WTO-Related Matters in Trade and Environment:

This 2004 paper covers an issue of increasing importance in my mind. The failure of Copenhagen and the failure (so far) of the Doha round may in fact be partially explained by the need to bring negotiations on the environment and trade to the same table.

There are a complex set of interactions here and this paper sets the scene.

WTO-Related Matters in Trade and Environment: Relationship Between WTO Rules and MEAs [PDF]

Date: 2010
By: Aparna Sawhney
URL: http://d.repec.org/n?u=RePEc:ess:wpaper:id:2984&r=env

Environmental issues began to be systematically addressed in the WTO following the Decision on Trade and Environment taken towards the end of the Uruguay Round at Marrakesh in 1994. The Committee on Trade and Environment was established in the same year, with the explicit mandate to resolve environmental issues in the trading system. [WTO Research Series No. 5]

Keywords: Environmental, systematically. Trade, Environment,

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Trade, Environmental Regulations and Industrial Mobility

Here is a recent working paper from the nep-env working paper series. This just happens to one of my recent papers. Regulations matter for location.

The paper is forthcoming is the esteemed "Ecological Economics" (August 2010).

Trade, Environmental Regulations and Industrial Mobility:
An Industry-Level Study of Japan

Matthew A. Cole, Robert J.R. Elliott and Toshihiro Okubo

1 Department of Economics, University of Birmingham, UK
2 Research Institute for Economics and Business Administration, University of Kobe, Japan

Abstract
This paper contributes to the small but growing body of literature which tries to explain why, despite the predictions of some theoretical studies, empirical support for the pollution haven hypothesis remains limited. We break from the previous literature, which tends to concentrate on US trade patterns, and focus on Japan. In common with Ederington et al.’s (2005) US study, we show that pollution haven effects are stronger and more discernible when trade occurs with developing countries, in industries with the greatest environmental costs and when the geographical immobility of an industry is accounted for. We also go one step further and show that our findings relate not only to environmental regulations but also to industrial regulations more generally.

JEL: F18, L51, L60, Q56, R3
Keywords: Environmental regulations, trade, agglomeration, immobility, industry

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Climate Change and Trade Policy: From Mutual Destruction to Mutual Support

The relationship between trade, development and the environment is increasingly important and incidently the subject of a recent presentation that I did at the University of Nottingham (a future blog post will include the slides).

This paper was not part of my literature review but appears to cover some of the same issues.

The success of the GATT and WTO rounds have a number of lessons for future climate change negotiations.

Climate Change and Trade Policy: From Mutual Destruction to Mutual Support

Patrick A. Messerlin
Groupe d'Economie Mondiale at Sciences Po (GEM Paris)

World Bank Policy Research Working Paper No. 5378

Abstract:

Contrary to what is still often believed, the climate and trade communities have a lot in common: a common problem (a global "public good"), common foes (vested interests using protection for slowing down climate change policies), and common friends (firms delivering goods, services, and equipment that are both cleaner and cheaper). They have thus many reasons to buttress each other. The climate community would enormously benefit from adopting the principle of "national treatment," which would legitimize and discipline the use of carbon border tax adjustment and the principle of "most-favored nation," which would ban carbon tariffs. The main effect of this would be to fuel a dual world economy of clean countries trading between themselves and dirty countries trading between themselves at a great cost for climate change. And the trade community would enormously benefit from a climate community capable of designing instruments that would support the adjustment efforts to be made by carbon-intensive firms much better than instruments such as antidumping or safeguards, which have proved to be ineffective and perverse. That said, implementing these principles will be difficult. The paper focuses on two key problems. First, the way carbon border taxes are defined has a huge impact on the joint outcome from climate change, trade, and development perspectives. Second, the multilateral climate change regime could easily become too complex to be manageable. Focusing on carbon-intensive sectors and building "clusters" of production processes considered as having "like carbon-intensity" are the two main ways for keeping the regime manageable. Developing them in a multilateral framework would make them more transparent and unbiased.

Keywords: Climate Change Mitigation and Green House Gases, Climate Change Economics, Emerging Markets, Carbon Policy and Trading, Debt Markets

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WTO and natural resource cooperation

I could have called this post - "globalisation and the environment".

Next week I will be lecturing to Chevening scholars on "Climate Change, Trade and Development" that will consider the increasingly complex relationship between trade negotiations and environmental post 2012 negotiations.

How much overlap is there? Should there be any overlap?

The Doha round needs a considerable section on environmental compliance given the increasing use of environmental regulations that act as "secondary trade barriers". The WTO is central to progress in this area.

A forthcoming World Bank report by De Melo and Mathys will look at this issue is much more detail.

It is interesting therefore to see that WTO pushing forward on this issue.

WTO Seeks More Cooperation In Natural Resource Trade [PlanetArk]

The World Trade Organization called on Friday for countries to work together more closely in trade in natural resources -- an area often seen as exempt from many international commerce rules.

Governments must cooperate more intensively to deal with the challenges for both importing and exporting countries in trade in natural resources, such as export restrictions and import tariffs, it said in its annual World Trade Report.

"In a world where scarce natural resource endowments must be nurtured and managed with care, uncooperative trade policies could have a particularly damaging effect on global welfare," the report said.

The report defines natural resources as fuels, forestry, mining and fisheries -- goods that are found naturally and can be used with minimal processing. It excludes agriculture, where products are cultivated not extracted, and industrial goods employing minerals that require a high level of processing.

Trade in such goods in 2008 was $3.7 trillion in 2008, or nearly 24 percent of total world trade in merchandise goods, a share that has been rising by 20 percent a year for the last decade, reflecting rising commodity prices.

"I believe not only that there is room for mutually beneficial negotiating trade-offs that encompass natural resources trade, but also that a failure to address these issues could be a recipe for a growing tension in international trade relations," WTO Director-General Pascal Lamy said in a foreword to the report.

EXHAUSTIBLE RESOURCES

WTO rules allow countries to restrict exports of natural resources to preserve an exhaustible resource.

Zhao Hong, a diplomat at China's mission to the WTO, said at the launch of the report in Geneva that WTO members had inalienable rights to the resources on their territory, while WTO rules allowed them to pursue goals such as environmental protection or sustainable development.

The United States, European Union and Mexico have complained to the WTO about China's restrictions on raw materials, and the WTO itself has questioned whether these are effective.

Such restrictions, as well as measures by importing countries, are open to legal challenge, said Joost Pauwelyn, professor of international law at Geneva's Graduate Institute for International Studies.

It was an "urban myth" that natural resources are not covered by the WTO, he said at the launch.

For instance a country could not claim to use export restrictions to preserve resources if it did not restrict domestic consumption.

Similarly production restrictions by a country that exports almost its entire output of a natural resource could be challenged as an export restraint, while consumption taxes on a country that relies on imports for a product could be seen as tariff open to challenge.

Still, trade in natural resources is not the same as other products, as it raises environmental issues and competition is limited as production cannot be switched to other locations.

"Natural resources and energy are unevenly distributed between countries as well as fixed. BP will confirm this: you cannot move an oil well," Pauwelyn said.

Pauwelyn said he could envisage negotiations where exporters agreed to curb their export restraints in exchange for importers limiting carbon tariffs.

The report shows that non-WTO member Russia was the biggest exporter of natural resources in 2008, with a value of $341 billion, while the United States is the biggest importer, taking in $583 billion.

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Trade, Biolfuels and the environment

Within the globalisation and the environment family comes the introduction of biofuels into a Hecksher-Ohlin framework.

This is a potentially useful addition to the trade literature.

The Economics of Trade, Biofuel, and the Environment

Hochman, Gal, University of California, Berkeley and Ben Gurion University, Isreal;
Sexton, Steven, University of California, Berkeley;
Zilberman, David D., University of California, Berkeley and Giannini Foundation

Abstract
The introduction of renewable biofuels was associated with global food crisis and unintended environmental consequences. This paper incorporates energy environment and agricultural sector to the classic Hecksher-Ohlin model to address these issues. A household production function model was introduced to model consumer energy choices and concern about externalities related to climate change and open space. The conceptual model links energy and food markets and derives guidelines for the development of climate change and land-use policies. The results suggest that globalization and capital flows increase demand for energy, leading to decline in food production, increase in food prices, and loss of environmental land. Globally optimal outcomes may require introducing an emission tax and a land-use tax. The introduction of these policies may undermine the factor price equalization theorem. Policies that allow enhancing either agriculture productivity (e.g., agriculture biotechnology) or biofuel productivity (e.g., second-generation biofuels), are shown to lessen the resource constraint associated with the cost of introducing renewable energy.

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Climate change hits poor countries more than rich

The chaps over at EnvEcon have covered this AEA press release and has been covered in the Wall Street Journal.

The question raised is whether climate change discriminates against the poor? Now if I was to ask my class of undergraduates to vote I would hope that the vast majority would say yes. Of course the poor will be hardest hit. I was frankly be astonished if the results found anything else.

What did the authors expect to find? This is the dilemma that China and India face as I have blogged about many times. It is the poor countries that need a deal at Copenhagen but they are not, at this time, prepared to sacrifice growth for the environment. Down the line the cost-benefit analysis will be reversed and only then will be make significant progress.

Apart from this obvious point I remain unconvinced by the analysis in this paper although the approach is interesting.

Climate Change May Increase Income Inequality [WSJ]

It’s still hard to say whether a warming climate will hurt the world’s economy. But if history is any guide, it’s likely to increase the gap between rich and poor.

In a paper presented at the annual meeting of the American Economic Association, Ben Olken of MIT and Ben Jones of Northwestern University make an important discovery: In poor countries, a temperature increase of only one degree Celsius reduces annual export growth by as much as 5.7 percentage points. The decline occurs in a wide variety of products, ranging from footwear to firearms. In rich countries, by contrast, Messrs. Olken and Jones find no effect.

That’s troubling, given the fact that scientists expect the global climate to warm by two to five degrees Celsius over the next 90 years. “To the extent that the historical impact is a reasonable predictor of the future impact, we should be particularly concerned about the effect of warming on poor countries,” says Mr. Olken.

The new results support previous research done by Messrs. Olken and Jones together with Melissa Dell of MIT. That research found that in poor countries, a one-degree-Celsius temperature rise was associated with a drop in annual economic growth of one to two percentage points. Again, they found no effect in rich countries.

Why poor countries? Mr. Olken says it’s hard to know. One possibility is that poor countries are more vulnerable because they’re more dependent on agriculture, though the export data suggest that’s not the whole story. Another is that poorer countries have less access to air conditioning. Finding an explanation is “an important area for further research,” says Mr. Olken.

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Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?

Another paper to read. How they handle endogeneity is the key to the paper.

Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?

Quiroga, Miguel
Sterner, Thomas
Persson, Martin

Abstract:

We aim to study whether lax environmental regulations induce comparative advantages, causing the least-regulated countries to specialize in polluting industries. The study is based on Trefler and Zhu... more’s (2005) definition of the factor content of trade. For the econometrical analysis, we use a cross-section of 71 countries in 2000 to examine the net exports in the most polluting industries. We try to overcome three weaknesses in the empirical literature: the measurement of environmental endowments or environmental stringency, the possible endogeneity of the explanatory variables, and the influence of the industrial level of aggregation. As a result, we do find some evidence in favor of the pollution-haven effect. The exogeneity of the environmental endowments was rejected in several industries, and we also find that industrial aggregation matters.

ISSN: 1403-2465

The U.S. proposed carbon tariffs, WTO scrutiny and China's reponses

As the Copenhagen jamboree grinds towards its inevitable conclusion of vague promises this blog continues to watch as the arguments covered in this blog and elsewhere over the last 3 years get rehashed and presented by different politicians to other politicians with the result that nothing will change.

More interesting to an economist is how the new proposed "carbon tariffs" will distort trade and how China will react. Here is an early attempt at looking at this issue.

As far as abstracts go, this one is a little on the lengthy side and a little longer than the usual 100 words.

The U.S. proposed carbon tariffs, wto scrutiny and China's responses

Zhang, ZhongXiang (2009)

Abstract

With countries from around the world set to meet in Copenhagen to try to hammer out a post-2012 climate change agreement, no one would disagree that a U.S. commitment to cut greenhouse gas emissions is essential to such a global pact. However, despite U.S. president Obama’s recent announcement that he will push for a commitment to cut U.S. greenhouse gas emissions by 17% by 2020, in reality it is questionable whether U.S. Congress will agree to specific emissions cuts, although are not ambitious at all from the perspectives of both the EU and developing countries, without imposing carbon tariffs on Chinese products to the U.S. market, even given China’s own recent announcement to voluntarily seek to reduce its carbon intensity by 40-45% over the same period.

This dilemma is partly attributed to flaws in current international climate negotiations, which have been focused on commitments on the two targeted dates of 2020 and 2050. However, if the international climate change negotiations continue their current course without extending the commitment period to 2030, which would really open the possibility for the U.S. and China to make the commitments that each wants from the other side, the inclusion of border carbon adjustment measures seems essential to secure passage of any U.S. legislation capping its greenhouse gas emissions. Moreover, the joint WTO-UNEP report indicates that border carbon adjustment measures might be allowed under the existing WTO rules, depending on specific design features.

Against this background, this paper argues that, on the U.S. side, there is a need to minimize the potential conflicts with WTO provisions in designing such border carbon adjustment measures. The U.S. also needs to explore with its trading partners cooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at an international level. Moreover, to increase the prospects for a successful WTO defence of the Waxman-Markey type of border adjustment provision, 1) there should be a period of good faith efforts to reach agreements among the countries concerned before imposing such trade measures; 2) WTO consistency also requires considering alternatives to trade provisions that could be reasonably expected to fulfill the same function but are not inconsistent or less inconsistent with the relevant WTO provisions; and 3) trade provisions should allow importers to submit equivalent emission reduction units that are recognized by international treaties to cover the carbon contents of imported products.

Being targeted by such border carbon adjustment measures, China needs to, at a right time, indicate a serious commitment to address climate change issues to challenge the legitimacy of the U.S. imposing the carbon tariffs by signaling well ahead that it will take on binding absolute emission caps around the year 2030, and needs the three transitional periods of increasing climate obligations before taking on absolute emissions caps. The paper argues that there is a clear need within a climate regime to define comparable efforts towards climate mitigation and adaptation to discipline the use of unilateral trade measures at the international level. As exemplified by export tariffs that China applied on its own during 2006-08, the paper shows that defining the comparability of climate efforts can be to China’s advantage. Furthermore, given the fact that, in volume terms, energy-intensive manufacturing in China values 7-8 times that of India, and thus carbon tariffs impact much more on China than on India, the paper questions whether China should hold the same stance on this issue as India as it does now, although the two largest developing countries should continue to take the same positions on other key issues in international climate change negotiations.

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Does trade openness improve environmental quality?

A perfect "globalisation and the environment" paper that I need to read. Another one on the ever growing list.

The results appear plausible and the methods appropriate.

Does trade openness improve environmental quality?

Shunsuke Managia, Akira Hibikic and Tetsuya Tsurumia

Received 8 February 2008.
Available online 26 June 2009.

Abstract

The literature on trade openness, economic development, and the environment is largely inconclusive about the environmental consequences of trade. This study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique. We find that whether or not trade has a beneficial effect on the environment varies depending on the pollutant and the country. Trade is found to benefit the environment in OECD countries. It has detrimental effects, however, on sulfur dioxide (SO2) and carbon dioxide (CO2) emissions in non-OECD countries, although it does lower biochemical oxygen demand (BOD) emissions in these countries. We also find the impact is large in the long term, after the dynamic adjustment process, although it is small in the short term.

Keywords: Trade openness; Composition effect; Scale effect; Technique effect; Environment; Comparative advantage; Environmental regulations effect

JEL classification codes: F18; O13; L60; L50

Climate Policy Options and the World Trade Organization

A good summary article of the WTO - environmental position.

It is going to get very messy in my opinion especially with the US proposal to tax carbon imports. The authors of this article are correct to point out the almost certain challenges that will arise.

Climate Policy Options and the World Trade Organization [PDF]

Gary Clyde Hufbauer and Jisun Kim
Peterson Institute for International Economics, Washington

http://www.economics-ejournal.org/economics/journalarticles/2009-29

Abstract

This paper examines whether the climate policy options policymakers are contemplating are compatible with core principles of the world trading system set forth in the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and Appellate Body decisions. The authors argue that border measures—both import restrictive measures and export subsidies—contemplated in US climate bills and the climate policies of other countries stand a fair chance of being challenged in the WTO. Given the prospect of foreseeable conflicts with WTO rules, the authors suggest that key WTO members should attempt to negotiate a new code that delineates a large “green space” for measures that are designed to limit GHG emissions both within the member country and globally. By “green space,” the authors mean policy space for climate measures that are imposed in a manner broadly consistent with core WTO principles even if a technical violation of WTO law could occur. To encourage WTO negotiating efforts along these lines, the authors recommend a time-limited “peace clause” to be adopted into climate legislation of major emitting countries. The peace clause would suspend the application of border measures or other extraterritorial controls for a defined period while WTO negotiations are under way.

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WTO and Copenhagen linked in a death spiral?

If, as is likely, Copenhagen ends in failure will it spell trouble for the WTO? Pascal Lamy, head of the World Trade Organisation, certainly seems to think so. The FT report.

I happen to believe him. There are some rather odd proposals on how tariffs can be used to "punish" emitters although these are fundamentally flawed in my opinion.

This debate is what this blog is all about. The link between trade, FDI and the environment is absolutely crucial but needs to be understood. The US proposal to tax carbon in imports is madness.

Lamy fears spillover between climate and trade talks [FT]

Failure to find agreement at United Nations climate change talks in Copenhagen in December would threaten a much needed overhaul of the international trading system, Pascal Lamy, head of the World Trade Organisation, warned on Thursday.

His comments highlighted concerns that a breakdown in discussions about reducing greenhouse gas emissions may spill into the trade arena – with devastating effect, as some countries seek to exclude goods from high emitters.

India has already protested to Hillary Clinton, the US secretary of state, about the threat of carbon tariffs from environmental legislation proposed by the Obama administration.

Speaking as trade ministers from 39 countries met in New Delhi to progress the WTO’s Doha round, Mr Lamy cautioned against adopting trade measures to force changes in environmental behaviour.

“I sincerely hope that [agreement] will happen in Copenhagen. If it doesn’t happen, our job at the WTO will become more difficult,” Mr Lamy told the Financial Times. “Go-it-alone measures will not achieve the desired results. Relying on trade measures to fix global environmental problems will not work.”

He said world leaders, who meet at the Group of 20 in Pittsburgh, US, later this month, had to prioritise agreement on tackling climate change, ahead of discussion of how trade policy might be used to deepen environmental protection.

“I am of the firm conviction that the relationship between international trade and climate change would be best defined as a follow- up to a consensual international accord on climate change that successfully embraces all major polluters,” Mr Lamy said.

Some developing countries have expressed concerns about environmentally linked tariffs on imports by developed nations, as the pressure to cut greenhouse gases intensifies. They claim such tariffs are in effect protectionist measures.

The American Clean Energy and Security Act, passed by the House of Representatives in June, has fuelled concerns among developing countries that it may lead to punitive US border adjustment mechanisms, shutting out trade.

At a time when the developed world is trying to persuade growing economies like China and India to agree greenhouse gas emissions cuts, some climate change experts say threats to resort to trade measures are “dangerous”.

“The discussion of trade and climate is already out there,” said one expert. “That is a big risk for Copenhagen. Counter-measures are not a helpful dynamic. We have got to talk collaboratively.”

Trade negotiators are hoping that a successful conclusion of this week’s meeting in New Delhi will help put the revival of the stalled Doha round firmly on the agenda of the G20 meeting in Pittsburgh. Many view a trade deal as an economic stimulus to help the global economy recover from its downturn.

However, Mr Lamy said world leaders had to find the political will to embrace tougher global financial regulation to prevent a repeat of last year’s banking crisis and prepare the ground for the Copenhagen talks on climate change.

Anand Sharma, India’s commerce minister, on Thursday played down the prospect of a swift conclusion of the Doha round in spite of calls by some of his counterparts to home in on a few outstanding issues.

“Let’s be frank in acknowledging that even the unequivocal expression of political resolve has not been translated into action . . . It has been suggested that most issues have been settled almost in ‘end-game’. However, it would be apparent that there are still a few gaps and a large number of unresolved issues.”

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

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US should pay for carbon content

The blindingly obvious come back to the recent US regulation is summarised by the headline of this blog post. This is no surprise and shows why troubled negotiations are ahead.

It comes down to the simple question of whether the consumer or producer pays for the pollution caused by the production. If American consumers did not demand the product the pollution would not exist. Then we have the fact that a lot of the production in China is produced by US owned firms.

The US regulatory framework is flawed.

U.S. Should Pay for Carbon Content of Imported Goods: Locke [PlanetArk]

SHANGHAI - To address the serious threat of global warming, Americans should be required to "pay" for the carbon content of goods they consume from countries around the world, a top U.S. official said on Friday.

"It's important that those who consume the products being made all around the world to the benefit of America -- and it's our own consumption activity that's causing the emission of greenhouse gases, then quite frankly Americans need to pay for that," Commerce Secretary Gary Locke told the American Chamber of Commerce in Shanghai.

Locke spoke to the business group after meetings this week with Chinese Premier Wen Jiabao and other officials on how the two countries could work together to reduce carbon dioxide and other greenhouse gas emissions blamed for global warming.

Unless China, the United States and other countries begin to reduce output of the heat-trapping gases, the world faces a "catastrophe" in the form of more frequent floods, droughts and rising sea levels, Locke said.

The U.S. House of Representatives has passed legislation that creates a market for companies to trade permits to emit greenhouse gases, which would be capped at a certain level and then reduced over time.

The bill also contains "carbon tariffs" that would allow the United States to slap duties on imports of carbon-intensive goods such as steel, cement, paper and glass from countries that have not taken steps to reduce their own emissions.

Locke said Chinese officials raised concern about those provisions this week.

"They feel in essence it's a tax on their carbon activity," he said.

China has recently surpassed the United States as the world's largest emitter of greenhouse gases. Its emissions come largely from production of steel, cement, aluminum, paper and chemicals, most of which are consumed in China rather than exported.

In contrast, U.S. greenhouse gas emissions come mainly from domestic consumption, such as fuels to heat and cool buildings and to power vehicles. Only about 25 percent of U.S. emissions are caused by factories.

Though U.S. President Barack Obama has expressed concern about the House "carbon tariffs," Locke said it was an open question whether he opposed them or not.

"The president has not taken a position on any particular element of the legislation," Locke said.

"It's simply premature to talk about individual pieces of the legislation without seeing it in it's totality," Locke said, noting the Senate still has to pass its version of the bill.

Once that happens and negotiations begin between the House and the Senate, the administration will weigh in more heavily on various elements of the bill, Locke said.

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"Pollution and International Trade in Services"

Arik Levinson and his latest trade and the environment paper.

The bottom line is that services are relatively small polluters so Arik was never going to find much of real economic significance. Good to cover all bases though.

"Pollution and International Trade in Services"

NBER Working Paper No. w14936

ARIK LEVINSON, Georgetown University - Department of Economics, National Bureau of Economic Research (NBER)
Email: AML6@georgetown.edu

Two central topics in recent rounds of international trade negotiations have been environmental concerns, and services trade. While each is undoubtedly important, they are unrelated. In this paper I show that the services-environment link is small, for two reasons. First, services account for only a small fraction of overall pollution. For none of five major air pollutants does the service sector account for even four percent of total emissions; for three of the five services account for less than one percent. Second, those service industries that do pollute are the least likely to be traded internationally. Those services for which the U.S. collects and publishes international trade data - presumably those services that are traded internationally - are less polluting than services for which trade data do not exist - presumably because the services are not traded. Even if we limit attention to the services that are traded across borders, the service industries most intensively traded are the ones that pollute the least. The bottom line is simple. International services trade bears little relation to the environment, because services in general contribute relatively little to overall pollution, and those industries that are traded internationally are among the least polluting.

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US and Green Protectionism

The US move to become "greener" may have wider political implications. Such protests were not unexpected but China has a point.

Chinese official warns US on protectionism [FT]

A top adviser to the Chinese government on Tuesday warned that a proposed US border tax on carbon sensitive materials “smells of protectionism” and could spark retaliation from developing countries.

During a speech at New York University about how the US and China can forge a closer partnership, Tung Chee-hwa, vice-chairman of the Chinese People’s Political Consultative Conference (CPPCC), the Chinese government’s official advisory, said that a proposed “border adjustment” programme could be challenged through the World Trade Organisation and that he was “distressed” by the new bill introduced to Congress.

The programme in question was introduced earlier this month by two powerful Democrats in the House of Representatives. The bill includes aggressive climate targets to be met through a green house gas emissions cap and trade programme, where companies would be eligible for rebates to compensate for cost they incur. More controversially, the US government would be able to levy import taxes on foreign manufacturers to cover carbon contained in US-bound products.

“This is particularly unfair to China,” Mr Tung, who was chief executive of Hong Kong from 1997 until 2005, said.

In March, Steven Chu, US energy secretary, told Congress that a carbon border tax would help “level the playing field” with countries with looser carbon standards.

The legislation, introduced by Henry Waxman, California Democrat and chairman of the Energy and Commerce Committee and Edward Markey, Democrat from Massachusetts and Chairman of the Energy and Environment Subcommittee, aims to cut green house gas emissions by 20 per cent by 2020 and by more than 80 per cent by 2050, from 2005 levels.

The draft proposal would require electricity suppliers to get 25 per cent of their power from renewable sources, such as wind and solar, by 2025. It would establish a national renewable energy standard and an energy efficiency standard aimed at cutting power demand by 15 per cent by 2020 and natural gas demand by 10 per cent.

On Tuesday Mr Tung said that China was taking its own aggressive measures to combat climate change but that he was concerned about the US taking a more protectionist stance.

“The lesson from 1929 was that we went to protectionism and the whole world collapsed,” he said. “China and America are on the same boat.”

A vote could on the border tax bill could come as early as June, with the Senate expected to make its proposal in the autumn.

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International Trade in Used Durable Goods: The Environmental Consequences of NAFTA

A catch up on some must read papers in the "globalisation and environment" arena.

The results of this paper appeal as they are exactly what I would expect although the final line of emission increases due to a second life for cars that would otherwise be scrapped is less convincing. Clearly it depends on what happens in Mexico and whether the alternative is merely to prolong the life of even more polluting cars.

International Trade in Used Durable Goods: The Environmental Consequences of NAFTA

Lucas W. Davis
University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)
Matthew E. Kahn
University of California, Los Angeles (UCLA)

December 2008

NBER Working Paper No. w14565

Abstract:
Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.

JEL Classifications: F18
Working Paper Series

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Trade and the environment in action

How does the environment impact on trade? Another article that justifies this blogs existence.

The US steel industry "would say that wouldn't they".

It is interesting to note that US steel claim that "greening" their industry adds to significantly higher production costs. Is this via pollution abatement operating costs (PAOC) and pollution abatement capital expenditure (PAVE). The distinction as all good economists would know is crucial.

The Chinese counter-argument is correct though. Hence why a political solution to climate change is a long way off.

U.S. Big Steel pushes for carbon fees on China [Reuters]

NEW YORK (Reuters) - China's steel industry should face fees on its exports into the United States if Washington adopts greenhouse gas cuts and Beijing does not, U.S. steel industry officials and advocates said.

As President Barack Obama begins to form plants to regulate greenhouse gases, U.S. steelmakers are nervous they will lose market share if rapidly developing steelmaking countries, like China and India, do not commit to similar emissions goals.

U.S. steelmakers say they have already invested far more in pollution control on pollutants like particulates and components of acid rain, sharply boosting production costs.

"Chinese steelmakers enjoy an unfair advantage in global trade due to the lack of enforcement of exceptionally weak pollution standards," Scott Paul, the executive director of the Alliance for American Manufacturing, told reporters in a teleconference.

Paul said Chinese steelmaking emits two to three times as much carbon dioxide, the main greenhouse gas, as U.S. industry does. Also, U.S. steel production has fallen during the global recession, while China's has held mostly steady.

Terry Straub, a senior vice president at U.S. Steel Corp, said the industry hopes the U.S. Congress does not rush greenhouse gas legislation without considering how the rest of the world will cut emissions.

"Let's take the time to do this right and not do it in a hasty fashion and end up with a disaster on our hands," Straub said.

He suggested leveling the playing field by putting carbon fees on imports of steel to the United States from any country that does not regulate greenhouse gas regulations.

U.S. Energy Secretary Steven Chu has said that if other countries do not impose a cost on carbon emissions once Washington does, the United States would be at a disadvantage. The tax idea on imports was just one proposal the Obama administration should evaluate, he said.

Xie Zhenhua, head of China's Climate Change and Coordinating Committee, during a visit to Washington last week rejected as protectionist the idea of tariffs on countries that do not place a price on carbon dioxide emissions.

Chinese climate officials have said countries that buy Chinese goods should be held responsible for the CO2 emitted by the factories that make them in any global plan to reduce greenhouse gases.

The debate comes as representatives from nearly 200 countries plan to meet in Copenhagen late this year in an attempt to agree a new global climate treaty. China recently surpassed the United States as the world's top emitter of planet-warming gases.

The United States never ratified the Kyoto Protocol, which runs out in 2012, in part because big developing countries like China were not required to cut emissions.

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Institutionalized pollution havens

Hot off the press - a plug for two previous co-authors new paper just out in Ecological Economics.

Institutionalized pollution havens

Matthew A. Cole
Per G. Fredriksson

Abstract

A multiple-principal, multiple-agent lobby group model suggests that the effect of foreign direct investment (FDI) on environmental policies is conditional on the structure of host countries' political institutions such as the number of legislative units (veto players). The model also yields the novel concept of “aggregate honesty” which combines veto players and corruption. FDI raises environmental policy stringency where the number of legislative units are many (aggregate honesty is high), but reduces it where the legislative units are few (aggregate honesty is low). Our panel data evidence is fully consistent with these predictions. An additional contribution is to show the empirical importance of endogenizing environmental policy in Pollution Haven Hypothesis studies. Only when treated as endogenous does environmental policy have a significant negative effect on FDI.

Keywords: Political economy; Political institutions; Veto players; Pollution Haven Hypothesis; FDI

JEL classification codes: Q28; D72; D73; F18; F21

International Trade in Used Durable Goods: The Environmental Consequences of NAFTA"

A paper fit for any "globalisation and the environment" blog. This paper has everything as well as being written by fellow green economics blogger Matthew Kahn.

The results of this paper are exactly as I would have guessed which is always reassuring. What is more the conclusion is;

"trade is good for the environment".

Always a good result as a trade and environmental economist but one that the general public find trouble believing.


"International Trade in Used Durable Goods: The Environmental Consequences of NAFTA"

NBER Working Paper No. w14565
LUCAS W. DAVIS, University of Michigan at Ann Arbor - Department of Economics, National Bureau of Economic Research (NBER)
Email: lwdavis@umich.edu
MATTHEW E. KAHN, University of California, Los Angeles (UCLA)
Email: mkahn@ucla.edu

Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.


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"Trade and the Environment" Obama style

Whenever I hear US government officials talking about how trade deals must not be allowed to harm the environment it is clear all they are really talking about are new and ingenious trade barriers.

Now Obama seems to be jumping on this particular bandwagon. To be fair, the environment comes a poor second to the "workers". Another excuse for higher rather than lower trade barriers.

Historically, recessions tend to lead to greater protectionist policies which exacerbates the recession. It appears history is destined to repeat itself.

Trade Deals Must Protect Environment: Obama [PlanetArk]

WASHINGTON - The United States will insist on strong protections for the environment and for workers in future trade deals, President-elect Barack Obama said on Friday as he introduced his nominee to be chief U.S. trade negotiator.

Former Dallas Mayor Ron Kirk "will help make sure that any agreement I sign as president protects the rights of all workers, promotes the interests of all Americans, strengthens American businesses, and preserves the planet we all share," Obama said at a news conference in Chicago.

The focus on what Kirk described as a "values-driven" trade agenda could complicate efforts to complete the 7-year-old Doha round of world trade talks.

Many developing countries are suspicious of efforts to include binding labor and environmental provisions in trade pacts because they believe they could be used as an excuse by rich countries to block imports.

Obama has promised one of his first acts as president would be to call the president of Mexico and prime minister of Canada to begin negotiations to "fix NAFTA" by adding stronger labor and environmental provisions.

Although Kirk is little known in global trade circles, Obama said Kirk's experience as a big city mayor from 1994 to 2001 prepared him to be U.S. trade representative.

"Ron helped steer one of the largest economies. He's seen the promise of trade, but also its pitfalls, and he knows there is nothing inconsistent about standing up for free trade and standing up for American workers," Obama said.

Obama opposes a free trade deal the Bush administration negotiated with Colombia on grounds that the staunch U.S. ally has not done enough to reduce murders of trade unionists.

He also wants to renegotiate a Bush administration trade deal with South Korea. Obama has said the pact would open the U.S. market to more South Korean cars without sufficiently opening that country's market to more U.S. auto exports.

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Rethinking Globalisation Blog

Given the recent and ongoing financial crisis it is probably a good time to think carefully about how we got here and where we are likely to end up.

To this end, the inbox today informed me of a newly launched blog:

Rethinking Globalisation is a new blog from Global Trade Watch.


As you can see, they will be covering many of the same issues that I touch on in this blog but from more of a trade perspective.

It will be interesting to chart the blogs progress. Spelling "globalisation" with an "s" is a good start although this will cost them in terms of google hits.

This is a space for people to discuss issues and ideas about globalisation, global trade and global justice. To discuss and debate how the global economic system is affecting people and the environment. And to think about how more ecologically-sustainable, democratic and people-centred economic systems might be possible.

We’ll try to post new material every few days - please visit us regularly and please join the discussion by leaving your views in the comments section.

Finally, if you have any great ideas for this blog, please feel free to email us at info@tradewatch.org.au

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