The Evolving Landscape of Clean Energy Governance: Implications for International Trade

Excellencies,
Ladies and Gentlemen,

It is a great pleasure to be here today, to be back in Geneva and to have the opportunity to participate in this session with such distinguished panelists. Let we pay tribute to ICTSD and the Energy Charter Secretariat for organizing this event.

I have been asked in my new role as Deputy Secretary-General of UNCTAD to share with you my views on "The challenges for developing countries related to energy trade governance".

[The Problem]

To understand the challenge of energy trade, one needs to understand the challenge of energy as such.

Let me start by sharing some numbers to illustrate the energy challenge that we, collectively, are facing.

Every day, the world's population increases by nearly 230,000 people. Imagine, this is like adding a city the size of Geneva every two days!

We may not notice it, but this is happening. And one of the reasons why we do not see it here is, of course, because most of the population increases are happening somewhere else. They are happening in the developing world, in countries like Nigeria, Ethiopia and Philippines, to mention a few.

In addition to the population increase, every year, millions of people move from rural to urban areas, where they use more electric appliances, cars and demand more energy. Also, every year, millions of people thankfully move out of poverty and join the middle class.

Over the past couple of decades, due to population growth, urbanization and a rapidly growing middle class, energy demand has skyrocketed. In no other place on earth is this as prevalent as in emerging economies. Their energy demand has increased exponentially to fuel their dynamically growing economies. In fact, these economies account for 90% of the growth in energy demand since the year 2000.

Despite the current problems in the global economy, we have witnessed an unprecedented rise in prosperity in the last two decades. This is a monumental achievement. But it is also this very fact, of increased prosperity, which create a global challenge that we now need to face up to.

This is what I would call a prosperity paradox. When prosperity grows, leading to increased energy demand, and its consequent increase in CO2 emissions, this threatens to aggravate the climate change problem, which in turn compromises the prosperity that all nations legitimately strive for so hard.

This is the bad news: as we get richer, we compromise the wellbeing of future generations. There is nothing new about this story. What is new is the sheer magnitude of the problem.

[The Solution]

But there is a way out of this paradox: cleaner and sustainable energy.

In the post 2015 development agenda, an important focus is placed on broadening the use of cleaner and sustainable energy sources. Simply put, we need to decouple economic prosperity from CO2 emissions, so as not to compromise a country's ability to grow or the prosperity of current and future generations.

Collectively, we must ensure a transition towards a cleaner and sustainable energy. And, I am convinced, energy trade governance can play a very important role to help all countries, particularly developing countries, to achieve this transition.

This transition implies addressing major challenges, for instance:

• diversifying the future energy mix;
• decoupling economic growth from green house gas emissions; and
• designing multilateral and national energy policies, including for energy trade, in accordance with coherent a governance framework.

[The three challenges to be addressed]

Let me address each of the challenges I just mentioned.

I will start with diversifying the future energy mix.

Fossil based energy sources continue to dominate the energy consumption of countries, with clean energy representing about 20% of global consumption. The International Energy Agency predicts that by 2040, 25 % of energy would come from clean sources, such as solar, wind and biofuels. This increase is perhaps encouraging, but falls far short of the scale of transition we need to achieve. It also shows that the transition from conventional to clean energy will be a long and difficult process.

Therefore, we need more policy changes to diversify the energy matrix. Clean energy should represent a major share of global energy consumption in the next half a century.

In this context, biofuels represent one option for developing countries with capacity to produce, use and trade them. It is easy to focus exclusively on large scale operations here. But some small islands in the Pacific have for example also developed biofuels from coconut oils as it is clean, relatively cheap, aromatic and easy to extract. Opportunities exist and all countries, regardless size and might, will have to creatively explore their respective endowments.

Of course, major challenges remain in developing the biofuels industry. For instance, in setting environmental sustainability norms, tariffs and subsidies; in better understanding the impact of biofuels production, from first¹ or second² generation, on land use and food security; or striking a better balance between large scale energy crop production and traditional small scale farming. We need to address these issues, and respond to legitimate concerns, if biofuels are to play a more important role in our future energy matrix.

Let me now refer the second challenge: decoupling economic growth from Green House Gas emissions

The energy sector is responsible for by far the largest share of Green House Gas emissions about 26%³. Therefore, to decouple these emissions from economic growth, it is crucial to find new energy sources, from both conventional and clean sources, that ensures availability, accessibility and affordability of energy for all. This will, in turn, help sustaining higher levels of economic growth. And there is a lot of untapped potential in this area. As noted by the President of the World Bank yesterday, in an interview, Africa currently just exploits 1% of its hydroelectrical potential.

Greater internationalization of energy policy and focus on clean energy can also provide the necessary push, and mobilization of resources, for decoupling. A new climate agreement, under the UNFCCC in Paris in December, but also Financing for Development in July, should be used as important vehicle to this end.

In the decoupling process we are not alone, we have an ally: technology.

This technology is rapidly evolving, is becoming more cost-effective, but a lot is already available. One of the big challenges were to spread those technological innovations from market to market, including developing countries and particularly to LDCs. It is in the poorest countries, where renewable technologies play the dual role of reducing GHG emissions, and also reducing energy poverty. Green technologies can go where electricity companies and high-voltage grids cannot: namely to distant or isolated rural areas. We need to make sure that technology, as an ally, is available to all countries and peoples, not least the poorest among us.

Diffusion of technology really matters. And as you know, trade is one of the most effective channels to diffuse technology.

Countries can do their part by liberalizing trade in climate-friendly and energy-efficient goods. This can be done as a part of the on-going Doha negotiations or in a regional or a plurilateral setting, or unilaterally. Within the UNFCCC, technology transfer is also on the agenda.

Finally, I will turn now to the third and last challenge, and where I will devote more time: strengthening the multilateral and national energy trade governance

At present, there is no uniform and single multilateral framework of governance on energy trade.

There have been some ideas raised in recent years to have such a single agreement on energy within the WTO to regulate trade in energy, in both goods and services, and related measures such as subsidies, procurement etc. These ideas are based on recognition that the WTO can and already provides a multilateral framework for regulation of energy trade or, at least, a number of aspect of it. In my view, this is an area that Members may wish to explore, following the closure of the Doha Round. But they should then also consider the role of energy investments and energy competition policy currently covered by the Energy Charter and worked on in UNCTAD.

Some steps can also already now be taken, in order to achieve coherence, in this house and elsewhere. The WTO Doha agenda looks at liberalization of trade in environmental goods and services (EGS) including in energy sectors, or at liberalizing energy services sectors. The APEC initiative on liberalizing trade (tariffs) in EGS and the agreement among some key countries are signs of growing awareness of the need to strengthen the governing framework on energy. These initiatives should be consolidated.

Most recent regional trade negotiations and agreements propose provisions on clean energy and energy efficiency. They provide another avenue to improve regulation and governance of energy trade, which can meaningfully encourage the development of clean energy production and trade.

We need of course be aware that international initiatives will never be more coherent than national policies. Effective policy steps must be taken at home. And renewables are an area that is profoundly shaped by government intervention in domestic markets. The industry like fossil fuel- benefits from large public subsidies. The price of conventional energy significantly affects the incentives to invest in green energy and produce it. Any attempt to scale up the use of green technologies will necessarily have to address fossil fuel subsidies. Now is the perfect moment, given the recent drop in oil prices.

Renewables are also protected by trade-related measures. These support systems are mostly based on the premise that countries want to pursue green energy and green jobs simultaneously to make a truly sustainable economy. But green jobs, as an industrial policy objective, can work against green energy in certain circumstances. Sometimes one has to choose what is more important. On top of it, attempts by policy makers to support green jobs has in some cases generated the wave of disputes in the area of renewable energy. It has also raised the question of the economic rationality, effectiveness and legitimacy of such interventions.

Let me give you one example.

Some governments link local content requirements to subsidies or a taxation structure. Beyond the WTO legality of these requirements, what is their effectiveness from the perspective of seriously scaling up renewables? In this sense, a valid question is, does it make sense to focus less on subsidies of productionand more on consumption of renewable energy?

Other countries make use of trade remedies and other types of border measures, which have the "advantage" of being more transparent and applied at the border. But trade remedies create barriers to supply chain optimization. As you know, more than 40 cases on antidumping and countervailing duty have been initiated since 2008 on biofuels, solar energy and wind energy products.

In other words, various trade measures may fragment global markets for green technology, constraining economies of scale, increasing inefficiency, reducing innovation and the incentives for technology diffusion. This is a bad outcome for all, but particularly for the poorest developing countries. These countries lack deep pockets and cannot afford to pursue inefficient and costly policies.

In addition, these trade measures are at cross-purpose with national and international climate and environment policies and could undermine the credibility of governments' commitments to address climate change negotiations.

[Conclusion]

Ladies and gentlemen,

We have an important challenge ahead of us: addressing the prosperity paradox.

The post-2015 development agenda aims at eradicating poverty from earth. More and more people will have the fortune to join the middle class in the years to come. And their demands for energy will increase dramatically. This, plus the continuous increases in global population, will put enormous pressure on our energy systems. We need to respond accordingly. And we need to respond in a manner that is sustainable; in a manner that what we do today does not compromise our ability to prosper tomorrow. We need clean and renewable energy.

And trade has the power to contribute to this goal.

Trade can help transferring technology, trade can pave the way for investment to follow, and trade can help creating the governance platforms needed to foster the production and consumption of renewable energy.

As you can see, trade can do a lot. As you can see, we can do a lot. And as you can see, we need to do it together to ensure trade is up to the challenge.

Thank you very much.