are also numerous potential complications with a carbon tax. Border measures may provide some relief to energy intensive industries, but there would be pitfalls and negative side effects for other sectors and consumers. Measures would be extremely difficult to administer and enforce. Input prices for industry would rise, which would in turn push up prices of European exports and reduce competiveness.
Border measures could also invite retaliation and provoke a negative spiral of protectionism, under the pretext of environmental protection. Quite aside from the fact that it is technically difficult to design a measure that is WTO compatible.
Most importantly, we cannot really address the problem of free-riding until we know the extent of it. So first we must be sure we have done everything we can to secure a globally inclusive climate change package for the post-2012 period, with all the key players inside.
It is clear that the problem and the debate on carbon leakage won't go away. But right now we should be focusing on building a global coalition for a new global climate treaty. Tough talk on a climate tax will only alienate the very partners we need to get on board. I think the Commission's action reflects this reality.
Conclusion
A world of unregulated free trade might have negative consequences for the environment: but that's not the world we live in. The market is not shaped only by raw commercial interests. States can regulate the use of natural resources - it's often in their long term interests to do so. They can regulate carbon emissions cuts - even if it means difficult change for industry. The EU has led the way here in its proposals agreed earlier this year and which our member states will be considering
between now and the end of the year.
We can look at any of these points in more detail. But my basic argument is this: we should be thinking of trade as part of the climate change solution rather than the problem. Our first priority should be to secure a climate change agreement that gives us a global roadmap for emissions reductions. Our second is a trade policy that supports that.
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