For developing countries, broadening trading opportunities is essential to promote economic growth and fight poverty. Over the next decade, these countries will seek greater integration into the world trading system.

Thus far, the trade and environmental policy agendas of the countries’ governments (as well as the development institutions serving them) have mostly run on separate tracks. Yet if development in these countries is to be truly sustainable, the means of growth and poverty reduction must leave a smaller environmental footprint.

International Trade and Climate Change: Economic, Legal, and Institutional Perspectives provides a comprehensive look, from economic, legal, and institutional perspectives, at the intersections and potential synergies between climate change objectives and international trade obligations. The book identifies the key issues at stake, where they mesh and where they do not, as well as opportunities for aligning development and energy policies in ways that could stimulate production, trade, and investment in cleaner technology options.

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CHAPTER 1: Introduction and Overview

THE ECONOMIC, SOCIAL, AND DEVELOPMENTAL consequences of climate change have received increasing recognition worldwide. The Stern Review (2006) notes that climate change is a serious and urgent problem, global in its cause and consequences. Current actions are not enough if we are to stabilize greenhouse gases (GHGs) at any acceptable level. The economic challenges are complex and will require a long-term international collaboration to tackle them.

The recent report of the Intergovernmental Panel on Climate Change (IPCC) also categorically states that the impacts of climate change will vary regionally, but aggregated and discounted to the present, they are very likely to impose net annual costs that will increase over time as global temperatures increase (IPCC 2007).

The Kyoto Protocol remains the key international mechanism under which the industrial countries have committed to reduce their emissions of carbon dioxide and other greenhouse gases (see box 1.1).

A number of issues still need to be resolved with regard to the efficient implementation of emissions reduction goals. Although 172 countries and a regional economic integration organization (the European Economic Community) are parties to the agreement (representing over 61 percent of emissions), only a few industrialized countries are actually required to cut their emissions (see appendix 1 in this report for a list of Kyoto Protocol signatories and their emission targets). The United States, which is the world’s largest emitter, and Australia have not ratified the Protocol. The United States has conditioned its entry on further engagement of major developing country emitters, such as China and India.

In countries that have begun to implement the Kyoto regime, this disparity in commitments has fueled a debate on issues of competitiveness and other economic impacts.1 Businesses in many Kyoto-implementing countries have already started to urge their governments to ease competitive pressures through measures such as a border tax. A recent European Commission report suggests taxing goods imported from countries that do not impose a CO2 cap on their industry as a way to compensate for the costs of climate change measures. Stiglitz (2006) advocates that Europe, Japan, and others adhering to the Kyoto Protocol should restrict or tax the import of American goods to make up for the fact that U.S. producers do not incur GHG-related costs of production and, therefore, produce goods that are less responsible toward the environment. ...

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Acknowledgments:

This study is the product of a team composed of Muthukumara Mani (Task Team Leader and Senior Environmental Economist, ENV/World Bank), Chandrasekar Govindarajalu (Senior Environmental Specialist, ENV/World Bank), Hiau Looi Kee (Senior Economist, DECRG/World Bank), Sunanda Kishore (Consultant, ENV/World Bank), Eri Tatsui (Consultant, ENV/World Bank), Cizuka Seki (Consultant, ENV/World Bank), Sachiko Morita (Consultant, LEGEN/World Bank), and Mahesh Sugathan (Program Coordinator, Economics and Trade Policy/ICTSD).

In preparing this study, the team has greatly benefited from detailed comments by peer reviewers: Bernard Hoekman (Senior Advisor, DECRG/World Bank), Thomas Brewer (Associate Professor, Georgetown University), Richard Damania (Senior Environmental Economist, SASEN/World Bank), Donald Larson (Senior Economist, DECRG/World Bank), and Masaki Takahashi (Senior Power Engineer, ETWEN/World Bank).

In addition, the following people provided valuable inputs and written comments to the team: Kirk Hamilton (Team Leader and Lead Environmental Economist, ENV/World Bank), Charles E. Di Leva (Chief Counsel,LEGEN/World Bank), Laura Tlaiye (Sector Manager,ENV/World Bank), Giovanni Ruta (Economist,ENV/World Bank), Sushenjit Bandyopadhyay (Senior Environmental Economist, ENV/World Bank), Anil Markandya (Professor, University of Bath) and Moustapha Kamal Gueye (Senior Programme Manager, Environment Cluster/ICTSD). The team greatly appreciates the contribution and guidance on technical issues especially pertaining to the WTO from ICTSD. Editorial support was provided by Alexandra Sears and Robert Livernash. The Environment Sector Manager is Laura Tlaiye, and the Environment Department Director is James Warren Evans.

Environment And Development:

A fundamental element of sustainable development is environmental sustainability. Hence, this series was created in 2007 to cover current and emerging issues in order to promote debate and broaden the understanding of environmental challenges as integral to achieving equitable and sustained economic growth. The series will draw on analysis and practical experience from across the World Bank and from client countries.

The manuscripts chosen for publication will be central to the implementation of the World Bank’s Environment strategy, and relevant to the development community, policy makers, and academia. In that spirit, forthcoming volumes are expected to address environmental health, natural resources management, strategic environmental assessment, policy instruments, and environmental institutions.

Second volume in the series
Proverty and the Environment: Understanding Linkages at the Household Level

The Kyoto Protocol:

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) entered into force on February 16, 2005, following ratification by Russia. As of May 11, 2007, 172 countries and the regional economic integration organization (European Economic Community) have ratified, accepted, approved, or acceded to the Kyoto Protocol.

The UNFCCC includes the principle of “common but differentiated responsibilities.” Under the principle, as stipulated in Article 3, paragraph 1, of the UNFCCC, the parties agreed that (i) the largest share of historical and current global emissions of greenhouse gases has originated in developed countries; (ii) per capita emissions in developing countries are still relatively low; and (iii) the share of global emissions originating in developing countries will grow to meet their social and development needs.

Under the Kyoto Protocol, industrialized countries (called Annex I countries) have to reduce their combined emissions to 5 percent below 1990 levels in the first commitment period of 2008–12. Annex I countries include the industrialized countries that were members of the Organisation for Economic Co-operation and Development (OECD) in 1992, plus countries with economies in transition (the EIT parties), including the Russian Federation, the Baltic states, and several Central and Eastern European states. Countries that have accepted greenhouse gas emissions reduction obligations must submit an annual greenhouse gas inventory.

Non–Annex I countries (developing countries) that have ratified the Protocol do not have to commit to specific targets because they face potential technical and economic constraints. Nevertheless, they have to report their emissions levels and develop national climate change mitigation programs.

Although the average emissions reduction is 5 percent, each country agreed to its own specific target. Within the Annex I countries, differentiated national targets range from 8 percent reductions for the European Union (EU) to a 10 percent allowable increase in emissions for Iceland.

Further, while Annex I countries must put in place domestic policies and measures to achieve their targets, the Protocol does not oblige governments to implement any particular policy, instead allowing countries to seek optimal ways to achieve greenhouse gas emissions reduction and to adjust their climate change strategies to the circumstances of their economies. The Protocol defines three flexibility mechanisms to help Annex I parties lower the overall costs of achieving emissions targets. The three mechanisms—Joint Implementation (JI), the Clean Development Mechanism (CDM), and emissions trading—allow them to reduce emissions, or increase greenhouse gas removals, in other countries, where it can be done more cheaply than at home.

Source: UNFCCC, Essential Background, http://unfccc.int/essential_background/items/2877.php.

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