A Bad Climate Trade-off

Worth A Look, Climate, Frontier Centre

The high priests of climate change are wrapping up their latest meeting today in Poznan, Poland, where the United Nations is hosting a conference on global warming. But don’t expect a real solution to emerge. While most of these politicians and negotiators concur global warming is a man-made problem, there is still fierce opposition to the quickest method for spreading man-made solutions: free trade.

Numerous technologies already are on the market or in development that can increase energy efficiency or directly reduce the volume of global emissions. Solar panels provide an alternative source of power generation for countries currently dependent on carbon-dioxide-emitting energy such as coal. Clean coal technologies can significantly reduce pollution from existing coal-fired power stations. Fluorescent lamps can increase energy efficiency over traditional lighting systems.

But trade protectionism inhibits the international spread of these and other technologies, especially to high-polluting developing countries. Low-carbon technologies are classed as “manufacture” and are treated as an industrial good on each country’s tariff schedules. Developing countries have high tariffs on industrial goods as a form of industry protection. A 2007 World Bank study found that of four major low-carbon technologies — clean coal, wind, solar and fluorescent lamps — tariff and nontariff barriers can be as high as 160% among the top 15 greenhouse-gas-emitting developing countries. Such products also face stiff nontariff barriers like quotas and import ceilings.

Even worse, many developing countries are now calling for compulsory licensing of patents on low-carbon technologies to reduce their cost. Under this regime, governments ignore patents on these technologies and allow for local production or importation of knock-offs. At last year’s United Nations Framework Convention on Climate Change Meeting in Bali, Nigerian Environment Minister Halima Tayo Alao argued that patents are a “barrier” to transferring low-carbon technologies to developing countries.

In reality, compulsory licensing may give countries access to cheaper technologies in the short run, but in the long run, the incentive to invest in new technologies is diminished. Patents encourage innovation by letting inventors profit from their hard work. A World Bank report published in 2007 found that weakening patents will actually harm the transfer of low-carbon technology to developing countries.

Environmentalists, oddly, are supporting protectionists on both tariffs and patents. Environmental NGO Friends of the Earth, for instance, has argued that tariffs on low-carbon technologies are necessary “to enable developing countries to build their own supply capacity in developing environmental products.” This is fundamentally mistaken. Low-carbon technologies are in their developmental infancy. Suggesting developing countries will innovate the next generation of low-carbon technologies is a fantasy.

Some leaders do recognize the problem. The European Union and the United States have been leading the charge in favor of an Environmental Goods and Services Agreement which would separate low-carbon technologies from other manufactured goods on tariff schedules, paving the way for tariff reductions on these products. It would also make it easier to spot and reduce nontariff barriers. Unfortunately, these talks are making little progress. Developing countries like Brazil and India fear that conceding too much in these talks will diminish their leverage in broader trade negotiations underway in the Doha Round.

Leaders in Poznan are talking loudly of the need to reduce global carbon dioxide emissions, but until they put their trade policies where their mouths are, it will be just a lot of hot air.