A Dirty Business: Russia, Climate Change and the Mining Industry

By Ellie Martus

When people think of Russia and the environment, they tend to think of the big, environmental catastrophes of the Soviet past such as Chernobyl and more recent issues like illegal logging, and hydrocarbon exploration in the Arctic. However, the domestic politics and policy processes surrounding these issues are far more complex and nuanced than they might appear. The politics of climate change is no exception.

As one of the world’s top five contributors to greenhouse gas (GHG) emissions and a major exporter of fossil fuels, Russia’s participation in international efforts to address climate change is vital. However, Russia has been a reluctant player in international negotiations to date. While Russia eventually ratified the 1997 Kyoto Protocol, it failed to sign up for the second commitment period. More recently, the government has signed but not yet ratified the Paris Agreement, although claims it intends to do so. Russia’s domestic policy on climate is weak and offers few incentives for industry to make significant reductions in GHG emissions.

In an article just published in Climate Policy, I look at the role played by Russian industry as a key actor in the country’s domestic climate politics, and examine how industry has responded to domestic and international policy developments. Focusing on the metals and mining sector, I explore how companies perceive the issue of climate change, their willingness to engage in policy debates, the policy options they support and the strategies they adopt to further their agenda.

What I found was that there was widespread acceptance of climate change as a phenomenon across the metals and mining sector, and most companies were willing to report their GHG emissions and to implement energy efficiency measures. Beyond this however, there was significant variation within the sector in terms of how companies responded to policy developments.

Some companies were very active in climate policy debates. For example, a number of companies tried to lobby the government to introduce more far-reaching GHG mitigation regulations and have also advocated greater Russian participation in international climate policy efforts. At the same time, there were a number of companies that vigorously resisted the increased regulation that commitments on climate might bring.

So why the strong difference in opinions within a single industrial sector? The main reasons relate first to reputation, and second to the uneven effect of international and national policy developments. Those metals and mining companies most involved in efforts to reduce their emissions and support policy efforts also operate overseas, and have foreign minority shareholders or foreign stock exchange listings. Companies that operate in countries with more advanced climate policies are more likely to be concerned with their image and make attempts to generate positive ‘environmental PR’.

Second, Russia is home to a number of very large, diversified metals and mining companies that can more easily adapt to changing circumstances. This means they can shift out of mining coal for example and move into producing other metals if required. Dedicated coal companies, however, are not able to do so and this is where we find the greatest resistance to climate policy.

The Special Case of Coal

Within the broader metals and mining sector, coal is something of a special case. Its very existence is directly threatened by climate change mitigation policies that necessitate a shift away from coal. As we might imagine, the coal industry is very resistant to climate policy.

Coal companies employ various strategies to justify this position: they talk up the role of coal in the world’s future energy supplies, and focus on Russia’s role as an ‘environmental donor’ to the world. This is mainly due to the absorptive capacity of the country’s vast forests and the significant (though unintended) drop in Russia’s GHG emissions in the 1990s, as a result of economic decline following the collapse of the Soviet Union.

Coal companies have also been supportive of ‘grassroots’ anti-climate campaigns, which have highlighted the consequences for the inhabitants of Siberia, where much of Russia’s coal is produced. These include unemployment and rises in the cost of electricity, that a shift away from coal would necessarily entail.

So what of the Russian government? As a major coal producing country, the industry is very important for the economy. A significant portion of Russia’s electricity generation comes from coal. Added to this, a great deal of coal mining takes place in single-industry towns or in areas heavily dependent on the industry, which raises important socio-economic concerns for the government. As a result, the Russian government has no plans to phase out coal, and is instead actively seeking to expand the coal industry. The close alignment of coal industry and government interests represents a formidable obstacle to any Russian commitment to climate policy at the domestic and the international level.

About the Author

 

Dr. Ellie Martus is a Fellow at the Department of Sociology, Global Governance GRP, University of Warwick, and a Visiting Fellow at the Australian National University.

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The Political Struggle in Eliminating Coal

By Stephen Zhao

Advancements in renewable energy and natural gas have appeared to make coal a thing of the past, with the costs of solar, wind, and gas generated electricity approaching or even undercutting that of coal power. Yet, while market conditions no longer favour coal, its political importance prevents an easy transition to these other energy sources. As such, successful management of the coal energy transition will need to account for political roadblocks that will arise from a push towards reducing coal use.

Recently, countries such as China, Germany and the United States have backtracked in their efforts to reduce coal consumption. With the cancellation of China’s mining moratoriums, repeals of Obama-era environmental regulations under the Trump administration in the US, and the revival in coal capacity construction in Germany post-2008, these are just some examples of nations  reversing previous political efforts to limit coal, actions which are typically preceded by some form of political backlash or resistance.

Smoke rising from nearby coal-fired power plants in the Shanxi Province, China (Source: NY Times | Kevin Frayer | Getty Images)

A common factor amongst these aforementioned nations is also the trading regime governing their coal market. One key difference between coal and other fossil fuels is that it has much more domestic-oriented market dynamics. Over 90% of coal production and 85% of coal consumption lies within ten countries, of which about 70% of both production and consumption lie within China, India, and the United States alone. Whilst efforts to reducing consumption of oil and gas in one country often hurt producers in another, this is not the case with coal.

Countries with the biggest coal markets (i.e. China, India, Germany and the United States) tend to be both producers and consumers, which severely complicates the politics of reducing coal use within these markets. The presence of both production and consumption activities can generate a strong political coalition in the coal industry’s favour. Since most of the coal produced would be consumed domestically, the industry would be severely resistant to any attempts to reduce the domestic demand for coal. As geographically concentrated sources of employment and economic activity, local communities and political actors tend to work together  in defending the coal industry within the policy making process.

US President Donald Trump signalling his support for coal mining at a rally during the 2016 presidential campaign (Source: CNBC | Dominick Reuter | AFP | Getty Images)

Moreover, supporting for the coal industry’s commercial activities is substantial. In 2016, the United States Bureau of Labour counted approximately 57,000 individuals employed in coal production. However, if these calculations also include those working in supporting services,  the total increases 30% to around 74,000 employees. As an integrated supply chain, the coal industry is also tied to other economic interests such as railways, steel and heavy metal production, and the financial industry. The collapse of coal companies could cause severe disruptions in supply, leading to considerable loss of business or resulting in defaults on loans. All these factors mean that a rapid decline in coal consumption would create substantial dissatisfaction and backlash from a large number of political stakeholders.#

The decline of coal’s competitiveness in the market paradoxically enhances its political voice. In China, the prospect of mass unemployment for the country’s 5.2 million coal miners has made the Communist Party think twice about its broad stroke policies to reduce coal capacity. Disaffected miners in Pennsylvania and Ohio helped propel President Trump’s electoral victory in 2016. After a boom in natural gas, struggling coal-based power companies in Germany have managed to secure lenient provisions in the European Union Emissions Trading Scheme (EU ETS), allowing them to remain competitive. If efforts to reduce coal use are to get anywhere, something must be done to compensate the losers of the energy transition.

Local villagers carrying coal from the local open-cast mine in Jharia, India (Source: Zimbio | Daniel Berehulak |Getty Images AsiaPac)

Moving forward, solutions may need to incorporate compromises with community and commercial coal interests in order to succeed. Germany has recently taken to paying utility companies to shut down their coal plants. Whilst an expensive option, this initiative helps ease the strain on these firms’ bottom line and allows for a smoother wind down of the industry. Such policies, incorporated with a real focus to invest in communities losing out due to  coal industry decline, can help alleviate the political pressure that builds to protect coal.

Unfortunately there is no single, simple path for this energy transition to take, and despite optimism surrounding the market competitiveness of renewables and natural gas, reducing and eliminating coal will be far more complicated than just a matter of simple economics.

This blog post is based on a larger work about trading regimes and coal reduction policy. To read more about the trading regimes and the political economy of coal, click here.

A more optimistic picture is presented in reports as part of Coal Transitions project, available to download from the project website.

About the Author

 

Stephan Zhao is a Researcher at the Munk School of Global Affairs, University of Toronto.

Empirical Calibration of Climate Policy using Corporate Solvency

By Ben Caldecott

The fundamental goal of climate policy is to incentivise emissions reductions and the transition to lower carbon processes and technologies. When firms face new costs related to reducing carbon emissions, they may suffer some loss of financial condition as they restructure their businesses.

However, if the firm becomes bankrupt as a result of such policies, not only will this restructuring not occur – possibly causing high-emitting industries to expand in less constrained jurisdictions (carbon leakage) – but social value can also be permanently destroyed in the form of: the dissolution of organisational capital; deadweight losses paid to liquidators; and the incurrence of costs on unemployed workers. Corporate failures, especially if they are unnecessary, add to the social cost of tackling climate change. Reductions in solvency that are less than bankruptcy can also impact the ability of firms to employ people and finance investment.

At present, policymakers do not have a means to accurately and impartially gauge the impact of climate policies on corporate solvency. If they did, policymakers could optimise climate policy so that it delivered the least loss of corporate solvency for any given level of emissions reduction.

In a new paper published in Climate Policy, we propose that existing measures of corporate solvency be used for this purpose. Such measures could act as an objective tool for policymakers. In particular, solvency metrics could be used to empirically calibrate the optimal stringency of climate policies. They could also be used as a way to determine the generosity of any industrial compensation to address losses to corporate solvency.

Financial statistics are currently used in this way to calibrate many other areas of government policy. For instance, policymakers monitor and regulate certain aspects of corporate solvency in the financial industry (such as capital reserve requirements) in order to reduce the risk of bankruptcy while maintaining profitability. Similarly, central banks also consult economic statistics when determining monetary policy.

An ideal solvency trajectory for firms affected by climate change policy would cause corporate solvency to initially decline – approaching but not exceeding ‘distressed’ levels – and then gradually improve to a new ‘steady state’ once the low-carbon transition had been achieved, at which point the carbon-limiting regulation would continue. If any compensation was provided to industry to help offset reductions in solvency, these would also then be gradually phased-out. This sequence is depicted by the U-shaped solvency trajectory below.

An additional advantage of using financial statistics to calibrate environmental policies generally is the fact that this process would be objective. At present, there is considerable potential for industrial outcry and political lobbying to influence policy resulting in negative social consequences. By contrast, a climate change policy partly based on corporate solvency could be adjusted relatively mechanically at each financial reporting period, and would be automatically sensitive to variations in the business cycle.

The question of where the optimal solvency threshold should lie is crucial for the practical application of climate policy calibration. For instance, depending on the regulator’s particular goals the relevant benchmark could be either; (i) an overall average solvency level, (ii) a minimum solvency level for the most financially distressed firm, (iii) or a maximum solvency loss for the most affected firm.

Moreover, the policy goal may not just be solvency for affected firms but also their competitiveness, in which case, depending on the regulations faced by international competitors, the optimal lower bound for solvency may need to be raised in from financial distress to some other higher level. The availability and timeliness of financial data will also influence the optimal threshold. Since the financial position of firms may deteriorate between financial reports, it may be prudent to adjust thresholds upwards to add a margin of safety against rapid solvency losses.

Of course, it would be equally essential to ensure that firms could not ‘game’ their financial statements in order to present an artificially dire picture to sympathetic regulators. It may also be the case that within a given emissions target, it may not be possible to maintain the solvency of all affected firms. In such cases the emissions target may need to take precedence over solvency concerns, but nevertheless the use of policy calibration via solvency could still be an efficient way to minimise the bankruptcy losses that may be necessary in order to achieve a desired emissions goal. Future research could refine this optimal policy threshold.

Our proposals highlight the potential of existing corporate solvency metrics to help policymakers objectively minimise negative social impacts for a given emission reduction target. Failure to take account of (or simply wish away) the social impacts associated with bankruptcy or reductions in corporate solvency resulting from climate policy would be serious mistake. It will increase opposition that could successfully undermine climate action. It would also allow fossil fuel interests to continue misleading policymakers and broader society about how climate action is negatively impacting their businesses. Transparency and objectivity enabled by financial data is already integrated into other areas of policymaking and regulation. It should also be embraced by policymakers concerned with climate change.

About the Author

 

Ben Caldecott is the founding Director of the Oxford Sustainable Finance Programme, at the University of Oxford Smith School of Enterprise and the Environment.

 

Assessing the US Retreat from the Paris Agreement: Backtracking to Kyoto?

By Jonathan Pickering, Jeffrey McGee, Tim Stephens and Sylvia Karlsson-Vinkhuyzen

Perhaps the most widely debated event in global climate policy since the Paris Agreement’s adoption in 2015 was the United States’ decision in June 2017 to withdraw from the treaty, pending possible re-engagement under different terms.

BRENDAN SMIALOWSKI/AFP/Getty Images

When the announcement was on the cards, some commentators argued that the US would be ‘better out than in’, not least because US absence from talks on implementing the Agreement would reduce its ability to scuttle progress from the inside. Others argued that the net effect of the decision was just as likely to undermine global cooperation as to stimulate action in other countries.

At the annual UN climate talks in November, most parties to the Agreement (now numbering more than 170 countries) put on a brave face, although developing countries added the US decision to their list of reasons for doubting the willingness of developed countries to adhere to the Agreement.

Meanwhile, the US sent mixed messages about its stance: career diplomats on the US negotiating team were keeping a low and relatively non-obstructive profile; a White House adviser sat on a panel extolling the virtues of coal; and US states, cities and businesses were showcasing their ongoing commitment to the Agreement.

In a situation this murky, how can we get a clearer picture of what the US decision means for global climate policy?

How far from Kyoto to Paris?

Until the dust settles, it remains to be seen what the longer-term impact of the US decision will be. In the meantime, one promising way of assessing the implications of the decision to withdraw is to compare it with previous experience, rather than with a counterfactual (and inevitably speculative) decision to stay in. In a new article in the peer-reviewed journal Climate Policy we do just that, by comparing and contrasting US non-participation in the Kyoto Protocol and the Paris Agreement.

AP

The Clinton Administration signed the Protocol in 1998, but in 2001 the George W. Bush Administration announced the US did not intend to ratify it. The Kyoto Protocol did eventually enter into force in 2005, but US non-participation was widely seen as damaging for the Protocol’s effectiveness and legitimacy.

We focus on four key areas that may shape the effects of US treaty decisions for international climate policy

(i) Global Momentum on Climate Change Mitigation

We find that increasing global momentum on climate mitigation since 1997 means that US withdrawal from the Paris Agreement is potentially less damaging than its non-participation in the Kyoto Protocol. But despite the declining US share of global emissions, greater urgency for deep decarbonisation means that the non-participation of a major player such as the US remains problematic for achieving the Paris Agreement’s goals.

(ii) Opportunities to Form Rival Initiatives

US damage to the Kyoto Protocol framework resulted not only from its non-participation, but also from its creation of rival forums for international collaboration on climate policy, notably the Asia-Pacific Partnership on Clean Development and Climate (APP). While the APP ultimately withered on the vine, its presence was enough to cast a shadow over the UNFCCC’s legitimacy for a number of years.

Since our article went to press, news has emerged that the US plans to form a new international alliance to promote burning coal. It is likely that heavy coal users such as India, China, and Australia will be invited to join. With this move, the Trump administration is clearly taking a leaf from the G. W. Bush administration’s climate policy strategy. But in our view it is unlikely that this will prove as destabilising for global cooperation as the APP. There is now increasing global momentum to phase out coal, as reflected in the rival Powering Past Coal Alliance, which numbers around 26 countries (albeit none of the world’s biggest coal users so far).

In a related new article in Climate Policy, Detlef Sprinz and colleagues find that climate ‘clubs’ set up alongside the UNFCCC to accelerate mitigation could function even without the US being on board, although their coverage of global emissions would be modest and some potential members could be dissuaded by US non-participation. Ongoing dysfunction within the US Department of State may also limit the coal alliance’s prospects.

(iii) Timing and Circumstances of the US Decision to Exit

Because the US was not already a party to the Kyoto Protocol, President Bush’s decision not to ratify had immediate effect. But under the provisions of the Paris Agreement, the earliest that the US can formally withdraw is 4 November 2020, which happens to be the day after the next US Presidential election.

Given this delay, it is uncertain that withdrawal will ultimately go ahead. Despite the Trump administration’s continuing reluctance to take domestic action on climate change, the time lag for formal withdrawal from the Paris Agreement tends to diminish the short-term signalling effects of the US decision.

(iv) Influence of Treaty Design on Incentives to Participate and Comply

Differences in the design of the Kyoto Protocol and Paris Agreement suggest that US non-participation is more likely to prompt reluctant countries to stay within the Paris framework but reduce levels of ambition and compliance, rather than to exit the Agreement altogether.

A key reason for this is that the Paris Agreement’s ‘Nationally Determined Contribution’ approach gives countries considerable flexibility in how they frame their contributions to mitigation. This makes it less likely that they will find themselves bound to targets that lack domestic ownership and support. While parties are bound to prepare, communicate and maintain successive NDCs, they are not legally bound to achieve them.

In contrast, parties to the Kyoto Protocol were bound to meet their targets. Canada judged in 2011 that it was preferable to withdraw from the Protocol altogether, rather than risk non-compliance when it became clear that it would overshoot its Kyoto target.

Putting it All Together

Our comparison highlights important ways in which the negative effects of US withdrawal may be less severe under the Paris Agreement than under the Kyoto Protocol. This finding is complemented by another new article in Climate Policy by Johannes Urpelainen and Thijs Van der Graaf. Assessing the US decision from a broader international relations perspective, the authors argue that ‘the Paris Agreement has introduced a new logic of domestically driven climate policies’.

REUTERS/Ian Langsdon

Even so, the negative impacts of US withdrawal from the Agreement could still be significant, so it is hard to be confident that US withdrawal will be better for climate policy than if it had remained. Indeed, our analysis suggests that even now, some of the risks demonstrated by the US withdrawal from the Kyoto Protocol will remain major concerns for the future of the Paris Agreement. Crucially, US non-participation may demotivate other countries at a time when mutual assurance and greater ambition remain critical for a safe future climate system.

About the Authors

 

Jonathan Pickering is a Postdoctoral Fellow at the Centre for Deliberative Democracy and Global Governance, based at the University of Canberra.

 

 

Jeffrey McGee is a Senior Lecturer in the Faculty of Law and Institute for Marine and Antarctic Studies at the University of Tasmania.

 

 

Tim Stephens is Professor of International Law and ARC Future Fellow at the University of Sydney Law School.

 

 

Sylvia Karlsson-Vinkhuyzen is an Assistant Professor in the Public Administration Policy Group at Wageningen University.

 

 

 

 

 

Will Social Movements Focused on Fossil Fuel Supply Help Solve the Climate Crisis?

By Georgia Piggot

In an article just published in Climate Policy, I discuss the rise over the past decade of the “keep-it-in-the-ground” movement – a loosely coordinated mobilisation effort aimed at halting the extraction of fossil fuels. It has included occupations to stop construction of pipelines, blockades of shipping lanes, marches at UN meetings and campaigns for organisations to divest from fossil fuel companies.

Debates on the significance of this movement often fixate on whether attacking fossil fuel production is the right way to solve the climate crisis. Numerous critics have called the movement “misguided”, arguing the movement is fighting “the wrong battle” and should instead focus on supporting policies that reduce fossil fuel consumption, such as a carbon price. In essence, the question often asked is: would mobilisation be more effective at addressing climate change if it focused on reducing demand for fossil fuels instead of supply? This question is problematic, however, because it rests on several flawed assumptions about the relationship between supply- and demand-side policy and movements.

First, it creates a false dichotomy between supply- and demand-focused policies. It presumes they are at odds with one another, rather than complementary. We don’t need either a price on carbon or a plan to phase-down fossil fuel production – we need both. Tackling supply alongside demand can be a more cost-effective approach to reducing emissions. Doing so also directly addresses the “lock-in” problem – namely that investments in infrastructure and the disproportionate political influence of the fossil fuel industry are tying us to a fossil-fuelled future. Furthermore, attention to the supply-side can bring greater focus to the fate of those who live and work in fossil-fuel-dependent communities, who may otherwise be forgotten in our transition to a new green economy.

This question also implies that targeting fossil fuel supply detracts attention or support from other forms of climate policy, when in fact the opposite may be true. There is good reason to believe supply-side movements make demand-side policies more politically palatable, not less. Recent work suggests that the divestment movement has aided demand-side policy efforts by pulling climate change out of the margins of the political agenda, and by making proposals such as a carbon tax appear to be a moderate option. The supply-side movement has helped increased the attention and perceived legitimacy of demand-side policies.

Furthermore, the notion that the movement should shift its focus from supply to demand belies a fundamental misunderstanding of how movements form and, in turn, influence policy. The object of movement attention can’t simply be substituted and retain the same momentum and impact. The movement to halt fossil fuel production has very tangible targets, such as infrastructure and investments. It also attracts a broad array of supporters, because it includes people motivated by issues by other than climate change (e.g. those concerned about land rights or water pollution). For this reason, the supply-side movement has had more success mobilizing supporters than efforts emphasizing emissions reduction.

The immense scale of countering climate change demands big solutions, and many of them. It also requires citizens mobilising to demand politicians enact those solutions. Rather than questioning whether the supply-side movement has focused on the wrong target, perhaps our time would be better spent trying to understand what influence this mobilisation will ultimately have on climate policy.

This is a challenging question to answer, but one for which there is a good body of social movement literature to illuminate. I outline relevant insights from this literature in my recent paper in Climate Policy. In short: there are lots of pathways through which movements influence policy, and the ultimate fate of a movement’s influence on policy depends on a combination of factors coming together at the right time – such as windows of political opportunity opening, resources for mobilisation becoming available, and evocative framing of problems and solutions calling people to action.

The supply side movement seems to have nailed this combination on several occasions, leading to noticeable political shifts away from fossil fuels – see for instance Obama-era decisions to restrict fossil fuel extraction, and the French Government’s proposed ban on future oil and gas exploration. It remains to be seen whether the movement will support similar shifts for demand-side policy, but I wouldn’t rule it out. Further – and more to the point – we shouldn’t judge mobilisation based on its ability to deliver any particular policy, but rather based on its ability to change the conditions for climate policy implementation and make a broad range of climate solutions more palatable.

About the Authors

 

Georgia Piggot is a Staff Scientist at the Stockholm Environmental Institute (SEI).

 

Beyond Facilitative Accountability in the Paris Agreement: Three Additional “Accountability Pathways”

By Sylvia Karlsson-Vinkhuyzen

During the UN Climate Conference of the Parties (COP 23) in Bonn, the fourth workshop of the Facilitative Sharing of Views (FSV) was held as part of the 47th meeting of the Subsidiary Body for Implementation (SBI). Here, five developing countries (non-Annex I), after submitting reports for technical review, presented their reports on the development of domestic MRV systems and the mitigation policies they have adopted. This was followed by an opportunity for the other states to ask questions.

This peer-to-peer exchange, and its equivalent for Annex I countries in the form of the Multilateral Assessment process, is to provide learning for what the development of the ‘facilitative’ accountability framework for individual countries under the Paris Agreement may look like (see Article 13, paragraph 3). In the same way, the Facilitative Dialogue in 2018 is a kind of practice run for future global stocktaking, aimed at prodding countries to adjust their Nationally Determined Contributions (NDCs) upwards, in order to keep the overall Paris Agreement goals in sight.

In a recently published paper in Climate Policy,  we argue that additional accountability processes, formal and informal, and primarily at domestic levels, have stronger potential to entice compliance from states. We also systematically explore four pathways of accountability.

The first is the global pathway of peer-to-peer accountability among states within the regime itself. The effectiveness of this pathway – with the facilitative tools it will employ – depends considerably on whether compliance with the Paris Agreement (beyond the procedural legal obligations) becomes the norm. Countries want neither to lose face nor to be left behind, and they will work harder to do their best if others they respect do the same. Only a limited number of countries will ignore being internationally named and shamed, and others will still want to show moral leadership.

The second pathway goes through national institutions and, for EU member states, also via European institutions, such as the parliament, inspection agencies and other legal bodies. They can play a key role in formulating the national contributions to reduce CO2 emissions and to develop effective policies and legislation.

The third pathway is enacted through the public such as individuals, civil society organisations and scientists. At the COPs, on international forums and over social media, many civil society organisations assess countries on their efforts and alert them to their responsibilities. The power of this type of ‘accountholding’ from these non-state actors depends on how well they can perform their own research, set up campaigns and win the support of policymakers. It is also essential that traditional media report on these activities and that governments give citizens plenty of scope to manoeuvre and rebel.

Finally, executive governments might hold themselves to account, for example through their own internal systems of monitoring and evaluation of policy effectiveness and efficiency. The functioning of this pathway will largely depend on the kind of administrative traditions and cultures existing in each state, and what provisions for this they include in their implementing climate laws and policies.

These four pathways invariably interact in various ways and form an intricate web of ‘watchdogs’, arenas and mechanisms through which accountability for state obligations under the Paris Agreement can be enacted (both legal and moral). We see plenty of potential for comparative research of these pathways and the web they weave, which can provide the foundation for identifying ways to improve both their effectiveness and legitimacy.

About the Author

 

Sylvia Karlsson-Vinkhuyzen is Assistant professor in the Public Administration and Policy Group at Wageningen University and Member of Climate Strategies.

 

Note: this blog draws partly on a blog posted on the Wageningen University website. The original post was part of the University’s efforts to share research with the public via advertisements accompanied by a blog. Further information at: http://www.wur.nl/en/In-the-spotlight/show-in-the-spotlight/More-roads-lead-to-compliance-with-the-Paris-Climate-Agreement.htm

Realising Fossil Fuel Subsidy Reform through Trade Agreements

By Cleo Verkuiji, Harro van Asselt and Peter Wooders.


STORY HIGHLIGHTS
  • When the WTO’s eleventh Ministerial Conference meets in December 2017, Members can make a significant contribution to the 2030 Agenda by calling for new rules to curb fossil fuel subsidies.
  • Fossil fuel subsidy reform could significantly reduce global greenhouse gas emissions and free billions in public funds that could be reallocated to other development priorities.
  • WTO Members have several options to address fossil fuel subsidies, including: providing technical assistance and capacity building; improving transparency; making reform pledges; adopting a political declaration; and including fossil fuel subsidies in the WTO’s list of prohibited subsidies.

With 2017 rapidly drawing to a close, several international summits this year can still significantly advance sustainable development. Hopeful observers will naturally look closely at any progress made at the 23rd UN Climate Conference in Bonn in November, as well as the upcoming UN Environment Assembly in Nairobi in December.

Yet another key summit is likely to receive much less attention in the climate change and sustainable development communities: the World Trade Organization’s (WTO) eleventh Ministerial Conference (MC 11). When meeting in Buenos Aires this December, WTO Members can leave a real mark on the goals of the 2030 Agenda for Sustainable Development and the Paris Agreement by calling for new WTO rules to curb government support to fossil fuels.

Fossil Fuel Subsidies, Sustainable Development and Trade

The benefits of fossil fuel subsidy reform are undeniable. It is a vital piece of the climate change puzzle, estimated to cut greenhouse gas emissions by some 11% by 2020 if implemented in 20 countries. But it can also positively impact other SDGs. Removing the billions of dollars put into fossil fuel consumption and production each year can relieve the burden on the public purse, allowing for the re-channeling of funds to other development priorities, such as health, education and public infrastructure. Moreover, removal of fossil fuel subsidies can help level the playing field, given that subsidies are known to affect the rate and timing of development of new fields or mines.

But while international forums such as the G 20, Asia Pacific Economic Cooperation (APEC), the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have begun to take up fossil fuel subsidies, their lack of consideration at the WTO thus far has been conspicuous. Though cases related to more than 10 renewable energy support measures have been filed under the WTO dispute settlement mechanism over the past decade, not one fossil fuel subsidy has been challenged.

With momentum building for the international trade community to engage with this critical sustainable development issue, MC 11 offers a clear opportunity to change course.

Why the WTO?

Skeptics may interject: “Why should the WTO get involved when fossil fuel subsidies are already addressed elsewhere?” While other international organizations have put fossil fuels subsidies on their agendas, the persistence of such subsidies worldwide shows that more still needs to be done. The WTO would not be the only organization addressing the issue, and would need to act in concert with others.

In fact, owing to its wide membership, history of promoting subsidy reform in other sectors, and well-established dispute settlement system, the WTO is one of the most suitable international forums for doing so. The Organization was explicitly established to ensure that economic progress is achieved in accordance with sustainable development. Moreover, the 2030 Agenda recognizes trade as an enabler for achieving the SDGs. SDG 12 (Responsible consumption and production) specifically addresses fossil fuel subsidies.

Precedent for such engagement already exists, as the WTO continues to consider the topic of environmentally harmful subsidies in the fisheries sector – with hopes that rules in this area will be agreed upon at MC 11.

What Can be Done?

In a recent policy brief, we show that WTO Members can address this gap in several ways.

One approach would be for WTO Members to extend the list of prohibited subsidies of the Organization’s Agreement on Subsidies and Countervailing Measures (ASCM) to include certain types of fossil fuel subsidies, for instance those with particularly adverse climate change or trade impacts. A “softer” approach that might be more feasible in the short-term would see Members voluntarily pledge to reduce their fossil fuel subsidies, extending existing commitments and processes under the G20 and APEC. Progress could be tracked through regular reporting and review.

However, not all options need to come in the form of new rules or commitments. Members could begin by offering technical guidance and capacity-building support on how to reform fossil fuel subsidies. Given existing shortfalls in the Organization’s subsidy notification system, governments could also agree to take steps to improve the transparency of fossil fuel subsidies. This option underlines a key role for any international organization in addressing fossil fuel subsidies: sharing information on the extent to which these subsidies are used.

Concerns can be raised about the impacts of subsidy reform on energy prices and energy access for the poor. Although it should be noted that in many cases fossil fuel subsidies benefit the richer parts of society, it would be important for rules and guidance to factor in such development concerns, for example by including an exemption for subsidies that are proven to target the poor.

“The time is ripe for progressive countries to take the first small steps to help achieve a “win-win-win” situation for sustainable development, climate change and trade at the eleventh WTO Ministerial Conference in December 2017.”

Agreeing on the most suitable option – or combination of options – to pursue will take time. But at MC 11, a first important step would be for Members to signal their willingness to take up fossil fuel subsidy reform in the WTO’s work. This could be done, for instance, through a political declaration reaffirming the commitments made in the SDGs and the Paris Agreement, or recognizing the general need for new rules in this area.

Importantly, this effort need not be taken up by all WTO Members simultaneously. A coalition of the willing could decide to lead the way. The time is ripe for progressive countries to take the first small steps to help achieve a “win-win-win” situation for sustainable development, climate change and trade at MC 11.

This blog was originally posted on the IISD SDG Knowledge Hub blog.

About the Authors

 

Cleo Verkuijl is Research Fellow of Climate Change Policy at the Stockholm Environment Institute (SEI).

 

 

Harro van Asselt is Senior Research Fellow at the Stockholm Environment Institute (SEI).

 

 

Peter Wooders is Group Director of Energy at the International Institute for Sustainable Development (IISD).