UN UNIVERSITY LECTURES: 13
Environmental Policy
and Trade
Heinrich Freiherr von Lersner Former President of
the German Federal Environment Agency
A Presentation Made at the United Nations University
on 16 November 1995
Tokyo, Japan
I
Since modern environmental policies were first formulated in the industrialized countries 25 years ago, we have seen two trends which have determined these policies: Firstly, a shifting of focus from local towards regional problems and from regional problems towards global challenges. Secondly, the trend away from actions aimed at the end of the waste-water or waste-gas pipe towards the setting of standards for production, products and the behaviour of distributors and consumers.Both trends influence international trade in many ways. One is that differences in environmental standards in the various countries lead to price differences, with the result that countries in which standards are lower enjoy competitive advantages in international trade. Another is that standards leading to trade barriers are set in national or European Community legislation.
II
Let me start with the trend I mentioned first, i.e. the trend from local priorities of environmental policy towards regional and global ones. When in 1970 - at about the same time as Japan - we in Germany began drafting environmental policy in the modern sense of the term and also began implementing it through legislation, our foremost challenge was to remedy the air pollution in our cities, the visibly polluted water of our rivers and lakes as well as the burning waste dumps. Ten years later we found that our forests were severely damaged by pollutants whose sources were often hundreds of kilometres away from where the damage occurred. And today, global environmental hazards are the foremost concern of German environmental policy: the warming of the Earth's climate caused by carbon dioxide and other climate-affecting pollutants, the destruction of the ozone layer in the stratosphere, desertification and water shortages in the arid zones of the Earth, as well as the protection of animal and plant species threatened with extinction.Let me start with climate-affecting waste gas components. As a result of, alia the agreements entered into at the climate conference held in Berlin last May and the binding decisions expected to be adopted at the follow-up conference, the industrialized countries will have to make efforts to drastically reduce their relatively high share of the emission of climate-affecting gases, using various means such as the levying of charges on carbon-dioxide-emitting forms of energy production as well as the introduction of measures promoting an efficient use of energy in households and industry. Germany, for its part, has undertaken to reduce its emissions of carbon dioxide and other climate-affecting pollutants by 25 per cent by the year 2005 versus 1990 levels.
Emissions of climate-affecting pollutants in the industrialized countries are still many times higher than they are in the less developed countries. In 1990, a German emitted on the average 30 times as much carbon dioxide into the atmosphere as a Nigerian, and a person in the USA 30 times as much as an Indian. Even if the industrialized countries succeed in reducing these emissions to the extent indicated there will still be the risk of a further warming of the climate, because population growth and, hopefully, a higher standard of living in and of themselves will cause the energy demand of lesser developed countries and of countries in transition to increase manifold. Unless we manage to help these countries to produce energy from the sun, wind and fast-growing plants, the consumption of energy from sources emitting climate-affecting pollutants would then simply shift from North to South. A trade-related consequence of the envisaged reduction in the emissions from coal- and oil-fired combustion plants in industrialized countries is that these fuels would become cheaper, which in turn would lead to their increased use in developing countries. The industrialized countries would then have to assist, in particular, countries with large oil and coal reserves in producing alternative products for export.
Another risk of relevance to trade results from cost increases in the production of energy from fossil sources in the industrialized countries, namely, the relocation of energy-intensive production sectors such as aluminium, steel and some chemicals to lesser developed countries, which in turn could lead to the industrialized countries imposing energy-related import duties on imported products.
Another issue, one that is also of topical interest here in Japan, is the protection of primary forests in developing countries. There are already many eco-conscious people in Germany who are calling for a boycott of tropical timber. However, the trade-related consequence of such a boycott is that the prices for tropical timber drop, with the result that wood from tropical forests ends up being burned more often in developing countries. Possible alternatives will be addressed later on.
Animal feed is another environmental problem. The more our cattle are fed with soya beans, the higher the emissions of nitrogen into the air and water. If we limit the import of soya beans, this would not greatly affect the US economy but the export gains of many African and Latin American countries will drop, which is why we have to help these countries to change to alternative crops so that, for example, they will not be forced to import so much wheat from the industrialized countries.
The consequence of this trend towards the globalization of environmental policies is, therefore, to advance development policy, and that is why the 1992 summit in Rio de Janeiro rightfully coupled the two subjects, environment and development. The United Nations has set a goal for industrialized countries to spend 0.7 per cent of their gross national products on development aid, a goal that we have to reach as soon as possible. A pledge to that effect was also made by our federal chancellor at the environment summit in Rio de Janeiro. Current spending on development aid in our country is still less than 0.35 per cent of GNP, i.e. half of the proposed goal.
For the industrialized countries, global environmental policy has primarily become development policy, on which, among other things, the curbing of population growth in the lesser developed countries depends.
III
In liberal industrialized countries with free-market economies, the second trend in modern environmental policy, namely, the one from end-of-the-pipe regulations towards regulations governing production, products and the behaviour of distributors and consumers, initially leads to ever more drastic interventions in the freedom of market participants. On the other hand, comparisons between countries such as the two German states prior to 1990 have shown that countries with free-market systems are also ecologically more progressive than countries with state-run economies. Environmental policy tends to be illiberal, and the only way this tendency can be counteracted, in the interest of the free-market economy, is by market participants - manufacturers, distributors and consumers - doing on their own what is needed to produce, distribute and consume in a manner as environmentally compatible as possible. This too leads to conflicts with trade. For example, if refrigerator manufacturers commit themselves to terminating the use of ozone-depleting chlorofluorocarbons, the import of CFC-containing refrigerators has to be prohibited nationally or by the European Union.If automobile manufacturers undertake to take back old vehicles to be recycled in an environmentally compatible manner, importers must be required to do the same. The same is true for used PVC-containing plastics, which pose a problem in waste incineration.
In Germany, we have an ordinance regulating packaging waste, which provides for a deadline by which manufacturers and distributors of so-called sales packaging have to collect and recycle 80 per cent of such packaging. This target will probably be reached. Failing that, the government has warned that it will introduce a mandatory deposit, which would result in the police having to check every store as to whether the sales staff in fact take back every milk container, for example.
Such voluntary commitments, entered into in the interest of a liberal free-market economy, often result in intra-industrial cooperation which in turn can affect competition to the detriment of, in particular, importers. If German automobile manufacturers establish a jointly run recycling organization, the question arises of whether they will ask importers to join it and, if so, under what conditions. If not, Japanese automobile importers would have to send their cars back to Japan after use.
We have encountered such competition-impairing problems in particular in the case of the voluntary commitment concerning the taking back and recycling of used packaging, especially since the organization founded by the packaging industry and packaging distributors is able to strongly influence the conditions governing the recycling of, say, plastics. Also, excess quantities of collected waste which cannot be recycled at home are often sold to other countries at low prices, which in turn can make it unprofitable for these countries to collect their own waste.
The international trade in waste materials factually or allegedly destined for recovery is something about which we are greatly concerned already. The higher the cost for waste disposal at home, the greater the temptation to export the waste. According to the 1989 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes, such exports are permissible only if the importing country gives its prior consent, which in the majority of cases it will do only if the waste is recyclable. The problem with this convention, however, is the monitoring of compliance in both the exporting and the importing country. This is all the more true since, if only because of the high cost of waste disposal, the risk of criminal actions occurring is at least as high here as it is in the trading in weapons or other things that can be used for military purposes.
IV
This leads me to the instruments that we can use to overcome the growing conflicts between national environmental law and international trade.The first and, obviously, most important instrument is the international harmonization of statutory requirements for production and products. The Basel convention referred to above or the Montreal protocol on chlorofluorocarbons were initial steps in this direction. Progress can also be hoped for from the negotiations on the Convention on Climate Change as well as the conventions on the protection of forests and biodiversity, even if leading the various national interests to a compromise in the short time available to us is an arduous task. The main reason why ecology and economy cannot always be reconciled is the conflict over the time frame.
Of particular importance to the harmonization of environmental standards to be met in trade is the International Organization for Standardization (ISO). With its aid, we will have to try to harmonize not only production and product standards but also methodologies for comparing ecological alternatives, often referred to as eco-balancing, or life-cycle analysis. We will have to agree on methods to determine whether, for example, returnable bottles or recyclable plastic containers are the environmentally more favourable packaging for beverages and whether mineral oil or rape-seed oil is the environmentally more favourable fuel for diesel engines.
Joint implementation is an environmental-policy instrument that is becoming more and more important to the field of development policy. Although it is still being met with strong opposition, particularly on the part of developing countries, it played a large role at the climate conference in Berlin. The idea behind this concept is that industrialized countries can meet their obligation to reduce climate-affecting waste gases by means of they themselves or enterprises based in them providing developing countries with funds to finance measures to reduce their own emissions of climate-affecting gases, with the requirement that the reduction achieved in the receiving country be higher than the mandatory reduction of which the industrialized country is thereby released. The problem with joint implementation is the control thereof. Where the industrialized country itself seeks to control the success of such joint implementation in the developing country, it could easily be accused of eco-colonialism. If at all, this conflict can be solved by assigning relevant control functions to United Nations organizations in which developing countries cannot be outvoted. These may be the United Nations Environment Programme (UNEP), the Council for Sustainable Development (CSD) or the World Trade Organization (WTO). Another possible solution would be an entering into of bilateral or multilateral agreements on the establishment of control bodies.
V
Another instrument, one which has been quite successful in Germany, is the labelling of products whose production and use place less strain on the environment than that of comparable products. In Germany, such products are awarded a blue symbol by a non-governmental jury. It is modelled on the United Nations environment symbol which was conceived in 1972 in Stockholm. Popularly called the "Blue Angel", this symbol is awarded in each case for a period of three years subject to payment of a fee. After expiry of this period, the authorization to use the symbol can be renewed if conditions have not changed and no new scientific findings have emerged. The symbol was awarded, for example, to catalyst-equipped vehicles, at a time when such equipment was not yet mandatory and not yet subject to the granting of tax privileges. Incidentally, Mitsubishi was the first company to use the symbol in advertising on the German market, at a time when German automobile makers as a group were still holding back.Today, there are over 4,000 products that have been awarded the symbol, 15 per cent of which are produced by companies from abroad. Examples include recyclable low-emission computers, readily biodegradable hydraulic fluids, energy-saving heating systems, low-pollutant paints, recyclable paper free of harmful substances, low-noise and low-soot-emission lorries, and many more.
The European Union is currently seeking to introduce its own eco-label for environmentally friendly products. As in many countries, such labels are used in advertising more and more frequently; this too is an area requiring international harmonization, so as to prevent a multitude of different labels being used in advertising on the various markets.
Particularly in the area of agricultural products, there are already several farmers' associations which have undertaken to terminate the use of harmful pesticides and minimize the use of mineral fertilizers, and who also monitor each other's compliance with this commitment. So far, such ecologically oriented farmers have fared better economically than farmers who use conventional farming methods, particularly as they obtain higher prices for their products.
Here, too, there is a need for international agreements on the conditions governing ecologically oriented farming in order to achieve harmonization and promote the liberalization of the market.
An important instrument which companies can use to strengthen their own, if not their products', public image is the eco-management and audit scheme introduced in 1994 by the European Union. Under this scheme, companies can have themselves audited by independent experts to see whether their production and sales practices are as ecologically acceptable as possible while still being economically justifiable. They have to prepare an environmental statement containing relevant information, which they can use in advertising. One of the most important motives for German companies to volunteer to have themselves audited for environmental compatibility in the areas of production, products and distribution is the hope that this will prompt the government to ease the controls on their activities, also referred to as deregulation. We hope that this can in fact be achieved, although there will always be "black sheep" for which there have to be controls.
International agreement extending beyond the European Union would also have to be reached on this eco-audit scheme so as to allow it to be used in international trade.
VI
Freight transport is an area that is becoming more and more important to international trade. In Germany, the share of freight transport by road, expressed in tonne kilometres, is still as high as 55 per cent. Particularly because of the commitment entered into under the Convention on Climate Change, but also because of the increasing traffic congestion, the federal government and the communities are trying to shift as much freight as possible from road to rail, using economic means as well as means provided for in transportation legislation. Ways to achieve this include the promotion of combined road-rail transport and transport on inland waterways, with the latter, however, leading to inner ecological conflicts. But the most important one is an increase in the prices of mineral oil, which in turn can lead to distortions in competition with neighbouring countries if we are not able to convince the European Union to agree on a joint course of action.The growing ecological importance of transportation distances as well as the certainty of rising petrol prices will lead to limitations in long-distance trading. Here, ways must be found to ensure that the processing and finishing of goods takes place near the materials' source, which in turn can lead to price differences due to differences in wages.
VII
In spite of such disadvantages which are associated with advances in environmental policy, a progressive environmental policy has proved to be beneficial to Germany from a trade perspective as well. In Germany, pollution abatement expenditure currently amounts to about 1.6 per cent of the gross national product, compared to 1.1 per cent in Japan and 1.4 per cent in the USA, all 1990 figures. In the manufacturing industry, investment in and current costs for measures benefiting the environment currently account for less than 1 per cent of its gross output, compared with 25 per cent for labour and 40 per cent for materials.Germany still ranks first in the export of green technology in the narrower sense of the term, with a 21 per cent share of world trade, followed by the USA with 17 per cent and Japan with 13 per cent. This shows that progressive environmental protection also pays off for an industrialized country with relatively high wages.
Also, I do not know of a single case where a company has relocated abroad primarily on environmental grounds, even though our industry continually threatens to. Doing so would also be short-sighted. As more and more efforts are made to internationally harmonize environmental standards, a company that moves its production to another country must expect that in a few years' time the environmental standards there will be the same as at home.
VIII
But the decisive factor for environmentally sound modes of conduct in business, including international trade, is the environmental awareness of the people who work in firms, notably in sales, as well as of the consumers. Society's consciousness of eco-friendly products and modes of transportation has risen greatly in recent years and, if I am not mistaken, will continue to rise. Tomorrow's markets will be determined by factors as varied as education, the print and broadcast media, individuals enjoying high social esteem, and environmental organizations.Of importance in this context, particularly to trade, is the provision of relevant information that transcends language barriers. At the German Federal Environmental Agency, we have set up publicly accessible databases which provide information on environmental literature, research results, chemicals and statutory regulations. These databases will, however, have to be rendered more readily understandable to non-German speakers. Japan is still ahead of us in this respect in that it provides considerably more information in English. We hope that with the aid of, alia the new Copenhagen-based European Environment Agency we will also become more open with respect to international data exchange.
The disclosure and provision of environmentally relevant data on production and products will be one of the crucial prerequisites for world trade becoming environmentally sustainable. One of the reasons why the pre-unification socialist German Democratic Republic also lagged some two decades behind the West German Federal Republic in terms of environmental policy is that it treated environmental data as confidential, so that often not even the very polluters knew what damage they had done.
The newly established World Trade Organization, founded in Uruguay and Marrakesh, will play a prominent role in all this. It has convened an environment committee which we hope will also help resolve ecological conflicts associated with world trade and agree upon measures aimed at preventing what we refer to as environmental undercutting.
In an ever more crowded world where resources are increasingly scarce, an economy will only be successful if it has learned in time to produce, distribute and consume in a manner which is as environmentally compatible as possible.
