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The Paris Accord-Related Agreement on Environmental Goods and Services

It's Necessity and Feasibility

Clinic: Graduate Institute, Fall 2018

Beneficiary: Permanent Mission of Taiwan, Penghu, Kinmen and Matsu to the World Trade Organization

Executive Summary

Read the full report here

The catastrophic effects of climate change require stronger measures than the existing ones. Despite the success of the Paris Agreement in terms of participation, it is still necessary to undertake stronger and more effective steps to mitigate this phenomenon and further implement the goals of the Paris Agreement.

Taiwan has proposed, within the framework of the World Trade Organization, a ‘Paris Accord-related Environmental Goods and Services Agreement’, or ‘PAEGSA’, that seeks to implement the Paris Agreement through a trade facilitation framework. PAEGSA is an effort to revitalize the stalled negotiations of the Environmental Goods Agreement, and seeks to draw lessons from them. Specifically, it proposes to further strengthen the implementation of the Paris Agreement through the following main elements:

  • The elimination of tariffs on goods related to carbon reduction or the ones necessary to implement the Paris Agreement;

  • The inclusion of trade liberalization on climate-friendly services;

  • The inclusion of government procurement, since energy industries in many WTO members are government-controlled; and,

  • The inclusion of other elements, such as technology transfer and national regulation.

PAEGSA is a proposal that is not only necessary, but also more feasible than the Environmental Goods Agreement, in terms of options available to alleviate potential difficulties that may arise during its negotiation.

PAEGSA is necessary to implement the Paris Agreement

PAEGSA is necessary to further implement the Paris Agreement mainly for three related reasons.

First, the regulation in the climate change regime has moved rather slowly. It started with a scientific concern in the 1960s, but it was not until 1992 that countries adopted a framework convention and not until 2015 that the Paris Agreement was signed. Admittedly, the recent Paris Agreement was a success in terms of reducing the obligation gap between developed and developing countries and achieving universal participation, compared to its predecessor, the Kyoto Protocol. However, the implementation mechanisms simply adopted information-based approaches and facilitation mechanisms, such as international cooperation in capacity building and technology transfer. In order to achieve the CO2 emissions’ reduction required to meet the Paris Agreement’s goals, it is necessary to strengthen its implementation mechanisms.

Second, the international trade framework, which has stronger enforcement mechanisms and additional institutional benefits, will strengthen the implementation of the Paris Agreement. In particular, the World Trade Organization’s system provides several benefits to effectively implement the diffusion of climate-friendly goods and services, as proposed in PAEGSA, such as a dispute settlement body and a forum for further trade negotiations.

Third, for the implementation of the Paris Agreement and tackling climate change, PAEGSA’s approach is more effective than existing trade approaches. Countries have been linking trade and climate change governance through institutional linkages, provisions in Preferential Trade Agreements and references to trade in their Nationally Determined Contributions (“NDCs”) for the Paris Agreement. However, they have not been effective enough. The institutional linkages are weak and mainly about observing negotiations and sharing views. Some Preferential Trade Agreements have climate provisions. However, they are not precise and specific enough, and are not necessarily adopted by the highest greenhouse gas emitters. Lastly, a 2017 study showed that 45% of NDCs contain direct references to trade or trade elements, but only 6% of all NDCs mention a reduction of trade barriers (Brandi, 2017).

PAEGSA’s comprehensive set of trade measures will allow for more effective implementation of the Paris Agreement. For instance, its goods-plus-services coverage will balance the bargaining power of goods-producing countries and service-supplying countries.

PAEGSA is more feasible than the Environmental Goods Agreement

PAEGSA will most likely face difficulties during its negotiation. However, there are options or solutions to alleviate the following major difficulties.

First, even though there is no universally accepted definition of the climate friendly sector, and climate friendly goods and services cut across many different trade sectors, commentators have proposed a number of options to alleviate this problem. Negotiators can choose to define the climate friendly goods and services with a list approach, a pre-established set-of-criteria approach, a project approach, or an integrated approach. In addition, problems such as multiple-end uses may be alleviated by focusing on single-use goods and services.

Second, even though the inclusion of a transparent government procurement is a sensitive matter, especially for developing countries, linking it with technology transfer could attract such countries. Additionally, including technology transfer is feasible because: first, WTO members have already committed to encourage technological diffusion to developing countries under fair conditions already in several multilateral agreements. And second, there are several options to operationalize diffusion of technologies, such as i) collaborative training, education and research; ii) encouraging foreign direct investment linked to technology diffusion; and iii) licensing and intellectual property rights’ transfer.

Third, PAEGSA, attracts a critical mass more easily than the Environmental Goods Agreement. This is so because of: trade volume, expressed positive reactions to PAEGSA, and flexibility for trade-offs. The top exporters and importers of climate-friendly goods are limited to a relatively small number of WTO members. For the services sector that are particularly relevant to sustainable energy, such as construction, architectural, engineering and other technical services, the top exporters and importers largely correspond to the critical mass of climate-friendly goods. Furthermore, among the top exporting and importing members of climate-friendly goods and services, some of them have already expressed positive reactions to PAEGSA. Finally, the comprehensiveness of PAEGSA’s coverage allows for trade-offs during the negotiation.

To read the full memo, please see here.

#ClimateChange #GraduateInstitute #Environment #WTO #TradeFacilitation

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