Bulletin

The role of trade in diffusing energy efficiency technologies

30 Sep 2019

Energy efficiency has been identified as one of the most important tools to achieve energy savings, reduce pollution, and mitigate climate change. A wide range of technologies have been developed and adopted to improve energy efficiency in buildings, industry, transport and households. Such technologies, including goods, services, and management systems, represent a fast-growing category of Environmentally Sound Technologies [1]that contribute to several Sustainable Development Goals (SDGs). They have also been an essential part of climate action.

The United Nations Framework Convention on Climate Change (UNFCCC) acknowledged the importance of promoting and cooperating in the development, application and diffusion, including transfer, of technologies, practices and processes that control, reduce or prevent anthropogenic emissions of greenhouse gases. [2] Many countries included environmentally sound technologies in their climate strategies or Nationally Determined Contributions (NDCs).

Yet what is not fully recognised is that Environmentally Sound Technologies, including energy efficiency technologies are also widely traded and offer huge opportunities for economic development, environmental sustainability, and employment. A recent UNEP study [3]found that trade in Environmentally Sound Technologies has been growing rapidly over the past decade. By opening markets, reducing cost through economies of scale, and stimulating innovation, trade has been playing an important role in diffusing such technologies and driving the transition towards an Inclusive Green Economy (IGE).

For example, global market for energy efficiency will reach about $300 billion by 2022[4]. The global LED lighting market was valued at USD 51.79 billion in 2018 and is expected to reach USD 112.15 billion by 2024[5]. Recent years also witnessed a boom in energy efficiency services, in areas such as energy audits, consultancy, design, installation, maintenance, monitoring and verification of energy savings. It is estimated[6] that the market for energy efficiency services in the EU was worth EUR 26.7 billion in 2017 and is expected to double to about EUR 50 billion by 2025.  

The emerging Global Value Chains added a new dimension to trade in energy efficiency technologies. Today, more than two-thirds of world trade takes place within value chains that cross at least one border during production[7]. This allows countries to specialise in one or several segments of the value chain and benefit from their comparative advantage in global market. UNEP study revealed that the global market for Environmentally Sound Technologies are increasingly characterised by the expansion of global value chains, with services, patents, and other intangibles embedded in goods. This is also reflected in energy efficiency technologies for the industry and buildings sectors released by the Top Ten Energy Efficiency Best Practices and Best Available Technologies Task Group of IPEEC[8]. Many newly submitted energy efficiency technologies involve products, services, knowledge and management systems.

How to unlock the potential of trade in diffusing energy efficiency technologies?

A good number of trade policy instruments, accompanied by related economic and social policies, can serve as effective tools. The WTO database shows that from 2009 to 2018, members submitted 1573 notifications with the objective of “energy conservation and efficiency”, accounting for 13.7% of total environment-related notifications[9]. These included technical regulations or specifications, conformity assessment procedures, import licenses, tax concessions, investment measures, etc. Examples can be found in energy efficiency standards, labels, performance requirements for industries, buildings, transport vehicles, production and transmission of energy, and household appliances.

Other examples included sustainable public procurement policies that promote energy efficient goods and services, mutual recognition of qualifications and certifications of providers of energy efficiency services, and trade finance programmes that support Small and Medium Sized companies (SMEs) explore foreign markets and connect to global value chains of energy efficiency technologies.

In particular, the rise of Regional Trade Agreements (RTAs) offer new opportunities for countries to cooperate and coordinate trade policies in support of energy efficiency technologies. The UNEP study showed that from 1956 to 2016, nearly half of RTAs notified to the General Agreement on Tariffs and Trade (GATT) or the WTO (129 agreements out of 270 notified agreements) contain provisions related to Environmentally Sound Technologies[10]. Energy efficiency has been covered in various forms, such as cooperation in R&D and innovation, exchange of information and good practices, and promotion of trade in energy efficient goods and services. One recent example is the EU-Japan Economic Partnership Agreement, which included provisions on facilitating trade and investment in energy efficient goods and services, cooperation on climate-friendly technologies and energy efficiency[11].

The way forward

Trade in energy efficiency technologies can bring multiple benefits for environment, climate and development. It also offers business opportunities in the context of global value chains and transition towards greener and more circular economies. To fully harness these opportunities, there is a need to foster policy coherence and bridge knowledge and capacity gaps.

More data about global value chains of energy efficient goods and services could help to provide a better overview of the sector. Dialogues between policy makers and private sector, and among different communities such as trade, energy, industry and transport, can help to identify the challenges and bottlenecks that hamper trade in energy efficiency technologies. And finally, the sharing of good practices in effectively using trade policy in supporting the global diffusion of energy efficiency technologies can provide policy makers with concrete solutions that are practical, cost-effective and scalable.

About the author

Ying Zhang is the Programme Management Officer with over 15 years professional experience in trade and environmental policy at the Environment and Trade Hub of United Nations Environment Programme (UNEP).

She joined UNEP in 2015 and led projects on Trade in Environmentally Sound Technologies, environment in regional trade agreements, Trade and Green Economy in China and Mongolia, High-level dialogue on Unlocking Trade in Clean Techs as part of the 3rd Session of UN Environment Assembly (UNEA III), trade and climate change; as well as South-South cooperation on green trade and global value chains. Prior to coming to UNEP, she worked as the Deputy Division Director in the Ministry of Commerce of China. From 2007 to 2010, she was posted as a diplomat to the Chinese Embassy in Denmark and was actively engaged in the Copenhagen Climate Conference (COP15). Ying holds a Master's degree on Environmental Change and Management from Oxford University and a Certificate of Competition Law from College of Europe.

(The author is a staff member of the United Nations Environment Programme. The author alone is responsible for the views expressed in the publication and they do not necessarily represent the decisions or policies of the United Nations Environment Programme.

 

[1] Agenda 21 of the Rio Declaration defined Environmentally Sound Technologies (ESTs) as technologies that protect the environment, are less polluting, use all resources in a more sustainable manner, recycle more of their wastes and products and handle residual wastes in a more acceptable manner than the technologies for which they were substitutes. https://www.un.org/en/development/desa/population/migration/generalassembly/docs/globalcompact/A_CONF.151_26_Rev.l_Vol.%20l_Agenda.pdf
[2] United Nations Framework Convention on Climate Change, 1992: https://unfccc.int/resource/docs/convkp/conveng.pdf
[3] UNEP, Trade in Environmentally Sound Technologies: Implications for Developing Countries: https://www.unenvironment.org/resources/report/trade-environmentally-sound-technologies-implications-developing-countries
[4] CNBC, A $300 billion energy efficiency market, 2017:  https://www.cnbc.com/advertorial/2017/09/19/a-300-billion-energy-efficiency-market.html
[5] Motor Intelligence: https://www.mordorintelligence.com/industry-reports/led-lighting-market
[6] Roland Berger Focus, January 2019, Energy efficiency services in Europe
[7] World Trade Organization, Global Value Chain Development Report 2019: https://www.wto.org/english/res_e/publications_e/gvcd_report_19_e.htm
[8] IPEEC: https://ipeec.org/cms/23-the-top-ten-energy-efficiency-best-practices-and-best-available-technologies-task-group-top-tens-.html
[9] World Trade Organization, Environmental Database: https://edb.wto.org/charts
[10] UNEP, Trade in Environmentally Sound Technologies: Implications for Developing Countries: https://www.unenvironment.org/resources/report/trade-environmentally-sound-technologies-implications-developing-countries
[11] European Commission: https://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/