By Ken Heydon*
Trade is a key multiplier in the diffusion of technology vital for the climate transition. But the protectionist tendencies rooted in the implementation of the climate transition pose a major threat to the global trading system.
Technological innovation – backed by a carbon tax to make it competitive – is the key condition for moving to net zero carbon emissions by 2050. And trade, by stimulating competition, is a catalyst for innovation.
Three areas of technological transformation stand out. Australia and its Asia-Pacific neighbors have a stake in all of them.
The first is solar photovoltaic technology which uses solar panels to convert sunlight into electricity. Over the past decade, solar PV has become a mainstay of the sustainable low-carbon energy system, with installed capacity increasing 100-fold and costs dropping 77%. About 40% of the decline in the cost of solar photovoltaic modules since 2001 is attributable to trade.
With the highest solar radiation per square meter of any continent, Australia is uniquely positioned to take advantage of solar photovoltaic technology, as evidenced by the Darwin-Singapore Renewables Generated Undersea Power Cable Project. Malaysia, Vietnam, Thailand and the Philippines are among the world’s top 10 exporters of certain solar PV products.
The second area of trade-driven innovation is the export of low-carbon hydrogen, important in hard-to-electrify sectors like steel production and facing a six-fold increase in potential demand by now. 2050.
Australia is at the forefront of using renewable energy to produce zero-emission ammonia – a low-cost carrier for hydrogen – and no less than six Japanese companies have plans to develop hydrogen in Australia.
The third area of innovation is CRISPR (clustered regularly spaced short palindromic repeats). This genetic modification helps countries decarbonize their food systems by making export crops resistant to disease or weather, reducing the need to increase agricultural land through deforestation – the source of 10% of global carbon emissions.
For example, CRISPR-based oil palm genome editing to eradicate basal stem rot will significantly reduce plant loss and subsequent compensatory deforestation in Indonesia and Malaysia – major palm oil exporters. Switching to trade in genetically modified palm oil promises major environmental benefits.
Beyond the multiplier role of trade in spreading the benefits of specific technologies, it also has a more general function of stimulating the economic growth needed to finance the energy transformation.
Yet, despite the role of trade in the climate transition, the transition itself threatens trade. As countries’ environmental commitment varies, pressure is mounting for tariff restrictions on imports of carbon-intensive products, such as steel, from perceived environmental free riders.
The difficulty of identifying carbon intensity and free riding fuels the idea that such penalties are simply disguised protectionism. The resulting tensions – amplified by the emotional power of the climate transition and by broader protectionist tendencies, especially when countries prioritize their own climate technologies – pose a major threat to the trading system.
In each of the three areas of technological promise, there are strong competing forces of trade restriction.
Trade in solar photovoltaic technology is subject to both tariff and non-tariff barriers. For example, 31 WTO members apply tariffs above 10% to certain essential solar photovoltaic materials such as polysilicon. Australia is scoring its own goal by imposing duties (both anti-dumping and countervailing) on imports of solar equipment, thereby increasing the costs of renewable electricity.
The threat to the hydrogen trade comes from a call by European Union power groups fearful of competition for a carbon tariff on EU hydrogen imports. Although the case of Australia’s blue hydrogen – using lignite and carbon capture and storage – is controversial, a Carbon Border Adjustment Mechanism tax is likely to be applied to all imports hydrogen and a decline in carbon capture and storage, without which “net zero” will not be possible .
The threat to CRISPR gene editing is a repeat of the kind of regulatory hurdles that invoke health and environmental concerns to impede the development and trade of genetically modified organisms. Agricultural regulations in many countries, including those in New Zealand, restrict both GMOs and CRISPR, even though CRISPR does not introduce DNA from other species.
The challenge is real. Protectionism risks undermining the role of trade in promoting the technological promise of the climate transition – by raising the level of the carbon tax needed to effect this transition and weakening public support for it.
Resisting protectionist forces will require action at all levels. At the national level, by improving the coherence of national policy, including in Australia with regard to solar equipment. At the regional level, with a key role for APEC — in relation to both environmental goods and services. And at the multilateral level, where Australia is one of 13 countries (including the United States and Canada) that have submitted to the WTO that genetically modified products should be regulated in the same way as conventional products.
The stakes are particularly high for the WTO, which is preparing to face, via the climate transition, one of the most severe systemic challenges in its history.
*About the author: Ken Heydon is a visiting scholar at the London School of Economics and Political Science. He is a former Australian trade official and senior member of the OECD Secretariat.
Source: This article was published by East Asia Forum