Fiscal and Financial Policies for Low-Carbon Economic Development Should be Double Green HU Tao Policy Research Center of Ministry of Environmental Protection, China 26 November 2010, SNAI, Shanghai

2 Outline Case of US Section 301 probe on China’s clean energy subsidies Current challenge by WTO rules of fiscal and financial policies for low carbon economic development Why Fiscal and financial policy should be double green?

3 US Section 301 probe Storyline –Union of Steel Workers (USW) accusing China’s subsidy on clean energy, mainly wind and solar products –USTR is investigating according to US trade Act Section 301 –If proved true, US discusses with China or brings it to Dispute Settlement Body (DSB) of WTO

4 US Section 301 probe From UNFCCC perspective –All parties should make efforts to reduce GHGs to mitigate What US should do as Annex I country –8% GHGs reduction required in KY Protocol What China should do as non-Annex I country –Voluntary based reductions What Annex I should do for non-Annex I: –Financial support 0.7% of GDP committed in Rio –Technology transfer committed in Rio

5 US Section 301 probe From UNFCCC perspective –What China is doing for implementing its voluntary based action plan Target –40-45% carbon intensity by 2020, 20% by 2010 –Cap for N2O by 2010 –15% renewable in energy mix by 2020; and 10% by 2010 Instruments –MBIs »Financial supports »Self-innovation »Taxation or trading –Moral education –C&C Results (can be MRV) –Reducing GHGs domestically 726 million ton CO2 per year with 261 GW capacity –Helping others reducing GHGs internationally 11.1 million ton CO2 per year by exporting equipment for hydro 3GW, solar 2.59GW, wind 36.6MW. –It’s very clear that the more renewable subsidized, the more GHGs reduced

6 US Section 301 probe From WTO perspective –Subsidy Defining subsidy –Government or public body –Financial sources –Enterprises –Specificity Types of subsidy –Prohibited (red box) –Actionable subsidy (yellow box) –Non-actionable subsidy (green box) »Article 8 expired already in 2000

7 US Section 301 probe From WTO perspective –Exceptions GATT XX –For environmental protection –For resources conservation Case by case –Tuna-dolphin –Shrimp and turtle Transaction costs? Agriculture as an exceptional sector

8 US Section 301 probe From WTO perspective –What China has done Subsidies –Compensations –Financial supports –Privilege credit and loans –VAT waived –Quotas, regulations etc for renewable requirements creating high shadow price of demanded equipment

9 US Section 301 probe From WTO perspective –What US has done Subsidies for renewable too as key part of stimulus plan during the financial crisis Subsidies for agriculture that increases fertilizer applying amount and results in more emissions of N2O, CH4 and ammonia-nitrogen –US$ 19 billion annually –513.8 million ton carbon annually, taking 7% of total

10 US Section 301 probe From WTO perspective –Other cases Japan as complainant accusing Canada for it’s renewable in Ontario US Senate’s proposal of BTA to punish China and India high carbon goods US, EC’s complain in DSB on China’s raw materials exporting, rare earth element mineral ores exporting EC’s complain on China’s exported coke US’s proposal in APEC on non-tariff measures (but barriers) for renewable

11 US Section 301 probe From other bodies’ perspective –OECD’s Green subsidies for Agriculture Regional development Environment protection –World Bank’s climate-friendly products List of products for WTO EGS negotiation

12 US Section 301 probe Conclusions from the case –Between WTO and MEAs Global environmental interests required by UNFCCC are NOT coherent with free trade articles of WTO. Which rules should be followed when two sets of international rules conflict each other? –Within WTO Between the principle of free trade and the principle of sustainable development are unbalanced There are no operational details of SD principle Environmental issue maybe an exception which is case by case by GATT XX

13 Current challenge by WTO rules of financial polices for low carbon economic development The question is not why new coherent rules needed but HOW The cases above mentioned are challenges for WTO rule itself

14 Current challenge by WTO rules of financial polices for low carbon economic development WTO has realized the potential conflicts –Committee for Trade and Environment (CTE) being established before Doha ministerial meeting 2001 –Topics dealing with environmental issues started after Doha DDA 31.1 dealing with the relationships between WTO and MEAs DDA 31.2 MEAs observership DDA31.3 EGS negotiation DDA 32.1 Market access of environmental requirement DDA32.3 Eco-label discussion

15 Current challenge by WTO rules of financial polices for low carbon economic development Directions –To normalize (at least global) environmental exception in GATT XX, following agriculture sector exception –To meet our common environmental demand as another goal of WTO besides free trade, to let SD principle operational –To rejuvenate Article 8 of SCM to have green box policies

16 Why fiscal policy should be double green Fiscal and financial policies should be green for low carbon economic development Why low carbon is more important than low sulfur, low nitrogen, low VOC from the global perspective?

17 Spectrum of the environment The conventional Environment Indoor environment Outdoor environment Micro Macro Scale of environment Regional environment Local environment National environment Global environment

18 Spectrum of the environment from micro to macro level Indoor environment Outdoor/local/national/regional environment Global environment –Climate change –Ozone depletion –Biodiversity loss –POPs –Hazardous wastes Trans-boundary transfer regulated by Basal convention –And other MEAs regulated global environmental problems

19 Why fiscal policy should be double green Fiscal and financial policies should be green generally for promoting green economy –To support MEAs implementation for improving global environment –To reduce air pollution, water, solid wastes for conventional environmental improvement –To support indoor environmental improvement for human being’s health

20 Why fiscal policy should be double green Fiscal and financial policies should also be green for green box policies –definitely not use red box policies which are prohibited clearly by WTO –Not use amber box policies which are not allowed as actionable by WTO –Better to use green box policies, which are much safer than other two sets of policies, although Article 8 is to be saved, such as R&D Smart location Global than local environmental goods and services

21 Thank you very much!