Warming Up to Trade? Harnessing International Trade to Support Climate Change Objectives

Abstract

This study on harnessing international trade to support climate change objectives assesses the following: 1) What are the main policy prescriptions for reducing greenhouse gases that are employed by OECD countries and how do they impact the competitiveness of their energy-intensive industries? 2) On account of the impact on competitiveness, is there is leakage of energy intensive industries from OECD countries to developing countries? 3) Under what conditions can one justify trade measures under the WTO regime? What are the impacts of levying trade measures on trade flows and emissions? 4) What are the underlying trade and investment barriers to the use of clean energy technologies in developing countries? 5) In addition to tariff and non-tariff barriers, are there other issues impacting the diffusion of clean energy technologies in developing countries? 6) Is liberalization of renewable and clean coal technologies a plausible solution to assisting developing countries in achieving a low-carbon growth path? 7) What conditions are necessary for negotiating a "climate-friendly" package under the current WTO framework? The key findings and recommendations of this report include: a) Industrial competitiveness in Kyoto implementing countries suffers more from energy efficiency standards than from carbon taxation policies; b) Industrial competitiveness affected by carbon taxation policies are often offset by "policy packages"; c) Some evidence supports leakage of carbon-intensive countries to developing countries; d) Trade measures can be justified only under certain conditions; e) The proposed EU "Kyoto Tariff" may hurt the United States' trade balance; f) Varied levels of tariffs are impediments to clean energy technology diffusion in developing countries.