Temporary Committee on Climate Change, European Parliament — Brussels

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Ladies and gentlemen, it is an honour to participate in this hearing on climate change and trade. There is no doubt that climate change is indeed one of the most serious international challenge of our times.

The issue of Climate Change intersects with international trade in a multitude of different ways. While the World Trade Organization does not have rules that are specific to the environment, to energy or to Climate Change per se, there is no doubt that the rules of the multilateral trading system — as a whole (i.e. the WTO “rule book”) — are indeed relevant to Climate Change.

In fact the Preamble the WTO Agreement explicitly mentions “sustainable development” as one of its fundamental objectives. Moreover the WTO rule book authorises its Members to give priority to environmental concerns, provided this is done in a non-protectionist manner. It is therefore not a case of trade “trumping” the environment.

Today, WTO Members have very different perceptions of what the trading system ought to do on climate change. While some would like to see the trading system curb its own “carbon footprint,” through the greenhouse gas emissions it generates in the course of the production, international transportation, and consumption of traded goods and services; others have different ideas.

Some would like to see the trading system offset any competitive disadvantage they suffer in the course of climate change mitigation. More specifically, they would like to see their economic burden shared more globally and proposed border measures proportionate to the costs they incur in curbing their own emissions.

And, of course, there are many different ideas floating on what these (quote unquote) “offsetting” measures may be, with most of the discussion naturally focussing on countries' most trade-exposed, energy-intensive, economic sectors like iron and steel and aluminium. For instance, while some are considering the imposition of domestic carbon taxes, with adjustment for those taxes at their border, others are contemplating emission cap-and-trade systems, with an obligation upon importers to participate in those systems.

Yet another group of members would prefer to focus on what is most immediately “deliverable” — if I may say so — by the trading system in terms of the fight against climate change. And by this, they mean the opening of markets to environmental goods and services; in particular to those that are relevant to climate change, through the ongoing Doha Round of trade negotiations. Europe has been particularly active in this chapter of the negotiation, and on this I will be elaborating.

Now, these are but a few of the ideas I have heard so far on how some would like to position the multilateral trading system on climate change. My starting point on this debate — as I said at the Trade Ministers' meeting that was convened in Bali last December on this subject - is to say that the relationship between international trade, the WTO, and climate change, would be best defined by a consensual international accord on climate change. One that successfully embraces all major emitters. In other words, until a truly global consensus emerges on how best to tackle the issue of climate change, WTO Members will continue to hold different views on what the multilateral trading system can and must do.

Let us take the issue of the international trading system's carbon footprint for a start. Much is said in the press everyday about the carbon footprint of international transportation. In fact, a new and emerging concept is that of “food miles.” In other words, the desire of Western consumers to calculate the carbon emitted in the course of international transportation, with many already drawing the conclusion that it may be better to (quote unquote) “simply produce goods at home” to minimize emissions.

  • But that argument does not always stand up to empirical verification. In fact, this point has been most sharply demonstrated in a number of studies that were commissioned by the European Parliament itself. And I am indeed grateful for the Parliament's intellectual contribution to this debate.

  • First, it is a fact that 90% of internationally traded goods are carried by sea. And maritime transport is by far the most carbon-efficient mode of transport, with only 14 grams of CO2 emissions per ton kilometre. Shipping is followed by train transport, then road transport. Air transport has by far the highest CO2 emissions per ton kilometre (a minimum of 600 grams), illustrating the high relative climate impact of such transport.

  • In addition, the studies conducted on the “carbon mileage” of traded goods, have shown that the issue can often be counter-intuitive, if I may say so.

  • For instance, some studies show that a Kenyan flower that is air-freighted to Europe emits 1/3d of the CO2 of flowers grown in Holland. Now, I am not saying that this will always be the case, but surely this is an issue in need of case-by-case analysis, and empirical verification. In the case of food, in particular, we must not ignore the cost of greenhouses in colder climates, and of energy-expensive out-of-season storage.

Only a multilateral approach to climate change would allow us to properly address these issues. A multilateral agreement, that includes all major emitters, would be the best placed international instrument to guide other instruments, such as the WTO, as well as all economic actors on how negative environmental externalities must be internationalized. Only with such an instrument can we move towards the proper pricing of energy.

Similarly, only such an accord could provide criteria for assessing when a measure at the country’s border is environmentally sound. In fact, an effective multilateral solution to climate change could and should do away with the need to (quote unquote) “offset” competitive disadvantages, when countries perceive themselves to be making equitable emission reductions. In other words, to be operating within an environmental architecture that would itself successfully level the playing field, based on recognized principles of international environmental law, such as Common but Differentiated Responsibility.

Now, in working towards an international accord on climate change, countries will certainly have to reflect on the role of international trade within such an accord. Trade can lead to efficiency gains, allowing countries to specialize in what they are best at producing. And trade can also lead to economic growth, offering countries the possibility of investing this growth in pollution prevention and abatement if they take the political decision to do so. But for the benefits of trade to truly materialize; in other words, for its efficiency gains to also translate into fewer greenhouse gas emissions, the right environmental context must be set for trade. In other words, energy, among others, must be properly priced in taking into account the relevant products and production processes. It would then be incumbent upon the trading system to respond to such environmental rules as soon as they are crafted.

In the absence of such parameters, it will be hard, if not impossible, for the WTO to develop a coherent position on the matter. Each of its members will have a different interpretation to offer on how the playing field may best be levelled. And I would caution against such an outcome; the world could end up with a real spaghetti bowl of “offsetting” measures that achieve neither nor trade nor environmental goals.

I understand, though, that some WTO members are increasingly beginning to lean towards a “go-it-alone approach” in tackling climate change — if I may call it so. The motivations behind such a “go-it-alone approach” are numerous:

  • Some believe that an international accord may not actually materialize, and would like to gain time in their fight against climate change.

  • Others believe that it could materialize, but that an “interim” go-it-alone approach could actually help put pressure on the conclusion of an international accord. In other words, it could act as a deterrent against failure, since countries that would refuse to join the post-Kyoto regime would know exactly the kinds of consequences that would await them.

  • And finally, yet others are of the view that the go-it-alone approach may not necessarily be incompatible with a post-Kyoto regime, depending on how it is designed. In fact, they would seek to design a post-Kyoto system that actually fits the national approach that they have already opted for.

To this, I have only words of caution. As laudable as the objectives may be for such an approach, the consequences for international trade of conflicting national approaches could be dire — with exporters finding themselves confronted with a web of potentially conflicting requirements to fulfill. Worse, such approaches — precisely because they are unilateral — may not succeed in saving the planet. The planet's climate change problem — which is a global problem - will not be solved by only one or two players, deciding on their own to penalize the remainder of their trading partners. It could simply lead to a diversion of trade, that is, a change in trading patterns, with no significant reduction in emissions.

Many of those advocating a “go-it-alone” approach draw on WTO jurisprudence, in particular on the Shrimp-Turtle reports from the WTO Appellate Body to argue that the WTO has finally opened the door to unilateral action. First, allow me to point out that, as important as the Shrimp-Turtle Case may be, it dealt only with shrimps and turtles. And by this, I do not mean to belittle either shrimps or turtles - do not misunderstand me! What I am simply saying is that climate change mitigation measures, of the sort that some are now advocating, would be likely to affect a whole range of different economic sectors, like the entirety of the aluminium and steel sector for instance. They would have an entirely different economic reach.

Second, the Shrimp-Turtle Case, has set several conditions which would need to be respected for unilateral measures to be green-lighted. Such as, for instance, that all efforts first be made to achieve an consensual multilateral accord. In addition, many thorny questions — both economic and legal - would have to be tackled in whatever go-it-alone legislation emerges, to make it WTO-proof. Questions such as how you calculate the greenhouse gas emissions of others, how you would compare them to your own, and how you would build “flexibility” into your system to accommodate the specificities of other trading partners would all be part of the uphill climb. So you should be under no illusions that this is somehow an easy approach.

Finally, let me now turn to the last point which I had raised in my introduction, which is the immediate contribution that the WTO can make to the fight against climate change. I believe it is the case with respect to the opening of markets to clean technology and services. The Doha Round of trade negotiations offers an avenue for expanded access to products such as scrubbers, air filters and energy management services.

Today, the global market for environmental goods and services is estimated to be worth more than $550 billion dollars every year. The OECD estimates that green services account for 65% of this market and green goods 35%. Climate change prevention and mitigation products and services represent an important proportion of these numbers.

Launched within a broader context of the Doha Round's environmental chapter, which also includes issues such as the reduction of fisheries subsidies, and enhancing the mutual supportiveness between WTO rules and multilateral environmental agreements, the negotiations on environmental good services could deliver a double-win for some our members. These are all issues which Europe in particular has been actively fighting for, and they would constitute a big win for the environment and big a win for trade.

However, these negotiations require a greater outreach by Europe, if you would allow me to say so, to the rest of the world. Some WTO members have yet to be convinced of the climate mitigation credentials of some of the products that Europe and others have put on the table. Similarly, many of the WTO's developing country members argue that even if these negotiations are environmental, they must nevertheless deliver a “trade gain” if they are being conducted under the roof of the WTO. Europe must turn its attention to these matters, it must do more. The developing world is in search of both an economic and an environmental gain through these negotiations — and rightly so.

I thank you for your attention.

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