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Trade in services related to climate changeg

Sébastien MiroudotOECD

A presentation of the work of the Trade Policy Linkages and Services Division on climate change mitigation services: Dale Andrew and Ronald Steenblik.

“Selected Outstanding Issues in Services, Trade and Development”3-5 May 2011 – Manila, Philippines

Outline of talk

• Services involved in climate change i i imitigation

• Demand drivers for these services

• Role of trade in supplying relevant services

I di t t t t d i CCMS• Impediments to greater trade in CCMS

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Services associated withrenewable-energy-based electricity

Wind-turbine Wind-turbine Remote (cross-border) erection maintenance monitoring of wind

turbines

Services associated with landfill gas or biogas production

Biogas unit construction

Remote (cross-border)

monitoring of

Laboratory analysis

monitoring of biogas plant

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Services associated withenergy performance of buildings

Architectural services

Home energy audit

“Green” renovation

Home energy audit

Bicycle- sharing services (Mode 3)

Services associated with eco-travelling and logistics

Logistical consulting consulting services (Mode 1)

Training in “eco-driving” (Mode 2)

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Engineering and operation of

facility

Services associated with carbon capture and storage (CCS)

Monitoring

Feasibility studies, geological surveys

gperformance

Management of registries

Carbon-finance services

Services associated with carbon markets

Preparation of documents for CDM and JI projects

Verification and certification services

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An indicative “cluster” of CCMS

Environmental services-e.g. Solid waste

management, emissions monitoring and control of

ll t t i

Business services-e.g. Legal services, architecture,

engineering, management consulting, technical testing and analysis, maintenance and repair

Research andDevelopment Services

-e.g. R&D services on natural sciences, social

sciences and humanities;

Energy services-e.g. Services incidental to

energy distribution

pollutants in the air

analysis, maintenance and repair of equipment, etc.

Services important for climate-change

mitigation and adaptation Financial services

-e.g. money broking

Telecommunications-e.g. Data transmission

services

Computerand Related Services

-e.g. Data-processing services

sciences and humanities; Interdisciplinary R&D

services

Services incidental to agriculture

———————————Services incidental to forestry and logging

Education services- e.g. higher technical and

vocational education servicesConstruction and related

engineering services-e.g. Work for building and civil

engineering, installation and assembly

Environmental standards in creating demand

• “In contrast to financial, telecommunications or transport services, there is no genuine demand for transport services, there is no genuine demand for environmental services. Relevant markets are essentially created through government regulation. Who would purchase, for example, sewage or air-cleaning services out of sheer altruism?”From : International Trade Regulation and the Mitigation of Climate Change

• Deployment & diffusion of low-carbon technologies are driven above all by government regulations, including taxes and subsidies

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International action also creates demande.g. Kyoto Effect

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Wind power

Fuel cells

Electric/hybrid cars

Lighting EE

Solar PV

Buildings EE

All tech. sectors

Note: Counts are measured in terms of ‘claimed priorities’ worldwide, shown as 3-year moving average, indexed to 1990=1.0. See ENV/EPOC/WPNEP(2009)1/FINAL for methodology. Based on data extracted from EPO/OECD Worldwide Patent Statistical Database (PATSTAT) using search algorithms developed by the OECD (www.oecd.org/environment/innovation).

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1997 - Kyoto Protocol

Renewable Energy: R&D, feed-in tariffs, RE certificates

0.35

0.40

0.45

0.50

0 05

0.10

0.15

0.20

0.25

0.30Role of dedicated R&D spending

Role of feed-in tariff levels

Role of renewable energy certificates & targets

Importance of inventive capacity in general

Estimated elasticities evaluated at sample means. Variables without fill not significant at 5% level.

Source: Johnstone, Nick, Ivan Haščič, and David Popp (2010). “Renewable Energy Policies and Technological Innovation: Evidence Based on Patent Counts.” Environmental and Resource Economics 45(1):133-55.

0.00

0.05

Wind power Solar energy All renewables

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Trade usually follows demand creation

• A wide range of services are needed for CCM activities: business (including professional activities: business (including professional services), construction and energy services figure prominently, just to name a few

• They are dependent on availability of specialised quality services, including services imports

Services in GHG mitigation : role of services trade

Expertise & capacity varies across nations

• A typical CCM project will involve local services and imported know-how– Low-carbon power sources: when there is little

domestic capacity to design, finance & construct large facilities for hydropower, wind, geothermal or solar PV power, specialised expertise will be importedp

– Often supplied by commercial presence complemented by visits of engineers from abroad

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Trade and stringency of environmental regulations

Supplying services for CCMS

• Most important services used in climate change mitigation are supplied through modes 3 and 4 and also mode 1:modes 3 and 4 and also mode 1:Examples: – Mode 3: “EPC” engineering, procurement and

construction

– Mode 4: site visits needed to assess specificity of terrain and other conditions to undertake study. y

– Mode 1: remote monitoring, remote control, analytical services and laboratory testing supplied through internet

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Illustrative measures affecting trade in CC services

Restrictions on CCM services trade are generally the same as those for other services. For example:

Cross-border supply (mode 1) pp y ( )•Full commercial presence required in order to trade cross-border

•Cross-border transfer of capital, payments or use of credit cards for such transactions not permitted

•Must use monopoly or otherwise specified network access or connection provider

Example: Companies specializing in biogas production on farms Example: Companies specializing in biogas production on farms monitor the performance of equipment or networks and intervene , remotely, to fix the problem.

This service may be impeded due to the local requirement to incorporate or set up a branch in the country

Establishment of commercial presence (mode 3)

• Ownership restrictions (foreign equity limits; equity restrictions applying to not locally licensed professionals)R i i l l f ( i i hibi i

Illustrative measures affecting trade in CC services

• Restrictions on legal form (Joint Venture requirements or prohibitions on other legal forms)

• Investment screening (Economic Needs Tests or national interest test; notification)

• Numerical quotas for operating licenses• Requirements on board of directors (must be nationals, residents, or

locally licensed professionals)

Example: Stringent qualification system in a large Asian country for construction suppliers effectively prevented a Central American renewable energy company suppliers effectively prevented a Central American renewable-energy company specialising in hydroelectric power to move from the early consultancy and design phase to the construction and operation of the facility. In particular, overly burdensome minimum capital requirements, non-recognition of the qualifications of managerial and technical personnel has placed a disproportionate burden on the firm.

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Temporary entry or stay of service providers(mode 4)• Labour market tests (for intra-corporate transferees or other personnel categories)

Illustrative measures affecting trade in CC services

• Numerical quotas (applying to intra-corporate transferees or other personnel categories)

• Nationality requirements

• Residency requirements (Prior or permanent residency; domiciliation)

• Limitations on the duration of stay (for intra-corporate transferees or others)

• Non-recognition of foreign qualifications (foreign university degrees; foreign practice and exams)

Example: Maintenance by technicians from a large Asian manufacturers of solar PV panels supplied to a university in a North American country was impeded due to significant delays in issuing entry visas thereby leading to long ‘down time’ of the CCM technologies .

Measures affecting trade involving more than one mode of supply :

• Discrimination in public procurement– Discrimination in public procurement is rife. Local-content obligations for

wind-energy projects exist in North America, often at sub-national level, and

Illustrative measures affecting trade in CC services

wind energy projects exist in North America, often at sub national level, and in China, among others.

• Discriminatory taxes or subsidies– Dozens of countries subsidize consumer prices of transport fuels, heating fuels,

and electricity. These subsidies undermine the potential market for renewable energy-related services and energy-efficiency services.

• Lack of use of international standards – Requirements applying to buildings (building codes & technical standards)

i l i d h l i d d f i i i– Requirements applying to goods & technologies needed for service provision

• Lack of transparency and administrative impediments (red tape)– Lack of international standards and transparency in building codes make it

difficult for firms providing services to reduce the energy use of buildings to abide by all the applicable regulations in numerous countries.

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Thank you!

Visit: www.oecd.org/tradeClick on: environment and trade 

Contacts:    dale.andrew@oecd.org

ronald.steenblik@oecd.org