Free Trade Versus Climate Change?
- Aslesha Dhillon
- Oct 14, 2016
- 4 min read
The Paris Agreement on climate change will be entered into force on 4 November 2016. Climate change is one of the most complicated and critical challenges of our generation. In order to ensure the realization of the targets set by member states in the Paris Agreement, it is imperative that climate change is not addressed as a silo, but integrated in all our policies, governance structures, industries and everyday lifestyles. However, recent events highlight critical fractures that exist in our international trade mechanisms and governance structures that are not consistent with efforts of national governments to address climate change.
In a case filed by the United States, the World Trade Organization (WTO) ruled against India’s ambitious solar program, specifically against the 33% domestic content requirement in the solar photovoltaic projects funded under the Jawaharlal Nehru National Solar Mission. The TRIMs Agreement of the WTO, demands for treatment of imported products to be “no less favorable” than the ones produced domestically in terms of trade and distribution. The WTO panel argued that India’s policy discriminated against imported solar components, albeit acknowledging that, “imported cells and modules currently have a dominant share of the market … in India.” Subsequently, India appealed to the Appellate Court of WTO, which also ruled against it. Thereby, rejecting India’s defense that the buy-local solar policies were fulfilling its commitment to “comply with its obligations relating to climate change” and “ensure ecologically sustainable growth”. In retaliation, last month, India filed a complaint with WTO against the US, accusing it of favoring its domestic solar industry through subsides in eight American states, namely, Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota.
Globalization, which is predominantly a result of free trade agreements, has created complex and expansive supply chains. Since free trade agreements mostly create more rights for transnational corporations, they have been linked to increased greenhouse gas emissions that are mainly attributable to the global transportation sector and industrialization. Localized systems and industries are noted to produce less GHGs emissions, since they have a small supply chain. Unfortunately, like India and US, there are many other examples of countries and companies that use provisions in free trade agreements to attack efforts to re-localize economic activities. Another case in point: in 2010, Japan and the European Union successfully filed a complaint in WTO, challenging Ontario’s use of feed-in-tariff program for the development of its renewable energy sector. They argued that Ontario’s feed-in-tariff’s buy-local provisions, granted protection to Ontario’s production and gave less favorable treatment to imported equipment.
Free trade not only reduces the ability of the countries to create more localized systems; they also negatively impact the growth of their domestic renewable energy sector. Both, the programs of India and Canada incentivized local procurement. This type of localization enables carbon emission reduction that is attributable to the supply chain transportation and they also contribute to strengthening the domestic renewable energy industries of the respective countries, that directly compete with and emit less carbon than the fossil fuel industry. The Sierra Club notes, “one of the main arguments of Japan and the EU, which launched the WTO case against Canada’s FIT program, is that without the buy-local provisions, Ontario’s market would not be able to sustain any domestic renewable electricity generators.”
In order to address climate change, India needs to recourse their path to development. This involves (but not limited to) reforming energy and electricity industries, with a pivot towards renewable energy and natural gas. India has committed that by 2030, 40% of its installed capacity will be produced through non-fossil fuel sources. The Indian Government has also committed to producing 100 GW of solar power by 2022 and 60GW of wind power capacity during the same period. Energy is the key enabler of social and economic development. Decentralized renewable energy provides innovative solutions that support economic activities in poor energy access areas. In India, 300 million people live in energy poverty and the remaining have intermittent access to electricity and thus renewables can play a transformational role in this respect. Specifically, in the agriculture and food sector, renewable energy applications can bring an extensive range of benefits that would further ensue economic, health and environmental developments. Thus, it is crucial to create effective regulations and policies to create an environment that fosters the growth of renewable deployment.
Furthermore, the solar tariff in India has fallen below Rs. 4 ($0.06) per unit in the latest auctions, estimated to be probably among the lowest in the world. The low tariff provides India with a business opportunity in the global market as it can generate cheap solar energy and also a push to domestic manufacturers through domestic content requirement. This also creates a viable opportunity for international companies to invest in the solar industry in India.
However, the main challenge faced by the Indian government apart from the restrictions imposed by the WTO ruling, is the unavailability of international finance and reduced prices of technology to develop the renewable sector. It must be recognized that developed countries such as the United States, European Union, etc., are largely responsible for climate change and have a historical responsibility towards addressing this crisis. The United States has also displayed a great level of hypocrisy by adopting a number of localization measures, two of which include: The Energy Policy and Conservation Act (EPCA), that safeguards its own energy providing natural resources and through the various subsidies that promote buy-local policies for the solar industry. The US clearly recognizes the importance of localization measures for public interest and industries. Yet, they have a problem when other countries apply similar measures and policies, that impact their industries. The US cannot apply different standards for themselves and the rest of the world. India, also needs to ensure that they practice sustainable development, but they require finance and technological support from developed countries.
The WTO cases reflect how old trade rules and double standards of countries can threaten to undermine the enormous challenge of tackling climate change. It is not possible to integrate clean energy if trade rules will undercut buy-local policies that enable the creation of local clean energy jobs, help lower costs of clean energy through facilitating competition and strengthening support for strong climate policies. Therefore, a new approach towards trade is required that boosts and not hinders climate action, and further ensures fair and equitable development.
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