Save Money as you Save the Planet

1 percent of global GDP is the price tag that researcher Nicholas Stern famously put on the level of investment necessary to fight climate change. That was in 2006. By 2008, he had doubled the figure. Whatever the true costs are, climate change mitigation is bound to be expensive. And this is only part of the story, since additional money will be needed to cope with the consequences of climate change. There is no need to watch science-fiction disaster movies to get a sense of the power of nature – just look at the disaster that Hurricane Katrina wrought on New Orleans. Maintaining biodiversity and limiting water and air pollution will also need further investments. The list is long, the price is steep.

As epitomized by the failed 2009 Copenhagen conference of the UN Framework Convention on Climate Change (UNFCCC), the difficulty of global climate change negotiations arises over the question of “who foots the bill”. Keeping these costs low is especially important in countries like China and India, which, albeit among the world's heaviest greenhouse gas emitters, face a tough trade-off between fighting climate change and alleviating poverty. The mitigation costs also have an important political twist: the higher the costs, the longer we seem to wait before taking decisive action. Such dynamics only lead to even greater costs further down the road. Top negotiators warn that disagreements in multilateral negotiations on climate change are unlikely to be bridged in time for the next Conference of the Parties, scheduled this December in Cancun, and that the hope for a legally binding agreement to renew the Kyoto Protocol now lie with the 2011 meeting in Cape Town.

Although the recent economic downturn has lowered the costs of achieving greenhouse gas reduction objectives, this relief is only short-term and concerns OECD countries more than global economic powerhouses such as China and India. Another effect of the economic crisis will be longer lasting, however: empty Treasury chests. As budget deficits and national debts spin out of control, the US, Europe and Japan cannot be relied upon to multiply their expenditures to “green” their economies. This leads to difficult challenges: How will the research and development for energy saving technologies and renewable energies be financed? How will enhanced infrastructure such as public transportation, charge stations for electric cars, efficient energy transmission grids and well-insulated buildings be paid for? Even more doubtful is whether rich countries will transfer the hundreds of billions of US dollars required to rein in emission growth in developing countries.

In the quest for the magic bullet, some have argued that weakening the protection of intellectual property rights would reduce the cost of spreading state-of-the-art technologies and therefore reduce the costs of fighting climate change. Such shortsighted views, however, ignore the fact that this would also serve to undermine incentives for future innovations, and, along with it, any chance to afford a decent standard of living for the nine billion people that will populate the world in 2050.

Magic bullets are rare, but they do exist. More often than not, they are simpler than one might think. In a nutshell, governments should stop creating obstacles to the free flow of goods and services that help fight climate change. Trade liberalization would make these goods and services more readily available in every country and drive down prices. A better integrated world market for climate-friendly products and services would also spur innovation as successful companies would reap bigger rewards.

The 153 members of the World Trade Organization (WTO) have been negotiating the removal of trade barriers on so-called “environmental products and services” for almost a decade. They seem to be caught in an inextricable definitional quagmire: is a product environmentally friendly if it has been produced with few resources and little pollution? Or if it has a clear environmental function, such as cleaning water and air? Or is even an energy-efficient laundry machine an environmental product? The issue becomes still more intricate when one looks at border practicalities. Goods do not only have one purpose. Combined heat and power plants, water treatment facilities or waste incinerators tend to be assembled at their final destination. How can custom officials ascertain that a stack of tubes is indeed destined for an environmental purpose?

A new approach is needed to refloat the negotiations. One important step would be to split the concept of “environmental goods and services” into more unified themes, aiming at separate agreements. One such theme could be renewable energy—or environmentally friendly energy production at large. Another could be centered on pollution, including water treatment, waste management and air pollution control. In this way, more attention would be paid to sorting out the technical complexities of each topic, and solutions to the specific problems of each product group could be found. Liberalization should also go beyond removing tariffs and tackle regulatory barriers, such as excessively burdensome testing and certification procedures or the non-recognition of foreign standards that guarantee equivalent levels of safety.

Another step could be to limit the agreement to a “coalition of the willing”. The agreement would enter into force once countries representing 80 percent or 90 percent of the related imports and exports have joined. The members to the agreement would then open their markets to all members of the WTO. The WTO has already had encouraging experiences with these so-called plurilateral agreements—for instance in civil aircrafts, pharmaceuticals and information technology. In short, aiming for less—fewer products, fewer members—may yield more rapid and more profound liberalization in areas crucial to reducing the costs of environmental protection. Climate mitigation technologies should be a priority.

Valentin Zahrnt is a Research Associate at the European Centre for International Political Economy (ECIPE) and Editor of www.reformthecap.eu.