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Private Sector Finance and Technology Transfer

In Chapter 4 we have addressed the role of international investment agreements in creating incentives for foreign direct investment to serve as a vehicle for financing investment in climate change mitigation and adaptation. In this regard, we also saw that subsidies for these purposes need to be designed with international investment agreements in mind, to minimize the risk of litigation with and compensation to foreign investors for breaches of the relevant obligations. Here, we discuss the importance of international trade in services to facilitate the participation of the private sector in climate finance and technology transfer.

One entry mode for international trade in services is via a commercial presence, which implies foreign direct investment. Cross-border trade, consumption abroad and the presence of natural persons are other modes of delivery that are relevant to both climate finance and technology transfer. In this regard, the market access commitments of WTO Members under the General Agreement on Trade in

Services, or the lack thereof, may imply obstacles to trade in services related to climate finance and technology transfer. The effort by some WTO Members to negotiate an International Services Agreement makes this one area where progress may be possible, on a plurilateral basis. Trade in environmental services will have an important role to play in disseminating the know-how and technology to address climate change, as will trade in financial services with respect to climate finance.

According to IPCC (2007), GHG mitigation activities relate to enhancing energy efficiency, increasing reliance on renewable energy, deploying carbon- dioxide capture and storage (CCS), taking forest-related actions, and undertaking specific solutions needed to mitigate emissions of non-CO2 GHGs. The deployment of GHG-mitigation technologies is dependent on the availability of a wide range of services, including those that are imported, particularly business services, telecommunications services, and construction and related engineering services. In certain countries and regions, financial services also play an important role, particularly for the implementation of climate-policy instruments, such as emissions trading schemes, and training is another component of the services that are sometimes provided as part of GHG-mitigation projects.[1] Initially, a project to mitigate GHG emissions involves consultancy services, R&D services, engineering, architectural, or design services. Other services become involved if a facility is built, particularly construction.[2]

Kim identifies services that are directly linked to climate-friendly goods, analyzes specific commitments of WTO Members that trade the most in these services, and examines offers made in the Doha Round. The paper covers mitigation sectors identified by the IPCC: energy supply, transport, buildings, industry, agriculture, forestry, and waste.[3]

Technology transfer requires trade in services, because expertise and capacity in GHG-mitigation technologies vary across nations. Several countries have little or no domestic capacity to design projects based on low-carbon power sources, such as wind turbines, geothermal energy, or concentrated solar power. Firms with the necessary expertise might not exist, and energy engineers with relevant expertise might not be sufficiently available in the host country. Products and technologies related to climate change are connected with the provision of services. In most developing countries, a great deal of technologically sophisticated equipment must be imported, but many construction materials can be procured locally.[4]

Trade liberalization could make an important contribution to the mitigation of GHG emissions, particularly by facilitating the adoption of energy-efficient and low-carbon technologies.[5] However, barriers to trade in services often hamper trade in related technologies.[6] A document submitted to the WTO in December 2007 and cosponsored by Australia, Canada, the European Communities, Iceland, Japan, Korea, Norway, Kingdom of Saudi Arabia, Singapore, The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and the United States (JOB(07)/208), proposes a guide to scheduling commitments in energy services, drawing on services classified under ten separate groups. This approach could be used to identify services sub-sectors to liberalize in order to improve quality and competitive pricing of services needed for GHG mitigation.[7]

Cross-border trade taking place over the Internet is becoming more commonplace, often complementing movement of personnel. Consumption abroad typically involves training of a client’s personnel. Commercial presence is critical for the provision of services related to climate change. Many of these services entail construction and operation of production facilities, which makes establishing a commercial presence necessary for trade to take place. The temporary movement of natural persons is also common, particularly when expert judgment or supervision is required for a short period of time.[8] In addition, contractors for projects related to climate change depend on imports of technologically sophisticated equipment to the project site from other countries, which highlights the importance of standards affecting the mobility of goods and technologies, not just people.[9]

Carbon-market services also have emerged to help implement Kyoto finance mechanisms and emissions trading schemes.[10] Expertise and capacity in GHG- mitigation technologies varies across nations particularly in the case of low-carbon power sources based on renewable energy technologies. Even in developed countries with private sector expertise and capacity in the services needed for mitigation- technology projects, project sponsors often choose to import more cost-effective services from an international supplier.[11] Trade in climate-related services also can facilitate capacity-building to support technology transfer.[12] Finally, carbon trading and trade in CERs under the CDM may constitute financial services that would be regulated by the GATS and the Annex on Financial Services, which allows prudential measures.[13]

  • [1] Ronald Steenblik and Massimo Geloso Grosso, “Trade in Services Related to Climate Change:An Exploratory Analysis” OECD Trade and Environment Working Papers, 2011/03 (OECD Publishing 2011) 7 (accessed October 10, 2012).
  • [2] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change.”
  • [3] Joy A. Kim, “Facilitating Trade in Services Complementary to Climate-friendly Technologies”Environmental Goods and Services Series, Issue Paper 16, International Centre for Trade andSustainable Development, Geneva (2011) (accessed October 10, 2012).
  • [4] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 4.
  • [5] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 5; WTO andUNEP, Trade and Climate Change (WTO, Geneva 2009).
  • [6] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 5; RonaldSteenblik and Joy Kim, “Facilitating Trade in Selected Climate Change Mitigation Technologies inthe Energy Supply, Buildings, and Industry Sectors” OECD Trade and Environment Working Papers,No. 2009-02, OECD, Paris (2009) (accessed March 15,2013); Ronald Steenblik et al., “Facilitating Trade in Selected Climate Change Mitigation Technologies in the Electricity Generation and Heavy-Industry Sectors” OECD Trade and EnvironmentWorking Papers, No 2010-02, OECD, Paris (2010).
  • [7] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 6.
  • [8] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 38.
  • [9] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 39.
  • [10] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 33.
  • [11] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 37.
  • [12] Steenblik and Geloso Grosso, “Trade in Services Related to Climate Change” 37—B.
  • [13] Robert Howse and Antonia Eliason, “Carbon Trading and the CDM in WTO Law” in Stewartetal. (eds.), Climate Finance: Regulatory and Funding Strategies for Climate Change and GlobalDevelopment (New York University Press, New York 2009) 254, 256—7.
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