Diversifying Exports in the Context of Climate Change Overcoming - - PowerPoint PPT Presentation

Diversifying Exports in the Context of Climate Change

Overcoming the new physical and regulatory constraints

Jodie Keane Research Officer, Trade Program Panel: Designing New Development Strategies for LDCs in 2011-2020 EADI/DSA Conference “Rethinking Development in an Age of Scarcity and Uncertainty” University of York, 22nd September 2011



Climate change will necessitate changes in:

• what is produced,
• what is traded, and
• how it is traded.



In addition to the physical effects of climate change, changing rules and regulations are likely to shape trade in a future carbon constrained world.

• This could include global and national efforts to price carbon and other greenhouse

gases (GHGs)

• at the point of production, or consumption
• which may have related impacts on global trade flows.

 How will the physical and regulatory impacts of climate change affect export

diversification strategies in the future?

• Will climate change hinder export-oriented growth strategies?
• Where are the new opportunities?
• How do existing strategies need to adapt?

Climate Change and Changing Trade Patterns

 Diversifying exports is a necessary part of the process of development and

structural change.

• It is particularly important for small countries, given the constraints of their domestic
• market. It is always a difficult process which may become more so because of the

physical impacts of climate change.

• New regulatory measures to reduce global greenhouse gas (GHG) emissions may

impose new constraints.

• But there may also be new market opportunities, which are less sensitive to overall

levels of income.  Strategies in the past were underpinned by shifting patterns of production, open

markets and trade preferences.

• Recent contributions to the literature offer insights into how we expect production

structures to evolve in the absence climate change (Hesse, 2009).

• But tends to ignore more macro- and policy-related constraints, as well as
• pportunities, e.g. trade preferences and FDI.
• Although some ingredients from successful strategies in the past may be relevant,

late industrialisers now face a different trade environment.

Effects on Export Diversification Strategies

How do Existing Strategies Need to Adapt?

 Broadly defined, strategies will need to adapt in terms of:

• increasing the resilience of existing productive structures;
• moving into new products and services related to global climate change mitigation

efforts; and

• making full use of rights provided by the international trade regime.

 Adapting in this way means that existing export diversification strategies

may be strengthened

• Requires a comprehensive growth and development strategy to be in place.

The New Physical Constraints

How to increase resilience of existing productive structures

• Increased uncertainty: Increases in temperature and reductions in rainfall.
• Increased frequency of shocks: Flooding, droughts, extreme weather events.
• Because adverse shocks are likely to become more frequent mechanisms to

help commodity exporters cope will need updating and enhancing:

– ex ante rather than ex poste – new indicators of vulnerability

• Other insurance schemes, e.g. Global Index Insurance Facility (GIIF),

payments triggered on rainfall, variation of temperature.

• Need to climate-change proof existing investments. Increase the resilience of

existing productive structures.

• Could be linked to existing trade facilitation instruments, such as Aid for Trade.

Vulnerability of the Agricultural Sector to the Physical Effects of Climate Change

• 40
• 35
• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 Without carbon fertilization With carbon fertilization

• 25
• 20
• 15
• 10
• 5

5 10 Malawi Kenya Ethiopia Mali Mozambique Without carbon fertilization With carbon fertilization

Figure 1a. Estimated impact on agricultural production (% increase/decrease)

Note: Based on the estimates of Cline (2007);

Figure 1b. Estimated impact on agricultural Exports (% increase/decrease)

Source: WDI; UNComtrade for nearest year

2,000 4,000 6,000 8,000 10,000 12,000 14,000 E.Asia & Pacific Europe & C.Asia L.America & Carib. M.East & N.Africa N.America S.Asia SSA Total GHG emissions (MTCO2e) Excluding LUCF Including LUCF

Source: Derived from data obtained from World Bank (2009b) and WRI (2009).

Figure 2: Total CO2e emissions by region (2000)

Agricultural Sector and Carbon Markets

Source: Vatn and Angelsen (2009) in Angelsen et al. (2009)

Institutionalising Funding for Carbon

The New Regulatory Constraints:

How to overcome these and create new opportunities

• The WTO does not have specific provisions to deal with climate change.
• There is serious uncertainty regarding the post-2012 UNFCCC regime.
• Unless a comprehensive agreement is reached, countries may resort to various

unilateral trade measures.

• Both the revised EU Emissions Trading Scheme (ETS) Directive and the recent

US Clean Energy and Security Act will require importers to participate in emissions trading schemes.

• This is even if importing countries are under no obligation to reduce their emissions

under the Kyoto protocol.

• If importers don’t purchase these allowances, border tax adjustments (BTAs) will be

levied.

• Likely to violate WTO non-discrimination rules because they discriminate between

products based on where and how they are produced.

• Remedy: WTOs dispute settlement mechanism?
• Or levying a carbon exports tax - result in revenue being retained rather than being

transferred.

 In the absence of an ambitious new international climate agreement, the EU’s

Emissions Trading Scheme (ETS) will allow certified emissions reductions credits (CERs) obtained from new Clean Development Mechanism (CDM) projects only from LDCs as of 2013.

 The EU’s ETS and carbon market has been the major purchaser of CERs under the CDM

established by the Kyoto Protocol, to date.

 CERs from deforestation and forest degradation (REDD) essentially represents a new

market for existing products, to be included from 2020.

• CERs can be obtained through improving the management of forestry reserves and

enhancing carbon sequestration processes.

• There may be a need for trade related assistance in order to access new carbon

market opportunities: technical and financial barriers.

Accessing New Markets

Reducing Distortions in Others

 Firms within emissions trading schemes being allocated permits for free

• Inclusion of the aviation industry within the EU’s ETS likely to be highly contentious,

particularly if permits are allocated for free to the European aviation industry.

• Could violate the WTO agreement on subsidies and countervailing measures because

it is a type of subsidy.  Subsidies to support renewable energy

• Concerns have been raised over the level of subsidy provided to producers of biofuels

in the EU and US.  Standards

• Biofuels sustainability schemes developed by the US and EU introduce social and

environmental criteria.

• Shifting production to the most carbon efficient producers will not happen if LDCs

cannot demonstrate their lower carbon costs.

• The UNFCCC has already developed guidelines on how to measure the carbon content
• f land which suggests that further links could be made between the trade and

climate change regimes.

Concluding remarks

 New factors are likely to shape comparative advantages in a carbon

constrained world.

• These opportunities include soil carbon markets, certified low carbon products, and
• ther climate-change related services.
• LDCs may need assistance to tap into new trade opportunities related to global

efforts to mitigate climate change.

– Assist diversification efforts; – reduce vulnerability to physical effects of climate change

• Should make full use of their rights at the WTO and UNFCCC.

 It is crucial that the post-Kyoto climate change regime is designed so as to

minimize potential areas of conflict with the multilateral rules of trade.

• Policy makers need to address the regulatory gaps and potential clashes between the

trade and climate change regimes

• Develop the potential synergies between the regimes.
• Ensure the post-2012 climate change regime facilitates rather than hinders the process
• f export diversification and structural change.