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ICTSD Q&A

GTR SUSTAINABILITY FOCUS

GTR: What headway are we seeing with the Environmental Goods Agreement (EGA) and UN climate talks? And once agreements are successfully in place, what will this eventually mean for financiers that back the trade of goods and climate-affecting projects? Meléndez-Ortiz: The Paris Agreement secured last December will soon come into force [November 4], following ratifications by major emitters including the US, China, India, and the EU. The EGA has a window of opportunity to be concluded this year. From an investment perspective, the Paris Agreement sends important market signals for the types of projects that both need support and are viable. The Paris Agreement’s climate goals require a major energy transformation, given that fossil fuels account for around 81% of the world’s energy mix and generate roughly two-thirds of anthropogenic greenhouse gas emissions. Bloomberg New Energy Finance (BNEF) and Ceres estimate that around US$12.1tn must be invested in new renewable power generation over the next 25 years to stay within a 2-degree Celsius temperature rise from pre-industrial levels. This amounts to US$5.2tn above business-as-usual projections over the period or US$208bn per year. Conversely, there is increasing recognition of climate-related investment risk due to the shifting value of assets as the world moves to a low-carbon economy (stranded assets) – noting that the total stock market capitalisation of fossil fuel companies is around US$5tn – as well as the risks to assets presented by climate impacts. As evident from these figures, the capital needed to move to a global clean energy system is ultimately not that significant for global financial markets to absorb, but supportive policies will be needed to align and scale up sustainable investment flows. Climate Investment Funds (CIFs) led by the World Bank are already providing support to tackle barriers to such investment. The E15Initiative – a joint trade policy, expert-led process by ICTSD and the World Economic Forum – also recommends establishing an international support programme for sustainable investment facilitation more generally, including by strengthening the capacity of least developing countries to compete in world FDI markets. The programme could focus on improving national regulatory frameworks in order to create attractive and enabling environments for investors. The Environmental Goods Agreement (EGA) talks were launched in July 2014 by a group of 44 countries, including significant trading players such as the US, China, Japan and the EU. The talks are geared towards eliminating trade tariffs on a select list of environmental products. Negotiators have met regularly in Geneva, Switzerland to identify which products will be included, timeframes for liberalisation and other operative aspects of the deal. Although trade tariffs generally have fallen over the

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years with global and regional liberalisation efforts, these can still be a nuisance in a world of international production networks, where parts and components cross borders multiple times before resulting in an end product. Environmental products under discussion in the EGA include those related to clean energy, energy efficiency, air pollution control, water and wastewater treatment, environmental monitoring and analysis, among others. Negotiators are nearing what is hopefully the end game for hammering out the EGA. All participants have submitted lists of products for consideration and there is now a collective draft list that will be used for final bargaining in the coming weeks. Through the G20, select participants have signalled plans to conclude the agreement by the end of this year, a goal also endorsed by non-G20 economies.

“The capital needed to move to a global clean energy system is ultimately not that significant for global financial markets to absorb.” Ricardo Meléndez-Ortiz, ICTSD

The EGA should have positive cost-cutting impacts for certain climate-related projects as a result of tariff reductions for key inputs among the 44 participating countries. This may help to spur increased demand for clean energy-related projects in domestic markets, for example, or prompt producers elsewhere to seek out new export markets in those countries. These impacts can contribute to competitive, innovative and scaledup clean energy solutions, particularly in a world characterised by economies with different resources and factors of production. It will be important, however, for other countries to look at joining the agreement further down the line – tariffs on some clean energy products remain very high in some non-participating countries – and for governments to work on environmental services liberalisation and non-tariff barriers. Although this agreement will focus on goods, some participants have also called for the inclusion of a work programme on liberalising trade in accompanying environmental services and addressing non-tariff barriers to trade, both critical areas to boosting deployment of environmental goods. Non-tariff barriers (NTBs) can include diverse standards for various types of clean energy equipment, or limitations in access to energy transport or distribution services, for example. Services trade barriers and NTBs may be equally, if not more, prohibitive than tariffs to trade and global diffusion of environmental goods.

November/December 2016 | 27

November/December 2016 issue  
November/December 2016 issue  
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