A perfect storm : Ensuring trade promotes resiliency and adaption against climate change threats

2 February 2009

In the coming years, least developed countries (LDCs), small and vulnerable economies (SVEs), and small islands developing states (SIDS) are expected to face increasing levels of climate-related threats such as droughts, floods, and hurricanes. Given their economic and trade specialization in sectors like agriculture, fisheries, and tourism – major impact-takers under climate change – these countries are rendered even more vulnerable to such natural disasters.

Yet, the interests and concerns of smaller developing countries in climate change negotiations remains largely unaddressed. As such, some of the responses to the challenges of climate change could indirectly hurt LDCs, SVEs, and SIDS. For instance, a levy on fuels or emission trading schemes on shipping and aviation, which are under discussion at the International Maritime Organization, will result in higher transportation costs with a potential negative impact for countries like SIDS, which are remotely located and have a large trade exposure. On the other hand, the funds generated could be channelled to developing countries to promote adaptation and mitigation strategies.

Measures like carbon labelling and food miles, which are now extensively used, can be detrimental for developing countries as well. In fact, the rise of standards and ecolabelling, which are often the result of private initiatives, threaten to become a non-tariff barrier to market access. Eco-labels usually signal only one part of the carbon footprint – namely transport, where countries in the South have a distinct disadvantage – while ignoring other parts of the production process. Yet, exporters operating in developing countries often produce goods that embody less carbon emissions. Therefore, different labelling schemes that consider the “life cycle” of foodstuffs – that is, the total carbon emissions of a product in all the supply chain from production to distribution – may benefit LDCs, SVEs, and SIDS producers. Moreover, carbon schemes should be simple, transparent, and involve low transaction costs in order not to constitute barriers to market access for smaller developing countries.

In the context of climate change mitigation and adaptation, technology also plays a key role both as a cause and as a potential solution to the problem. Here, current trade rules and discussions constitute an important obstacle for transferring more efficient technologies and promoting innovation in developing countries. As an example, the patents regime limits access to technology and the downstream adaptation of technology in developing countries. In general, the current Intellectual Property Rights (IPRs) system does not provide incentives to invest in technologies that protect public goods, like the environment. In this context, many development advocates encourage that IPRs be amended to provide both incentives in the North to develop new clean technologies that are useful in the South, and to foster innovation in LDCs, SVEs, and SIDS.

Furthermore, current discussions on liberalizing Environmental Goods and Services (EGS) should include the technologies and know-how that are relevant for smaller developing countries, like ocean thermal energy conversion and fuel cells. Developing countries, however, are concerned that they will end up liberalizing other goods as well, which do not have any environmental end use. But the liberalization of EGS, like the reform of IPRs, is crucial to favour the diffusion of those green technologies that contribute to climate change mitigation and adaptation.

To enhance the mitigation, adaptation, and resilience in LDCs, SVEs, and SIDS, sustainable development advocates believe it is also essential to promote technical assistance, capacity building, foreign direct investment, and other financing mechanisms. In particular, climate change and trade-related financing mechanisms could be used in a complementary and reinforcing manner. These instruments could focus on strengthening the competitiveness and resilience of smaller developing countries, facilitating the diversification of their economies into less vulnerable sectors, and promoting a strategic climate adapted trade policy at the global level.

In the coming years, further research is needed to identify the specific needs, requirements, and priorities of LDCs, SVEs, and SIDS, and to understand the links between trade and climate change. In particular, new trade rules should support the climate change agenda and facilitate the use of eco-friendly goods, services, and technologies and promote innovation both in developed and developing countries. Market-based instruments such as carbon labels and emission trading schemes may provide incentives to use greener technologies and reduce carbon emissions, as well. But these instruments should be effective, efficient, and equitable for developing countries in terms of potential trade impacts (e.g. market access) and in accordance with the principle of common but differentiated responsibilities.

Author: Paolo Ghisu is a member of the Competitiveness and Development programme with ICTSD.

1. The recommendations and findings of this article are based on a meeting organized by ICTSD, Chatham House, and the Commonwealth Secretariat in Geneva on 20-21 November 2008. The meeting intended to explore the interface between trade and climate change for LDCs, SVEs, and SIDS from a competitiveness, adaptation, and resilience perspective, and to identify policy priorities and future research agendas.

For further information contact: Gloria Carrión (gcarrion@ictsd.ch), Moustapha Kamal Gueye (gkamal@ictsd.ch), or Paolo Ghisu (pghisu@ictsd.ch) and/or visit www.ictsd.net/i/events/dialogues/32447/

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