Tariff-free trade on low-carbon products, or "green free trade," would be the quickest way to achieve a low-carbon economy, by creating an affordable market for low-carbon products, including aluminum, a leading aluminum industrialist said this week.
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This should be a "hot emerging topic" at the COP-26 environmental meeting, which starts later this month, Lord Gregory Barker, executive chairman of Russia's En+, the parent company of aluminum producer Rusal, told S&P Global Platts in an interview this week. Barker said he has already had contacts with various government representatives to discuss this issue.
Sources close to the matter indicated that the US, the EU and certain EU members including Germany and France may have shown interest in the idea.
"Zero-rating green products would have a beneficial effect," removing barriers to growth, even if this were simply a temporary suspension of tariffs, Barker said. "The high-carbon business model has no place in our society," he said, noting that by extension, customers would need to pay more for high-carbon or so-called "dirty" products.
For example, aluminum coming into the EU currently attracts a tariff of 6%, regardless of its carbon footprint, but if this was zeroed this would give an immediate boost to European manufacturers and SMEs, with the price differential flowing through to the consumer, he said.
"I would love to set the bar [for a zero tariff rate] at 2.5 mt/carbon per mt of aluminum, which is what we make.... but it's not about preferring any particular company, but to create vibrant, competitive markets," Barker said. "... It's about making a start."
Procurement needs to be competitive to achieve the energy transition, with 85% of a solar installation being made of aluminum, he said.
Trade diplomacy is needed to create a viable framework for green free trade, Barker said.
The green free trade push would, however, appear to run against the current trend for producers to start charging premiums for their low-carbon offerings, notably in steel and aluminum, largely to cover the cost of process improvements to enable lower carbon output.
According to the World Trade Organization website, 46 WTO members engaged in negotiations started July 2014 on an Environmental Goods Agreement, seeking to eliminate tariffs on environment-related products, including those used in generating clean and renewable energy, improving energy and resource efficiency, controlling air pollution, managing waste, treating waste water, monitoring the quality of the environment, and combating noise pollution.
A Geneva trade official, however, told Platts Oct. 12 that the participants had been unable to conclude a deal at the end of 2016, and there has not been much movement on the initiative since.
"However, there has been a push by some participants in the new Trade and Environmental Sustainability Structured Discussions (TESSD) to revive the negotiations -- in what format is unclear at this stage. There is a move to secure a declaration at the WTO's upcoming 12th Ministerial Conference which might provide more clarity on this," the official noted.
According to En+, there is a growing consensus that trade must play a greater role in climate issues and that the greening of trade will be a major contributor toward achieving carbon-neutral prosperity. Countries should recognize that green growth requires a balance between promoting trade as a driver of economic growth while understanding the legitimate use of trade measures to achieve environmental goals, the company said in an email.
Barker sees green free trade as a short-term solution because trying to dismantle the entire trade mechanism set forth by the WTO would be next to impossible. But zeroing tariffs on green goods and services around the world would immediately make it less expensive to transition to green, give a boost to businesses everywhere and to consumers who would not have to pay a premium, he said.
John Meyer, UK-based metals analyst with broker S.P. Angel, told Platts green free trade might be a "great" idea.
"Reducing taxes on 'green free trade' products would be eminently workable," Meyer said.
US-based EDF Man Capital analyst Edward Meir noted for his part that "green aluminum" would typically mean making more aluminum out of scrap as opposed to sourcing from more conventional methods that would leave a larger carbon footprint.
Ben Davis, a London-based analyst with Liberum, said he thought premiums would become better developed as both traders and producers are incentivized to make this work and it will be increasingly a want for customers.
Green free trade may be more equitable for all than the use of carbon pricing, according to Barker, who recently became co-chair of the Carbon Pricing Leadership Coalition, a World Bank climate change initiative.
A carbon price of at least $100/mt is necessary to achieve societal transformation, he said, while seeing a possible negative effect from a carbon price in some poorer economies, impacting heating and cooking.
"We can't build a just transition on the backs of the poor," he said. "We need to have a nuanced approach to carbon pricing."
Barker said he supports in theory the EU's introduction of a carbon border adjustment mechanism but that it doesn't go far enough in the case of aluminum, as it will only look at Scope 1 emissions in the first instance.