TTIP and Climate Change: Low Economic Benefits, Real Climate Risks

Matthew C. Portersfield and Kevin Gallagher

Matthew C. Porterfield is Deputy Director and an adjunct professor at the Georgetown University Law Center’s Harrison Institute for Public Law. Kevin P. Gallagher is Professor of Global Development Policy at Boston University’s Pardee School for Global Studies, where he co-directs the Global Economic Governance Initiative.

Climate change governance should inform global governance more broadly, including international trade and investment policy. One of the most important trade and investment agreements is the Trans-Atlantic Trade and Investment Partnership (TTIP)—currently under negotiation between the European Union and United States—given the role the agreement will likely play in establishing rules for the global economy in the 21st century.
The current model that the TTIP is based on will increase carbon dioxide emissions and jeopardize the ability of Europe and the United States to put in place effective policies for mitigating climate change. Trade and investment treaties should be used to help achieve the broader climate change objectives of Europe and the United States, not hinder them.

This short brief outlines how the TTIP can increase emissions and restrict the ability of nations to adequately mitigate and adapt to climate change and offers a set of recommendations that would make EU–U.S. trade policy more consistent with global climate change goals.

TTIP will Increase Carbon Emissions

Given that the United States and Europe already enjoy a strong trade and investment relationship, the economic benefits of the treaty are projected to be relatively small. The most cited studies in the European debates are by Ecorys, the Centre for Economic Policy Research (CEPR) and Tufts University. The first two studies find that the treaty will boost GDP among the parties by less than 1 per cent for the United States and Europe, though the Tufts study finds that the impacts on GDP will be slightly negative in the EU.1

Despite the small projected economic gains of the treaty, the Ecorys study projects that it will increase emissions by 11 million metric tons. The increase in emissions is just 0.07 percent from the baseline, smaller than the 0.47 increase in GDP projected by Ecorys. When multiplied by estimates of the social cost of carbon, carbon emissions would cost the European Union USD1.4 billion annually.2

This finding is consistent with the broader literature. According to a comprehensive assessment of the literature conducted by the World Trade Organization and the United Nations Environment Programme, most trade and investment agreements tend to increase carbon emissions.3 It should be noted that the Ecorys study is only a partial one because it does not look at the environmental impacts of many “nontariff barriers,” such as certain domestic subsidies. There has also been inadequate consideration of the potential impact of TTIP provisions that could limit the ability of governments to design and implement effective climate change policy. As we will see, it is the deregulatory aspect of the TTIP that poses the highest risk to climate change policy.

Regulatory Risks of the TTIP

The TTIP could jeopardize the ability of the European Union and the United States to put in place the proper regulations to meet climate targets. The legal effects of the TTIP could take a variety of forms, including broad restrictions on regulatory authority under investor-state dispute settlement (ISDS) provisions, limits on carbon intensity standards, modifications of the U.S. fossil fuel export regime and restrictions on renewable energy programs.

Broad Restraints on Climate Regulations under Investment Rules

The TTIP’s investment chapter will likely provide investors with certain broad rights, including “fair and equitable treatment” and compensation for regulations deemed to constitute acts of “indirect expropriation.” These rights would be enforceable by private corporations, including fossil fuel companies, through the controversial ISDS process, which could be used to challenge a wide range of government measures affecting climate change.4 Similar rules under other treaties have been used to challenge environment-related measures, including a claim under the Energy Charter Treaty based on Germany’s regulation of a coal-fired power plant5 and a pending challenge under the North American Free Trade Agreement (NAFTA) to Quebec’s moratorium on hydraulic fracturing or “fracking.”6

Limits on Carbon-Intensity Standards

Regulations that limit the carbon intensity of transportation fuels could also be targeted under the TTIP. United States Trade Representative Michael Froman has reportedly used the TTIP negotiations to pressure the European Union to weaken the carbon intensity standards of the EU’s Fuel Quality Directive (FQD) in order to facilitate the export of high-carbon-intensity oil.7 Although the European Commission subsequently modified the FQD proposal to accommodate the dirtier oil,8 the TTIP negotiations could be used to impose restrictions on future efforts to implement carbon intensity standards for fuel.9

Modification of the Fossil Fuel Export Regime

One of the European Union’s principal objectives in the TTIP negotiations is to secure “a legally binding commitment . . . guaranteeing the free export of crude oil and gas resources [from the United States] by transforming any mandatory and non-automatic export licensing procedure into a process by which licenses for exports to the EU are granted automatically and expeditiously.”10 Creating an “automatic” and “expeditious” process for U.S. crude oil and gas exports could result in more greenhouse gas (GHG) emissions than projected in quantitative analyses by promoting the production and consumption of these fuels.

Although natural gas is widely viewed as a lowercarbon alternative to other fossil fuels such as oil and coal, expanded exports of liquefied natural gas (LNG) could actually increase GHG emissions for several reasons. Liquefying, transporting and regasifying natural gas is energy-intensive, causing exported LNG to be approximately 15 per cent more carbon-intensive than natural gas that is used domestically. In addition, increased LNG exports will raise the price of natural gas in the United States, potentially resulting in the use of more coal to produce electricity. Expanded LNG exports will also encourage increased fracking for the production of natural gas, which could cause increased accidental releases of natural gas, known as “fugitive methane emissions.”11 Given that methane is a much more powerful greenhouse gas than carbon dioxide, “any climate benefits from increased natural gas use internationally could be dwarfed by accelerated warming caused by fugitive methane emissions.”12

Restrictions on Renewable Energy Programs

The TTIP could also conflict with efforts to address climate change by imposing new restrictions on policies designed to promote renewable energy. Trade rules are already being used to challenge alternative energy programs. Since 2010 about a dozen disputes have been brought over renewable energy programs.13 The European Union has indicated that it intends to use the TTIP negotiations to seek new restrictions targeting renewable energy programs that contain local content requirements.14 Proponents of local content provisions argue that they are essential for developing the political support that will be necessary to maintain and expand renewable energy programs.

Putting Climate Change First

At the Paris Summit and in the newly crafted Sustainable Development Goals (SDGs) at the United Nations, the world’s nations have pledged to “take urgent action to combat climate change and its impacts.”15 The TTIP must not undermine this goal.

Both the European Union and the United States have made strides in prioritizing climate change in other areas of global economic governance, but not in international trade and investment policy. The European Investment Bank and the European Bank for Reconstruction and Development—the EU’s multilateral development banks (MDBs)— significantly restrict the financing of fossil-fuelintensive economic activity. The United States also has executive orders that restrict the ability of the United States to support the financing of coal projects through MDBs of which it is a member, and mandates that all projects be climate resilient. Such an approach is urgently needed in the TTIP.

The negative economic and regulatory impacts of the TTIP on climate policy noted above are not inevitable. A bold approach could be put forth where the TTIP excludes climate mitigation measures from ISDS, protects renewable energy programs and carbon-intensity standards, and discourages the production and consumption of fossil fuels.
As first steps in striking a new economic relationship that enhances our climate change goals, the United States and the European Union should commit to three principles: (1) The potential economic and regulatory impacts of the TTIP on climate policy should be carefully studied. (2) The provisions of the TTIP should be fully compatible with and supportive of climate policy objectives. (3) The TTIP should, at a minimum, not result in a net increase in GHG emissions—which is to say, the TTIP must be carbon neutral or better.

As the SDGs articulate, “climate change is a global challenge that does not respect national borders. Emissions anywhere affect people everywhere. It is an issue that requires solutions that need to be coordinated at the international level.”16 Trade and investment policy should not be an exception.

Originally published as an International Institute for Sustainable Development Commentary. The authors would like to acknowledge the Wallace Global Fund for providing the support that made this policy brief possible.

Notes

1. Despite the small projected economic gains of the treaty, the Ecorys study projects that it will increase emissions by 11 million metric tons. The increase in emissions is just 0.07 percent from the baseline, 1 See Ecorys, 2009, Non Tariff Measures in EU-US Trade and Investment –An Economic Analysis, ECORYS Nederland BV; and CEPR, 2013, Reducing Transatlantic Barriers to Trade and Investment, Centre for Economic Policy Research, London; for a discussion of the limits of CGE modeling see Ackerman, F., and K. Gallagher. 2004. “Computable Abstraction: General Equilibrium Models of Trade and Environment.” In The flawed foundations of General Equilibrium: critical Essays on Economic theory, ed. F. Ackerman and A. Nadal, 168–80. New York: Routledge and Ackerman, Frank, and Kevin P. Gallagher, 2008, “The Shrinking Gains from Global Trade Liberalization in Computable General Equilibrium Models”, International Journal of Political Economy, vol. 37, no. 1, Spring, pp. 50–77.

2. EC Staff Working Document, Impact Assessment on the Future of EU-US Trade Relations (2013)(“EC Impact Assessment”) at 49, available at http://trade. ec.europa.eu/doclib/docs/2013/march/tradoc_150759.pdf. On the social cost of carbon (SCC), 11 million tons is multiplied by the average estimate in this comprehensive review of estimates J.C.J.M. van den Bergh and W.J.W. Botzen (2014), “A lower bound to the social cost of CO2 emissions,” Nature Climate Change 4, 253-258.

3. World Trade Organization & United Nations Environment Programme. (2009). Trade and climate change, (p. vii). Retrieved from https://www.wto.org/english/ res_e/booksp_e/trade_climate_change_e.pdf.

4. See Gus Van Harten. (2015). An ISDS carve-out to support action on climate change. Osgoode Hall Legal Studies Research Paper No. 38/2015. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2663504; Meredith Wilinsky. (2014, August 7). Potential liability for climate-related measures under the TransPacific Partnership. Retrieved from http://web.law.columbia.edu/sites/default/files/ microsites/climate-change/wilenskytranspacificpartnership8-7-14_-_revised.pdf.

5. Nathalie Bernasconi-Osterwalder & Rhea Tamara Hoffmann (2012). The German nuclear phase-out put to the test in international investment arbitration? Background to the New Dispute Vattenfall v. Germany (II) (p. 4). Retrieved from http://www.iisd. org/pdf/2012/german_nuclear_phase_out.pdf.

6. Lone Pine Resources Inc. v. Canada (UNCITRAL), Notice of Arbitration, paras. 48–52 (Sept. 6, 2013). Retrieved from http://www.italaw.com/sites/default/files/ casedocuments/italaw1596.pdf.

7. From Inside U.S. Trade (2013, September 19). Froman pledges to preserve Jones Act, criticizes EU Clean Fuel Directive: Froman raised concerns about trade impacts of the FQD “with senior European Commission officials repeatedly, including in the context of the . . . TTIP negotiations.”

8. From Inside U.S. Trade (2014, October 14). EU backpedals on vehicle fuels policy in face of U.S., Canadian pressure.

9. From Inside U.S. Trade (2014, October 14). EU backpedals on vehicle fuels policy in face of U.S., Canadian pressure: “[O]utgoing EU Climate Action Commissioner Connie Hedegaard . . . signaled that the EU was leaving the door open to directly targeting tar sands . . . for penalties in the future.”

10. Council of the European Union. (2014, May 27). Note for the attention of the Trade Policy Committee: Non-paper on a Chapter on Energy and Raw Materials in TTIP. Retrieved from http://www.scribd.com/doc/233022558/EU-Energy-Nonpaper.

11. World Resources Institute, (2013, May 20). What exporting U.S. natural gas means for the climate. Retrieved from http://www.wri.org/blog/2013/05/whatexporting-us-natural-gas-means-climate.

12. Ibid.

13. Cathleen Cimino & Gary Hufbauer. (2014, April). Trade remedies: Targeting the renewable energy sector (p. 19). Retrieved from http://unctad.org/meetings/en/ SessionalDocuments/ditc_ted_03042014Petersen_Institute.pdf.

14. European Commission. (2013). EU–US Trade and Investment Partnership, raw materials and energy: Initial EU position paper (p. 3). Retrieved from http://trade. ec.europa.eu/doclib/docs/2013/july/tradoc_151624.pdf.

15. United Nations. (n.d.). Goal 13: Take urgent action to combat climate change and its impacts. United Nations Sustainable Development Goals. Retrieved from http://www.un.org/sustainabledevelopment/climate-change-2/.

16. Ibid.

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Dollar Dominance

Arthur MacEwan

This article is excerpted from the January/February 2016 issue of Dollars & Sense magazine.

Change Without Change

The Bretton Woods rules of the game worked fairly well for twenty-five years. In fact, from the perspective of the United States one might say they worked too well. While the Bretton Woods system promoted U.S. commerce, opening up trade and investment opportunities around the (capitalist) world, it also provided a stability in global affairs in which firms based elsewhere—in Japan and Europe—were able to also expand and ultimately challenge the dominant position of U.S firms.

A critical juncture in global commercial arrangements then came in 1971: the Bretton Woods system fell apart. A combination of heavy spending abroad by the U.S. government (on the Vietnam War), the economic challenge from other rich countries, and inflation in the United States led the U.S. government to drop its promise of redeeming dollars for gold. Yet, while the system fell apart, there was surprisingly little change in international trade and investment. The relative economic and military power of the United States, though not as extreme as it had been in the immediate post-World War II era, continued. And the perceived threat of the Soviet Union served as a glue, binding the world’s major capitalist powers in Europe and Asia to the United States, and leading them to accept continued U.S. economic, as well as military, dominance.

After 1971, various new arrangements were put in place—for example, a system of partially managed “pegs” was established. Yet the dollar remained the central currency of global commerce. Prices of internationally traded goods—most importantly oil—continued to be set in dollars, and countries continued to hold their reserves in dollars.

Although 1971 marked the beginning of a new era in international financial arrangements, the dollar retained its dominant position. Regardless of the various economic problems in the United States, the dollar has remained both relatively stable and in sufficient supply to grease the wheels of international commerce. Indeed, an ironic example of the continuing role of the dollar came in the Great Recession that began in 2008. Even while the U.S. economy was in the doldrums, businesses and governments elsewhere in the world were buying U.S. government bonds—a principal means of holding their reserves in dollars—since they still considered these the safest assets available.

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What to Expect in 2016?

Martin Khor

It is the time again to bid farewell to the old year and to welcome the new one.

Last year was very eventful on the environmental and economic fronts, and 2016 promises to be the same, if not more so.

For those passionate about the fate of the planet, 2015 closed with a bang, following the adoption of a global deal on climate change in December, but not before a nail-biting last day when the fate of the Paris conference hung uncertainly.

Finally, a deal was put together, generally satisfying both developing and developed countries.

The developing countries, led by the G77 and China, and also the like-minded developing countries (LMDCs), managed to stand firm on their demands and secured acceptance of most of their points, though diluted through compromise.

Malaysia played a crucial role on behalf of the developing countries, being both spokesperson for the LMDCs as well as a coordinator for the G77 and China.

The US and its allies also got their way.

The result is a weak agreement that depends on each country to determine what it can do on mitigation (reducing or slowing down emissions) and with no official compliance mechanism to discipline those countries that do not perform even according to their own expectations.

From a purely environmental perspective, the Paris deal was thus nothing to shout about.

Some may even consider it a failure.

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Don’t Buy the Spin

The WTO talks in Nairobi ended badly and India will pay a price.

Timothy A. Wise and Biraj Patnaik analyze the outcome and implications of World Trade Organization’s Nairobi summit for India’s Scroll media outlet. See Wise’s previous analyses of the Nairobi WTO meeting.

Biraj Patnaik and Timothy A. Wise

It didn’t take long for the spin masters to begin working their magic on the latest dismal World Trade Organisation summit in Nairobi. WTO Director General Roberto Azevedo waxed eloquent about the “historic” agreement, stating in a post-meeting press conference that the agreement “will improve the lives of those who most need to benefit from trade, especially those in Africa”.

But what really happened in Nairobi and what does it mean for future trade negotiations?

We’ve had the Financial Times declaring the Doha Development Agenda dead, if not buried. For those unfamiliar with the Doha Round, it has been the only negotiating platform to discuss the concerns of developing countries, particularly with reference to agriculture and farm subsidies, in the 15 years at the WTO.

While the claims of Doha death are, as Mark Twain might have said, premature, there is no doubt the development agenda has been undermined. Developing countries got very little in Nairobi, official press releases aside, and they are likely to get even less in a future characterised by Southern incoherence and Northern dominance.

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Maximum “Economic Freedom”: No Cure for Our Economic Ills

John Miller

We are the party of maximum economic freedom and the prosperity freedom makes possible. … Our vision of an opportunity society stands in stark contrast to the current Administration’s policies that … [have] created a culture of dependency, bloated government, and massive debt.
—2012 Republican Platform, “We Believe in America”
Unless policies undermining economic freedom are reversed, the future annual growth of the U.S. economy will be only about half its historic average of 3%.
—James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World: 2015 Annual Report, The Fraser Institute

The Republican Party no doubt will once again in 2016 claim that it is the “party of maximum economic freedom” and that the presidential election will once again offer a choice between free enterprise, an opportunity society, and prosperity versus “a culture of dependency, bloated government, and massive debt.”

Just in case the boilerplate of their platform is not enough to convince you that maximum “economic freedom” is the key to prosperity, two free-market think tanks, the Canada-based Fraser Institute and the Washington, D.C.-based Cato Institute, have the numbers to prove it—or so they say.he Republican Party no doubt will once again in 2016 claim that it is the “party of maximum economic freedom” and that the presidential election will once again offer a choice between free enterprise, an opportunity society, and prosperity versus “a culture of dependency, bloated government, and massive debt.”

Their Economic Freedom Index of the World (EFW), its latest edition published just this fall, purports to show that economic freedom in the United States is on the decline, and as economic freedom has plummeted, economic growth has slowed, inequality has worsened, and political rights and civil liberties have been curtailed. The same, according to the EFW report, holds true for countries across the globe—those that are “more free” economically enjoy better economic outcomes and more civil liberties and political rights.

But even a quick glance at the EFW country rankings makes clear that there is something seriously amiss with its numbers.

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U.S. Cynical Positions Designed to Produce Deadlock

Timothy A. Wise

Yesterday, U.S. Trade Representative Michael Froman delivered his plenary statement to the trade ministers gathered in Nairobi for the World Trade Organization’s tenth ministerial conference. His statement, which calls for the abandonment of the Doha Development Round in favor of negotiations on new issues of more strategic interest to the United States, deserve a response from a countryman.

Mr. Froman calls on trade representatives “to move beyond the cynical repetition of positions designed to produce deadlock.” Yet this is precisely what Mr. Froman has come to Nairobi to repeat: U.S. positions designed to produce deadlock.

He decries the lack of progress in the last 15 years of Doha negotiations, yet he fails to acknowledge that the United States has been, and remains, the principal reason for that failure. Since 2008, when negotiations broke down, the U.S. has refused to continue negotiating on the key issues central to the development agenda – reducing agricultural subsidies, allowing developing countries special protection measures for agriculture, eliminating export subsidies and credits, and a host of other issues.

Those issues remain critical to developing countries, and U.S. intransigence in addressing those concerns is the main reason Doha has stagnated. In addition, the U.S. has introduced new issues to create further obstacles to progress, such as its objection to India’s ambitious and laudable public stockholding program to provide food security to fully two-thirds of its people.

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What We’re Writing, What We’re Reading

What We’re Writing

Frank Ackerman, TTIP vs. Climate Policy: What’s at Risk?

James K. Boyce, Klara Zwickl, and Michael Ash, Measuring Environmental Inequality

See a related Triple Crisis post by Zwickl, Ash, and Boyce here.

Juan Antonio Montecino and Gerald Epstein, The Political Economy of QE at the Fed: Who Gained, Who Lost, and Why Did It End?

Listed to Triple Crisis co-editor Alejandro Reuss’s recent interview with Gerald Epstein here.

Fei Yuan and Kevin Gallagher, Greening Development Finance in the Americas

See a related Triple Crisis post by Gallaher here.

Jayati Ghosh, Horrors of Occupation

Sunita Narain, Intolerance in Paris

What We’re Reading

Andrew J. Barenberg, Deepankar Basu, and Ceren Soylu, The Effect of Public Health Expenditure on Infant Mortality

Jomo Kwame Sundaram, Hidden Hunger, Hidden Danger

Marty Wolfson, The Fed Raises Rates: By Paying the Banks

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The Fed’s New “Operation Twist”: Twisted Logic

Gerald Epstein

The Federal Reserve announced on Wednesday (December 16) that it would raise policy interest rates by ¼ to ½ of 1 percent, ending the seven year policy of keeping Fed interest rates near zero, and would embark on a path of “gradual” interest rate increases in order to “normalize” interest rates. This announcement had been long expected by pundits, economists and the financial markets, and, more to the point, had long been pushed by Wall Street and their supporters. It was telling that the first question asked by a reporter in Fed Chair’s Janet Yellen’s press conference following the announcement was not a question at all. The reporter blurted out a sigh of relief: “Finally!” he exalted. The Financial Times’ Lex Column headline:  “U.S. Monetary Policy At Last.”

In fact, the financial media have been huge cheerleaders for a rate hike.  In the months leading up to this announcement, much of the business press had been pushing for an increase. In September, when the Fed did not raise rates, much of the financial press ran headlines like the this Wall Street Journal headline: “The FED Blinks.” The Journal was not alone with phrases like: “the open market committee sat on its hands.” Blinking and hands sitting: these suggest lack of courage, weakness and worse. Neil Irwin of the New York Times, personalized it to Janet Yellen with a headline on September 17: “Why Yellen Blinked on Interest Rates.”

Well, yesterday, Yellen did not blink and the financial press and many economists and pundits were clearly pleased. Yet, as the thoughtful members of the press and economists pointed out, economic conditions are not much better, and in some ways are worse, in December, than they had been in September. Dean Baker of the Center for Economic Policy Research (CEPR) wrote almost immediately after the decision multiple reasons why data do not support a decision to raise rates: He points out that while the official unemployment of 5% is not particularly high, “most other measures of the labor market are near recession levels.” The percentage of the workforce working part time but who really want full time jobs is near the highs reached after the 2001 recession. The percentage of workers willing to quit their jobs to look for a better job is also at near recession highs. “If we look at employment rates, the percentage of prime-age workers (ages 25-54) with jobs is still down by almost three full percentage points from the pre-recession peak.” Finally, wage stagnation is still significant, even despite some recent low gains.

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India’s Time to Lead at the WTO

Timothy A. Wise

As we approach the World Trade Organization (WTO) ministerial on December 15-18 in Nairobi, India is leading a group of developing countries insisting that the development goals promised in Doha in 2001 be achieved. On the other hand, the US, European Union (EU) and Japan have called for a “recalibration” of that agenda, one that leaves agriculture largely off the table.

India is right to lead the fight for reforms in developed countries’ agricultural policies. Cotton should be at the centre of those reforms. A recent study suggests that US subsidies under the 2014 Farm Bill will continue to suppress global cotton prices. Recognising this threat, Africa’s so-called Cotton 4 (or C-4) – Benin, Burkina Faso, Mali, and Chad – tabled a proposal in October calling on the US and other WTO members to make good on the longstanding commitment to address the cotton issue.

India should take the lead on cotton in Nairobi. The C-4 countries need a strong ally now that Brazil has abdicated that role, and India’s cotton farmers stand to lose a devastating US $800 million per year due to US price suppression.

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