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122. Can the Biggest Emitters Set Up a Climate Club? A Review of International Carbon Pricing Debates
- Author:
- Carole Mathieu
- Publication Date:
- 06-2021
- Content Type:
- Special Report
- Institution:
- Institut français des relations internationales (IFRI)
- Abstract:
- The world’s largest emitting countries are reconsidering the role of carbon pricing instruments and increasingly looking at carbon border adjustment mechanisms (CBAMs) to address leakage concerns. This renewed momentum should trigger a broader discussion on how to make trade policies compatible with the climate agenda. With the Glasgow climate conference (COP26) approaching, the concept of putting a price on carbon is generating unprecedented interest in Canada and the United States (US), China and Japan. But the European Union (EU) still stands as an exception; it is the only regional trading bloc that is determined to leverage the full potential of its emissions trading system (ETS). To date, others have lacked the political backing to deploy nation-wide carbon pricing initiatives with a design sturdy enough to drive meaningful emission reductions. Canada has made significant progress with the adoption of a national framework for carbon pricing in 2018. The country’s draft regulations foresee the introduction of a federal ETS as of 2022 and a gradual increase in carbon prices, but its ambitions risk being upset by the lack of consistent efforts in the US, its largest trading partner. Given US political divides, a federal carbon pricing scheme is unlikely to materialize in the short run. In China, the long-delayed national ETS has finally been launched. However, its scope is restricted to the power sector for now, and it is likely to only have a modest impact on coal use with its current design. Several arguments may discourage China from fully extending its ETS as planned and rather argue in favor of introducing a complementary carbon tax. Japan has also engaged an expert debate on the benefits of introducing carbon pricing at the national level, but the government is struggling to find a balance between the risk of worsening competitiveness and the need to mobilize investment in clean technologies. For the EU, the upcoming reform of the EU ETS is an opportunity to introduce a truly demanding cap reduction for the 2023-2030 period and make this flagship instrument more robust, predictable, and fair. To initiate in-depth decarbonization of its industry, the EU will need to phase out free allowances. Therefore, other measures addressing unfair competition will have to be introduced and CBAM could be part of the solution. A unilateral application is however no panacea. The EU should move cautiously and start implementing the CBAM to a small set of sectors. This also means that the challenge of leveling the playing field with non-EU producers will remain largely unresolved. There is little chance that an international alliance on carbon pricing or “climate club” can be set up within a timeframe compatible with the climate emergency. Yet, the EU’s CBAM proposal can encourage trading partners to accelerate decision-making on carbon pricing, at least to obtain partial exemption. In addition, having a concrete anti-leakage proposal on the table leads to a sense of the inevitable mismatches between the global trade and climate agendas. Large emitters are starting to acknowledge the need for a multilateral discussion on how to decarbonize industries while maintaining a level playing field. The next step should be to kickstart an open discussion in all possible multilateral fora (G20, International Energy Agency, global industry associations, etc.) and mandate the World Trade Organization (WTO) to develop guidance on a wide range of instruments (including CBAM, but also eco-design labelling and standards, differentiated tariffs based on CO2 intensity, etc.) and including a common exemption approach for Least Developed Countries. Exploring a set of workable solutions should be more attractive to trade partners than pushing for a uniform solution, but results would still take time to materialize. Hence, establishing a level playing field with imports will likely require the EU – and all countries with an aggressive decarbonization agenda for their industries – to strengthen their financial and regulatory support to the deployment of innovative low-carbon manufacturing processes. Again, this almost-unavoidable resort to State aid would strongly benefit from a multilateral discussion.
- Topic:
- Climate Change, International Trade and Finance, European Union, Carbon Tax, and Carbon Emissions
- Political Geography:
- Japan, China, Europe, and Canada
123. Transatlantic tools: Harmonizing US and EU approaches to China
- Author:
- David Barkin and Agatha Kratz
- Publication Date:
- 11-2021
- Content Type:
- Special Report
- Institution:
- Atlantic Council
- Abstract:
- Close cooperation between the United States and the European Union is essential if advanced economies are to develop effective responses to the array of challenges presented by China. Washington and Brussels share concerns regarding competitive distortions arising through the state’s role in the Chinese economy, the use of advanced technologies to repress ethnic minorities and fuel its military, and the spread of authoritarian influence through the Belt and Road Initiative (BRI). However, there has been a lack of coordination and cooperation in recent years between the US and EU when it comes to responding to China’s policies and behaviors. Washington’s focus on risks to US economic and national security contrasts with an emphasis in Brussels on ensuring reciprocity and leveling the economic playing field. But, with the transatlantic relationship back on a better footing under the Biden administration, new structures for transatlantic dialogue being put in place, and a greater focus on the Indo-Pacific in both Washington and Brussels, this paper argues there is now an opportunity for the United States and Europe to learn from each other and harmonize some of their China-related efforts.
- Topic:
- Human Rights, Markets, Sanctions, European Union, Regulation, Trade, and Transatlantic Relations
- Political Geography:
- China, Europe, and United States of America
124. China’s Public Procurement Protectionism and Europe’s Response: The Case of Medical Technology
- Author:
- Fredrik Erixon, Anna Guildea, Oscar Guinea, and Philipp Lamprecht
- Publication Date:
- 09-2021
- Content Type:
- Policy Brief
- Institution:
- European Centre for International Political Economy (ECIPE)
- Abstract:
- This paper concerns China’s market for medical technologies and how the Chinese state is assisting its own companies to gain greater sales at the expense of producers from Europe and other advanced manufacturing economies. The medical technology sector captures a variety of products, services and solutions which are essential to the provision of healthcare to citizens. Examples range from fairly simple technologies such as sticking platers, to complex ones, such as coronary stents, orthopaedics and pacemakers. In the last decades, Europe’s exports of medical devices to China have grown robustly. On the back of vibrant innovation, firms from Europe and elsewhere have not just followed the growth of Chinese demand for medical devices – they have also increased their share of Chinese imports. Now, however, this market is at risk of being gradually closed off for European firms as China doubles down on various policies that advantage local firms, while ultimately harming innovation and Chinese patients. China has recently introduced a new element in its industrial policy for its medical technology sector – a policy that builds on its long-term ‘made-in-China’ ambition to have local firms taking up the lion’s share of the market for medical devices by 2030. Beijing and provincial governments are using many different policies to provide support to the domestic industry and are in effect pursuing a policy for import substitution. Accessing the Chinese market for medical devices has never been easy but it has become increasingly challenging in recent years. Direct financial support, tax benefits, R&D support, local content requirements, opaque approval systems and other forms of advantages to domestic MedTech producers are now becoming major sources for the behaviour and development of the Chinese medical device market. China’s Fourteenth Five-Year Plan and the country’s new economic model of ‘dual circulation’ reinforces this trend. The Chinese market is becoming less open. Added to that is centralised state procurement – a new public procurement policy in China that was launched in 2019 for medical devices which has led to a grossly distorted procurement market. While this policy has reduced the price of medical devices in a drastic way, it has also paved the way for Chinese firms to take up a larger market share. This procurement policy is gradually squeezing European firms out of the Chinese market. Competition in China is becoming less fair. These policies follow a pattern. In several sectors, Chinese firms have grown their domestic market share through industrial subsidies and policies that restrict market access for foreign firms – or make it more difficult for foreign firms to compete in China. From their domestic market, these firms have then expanded abroad and taken a more prominent role outside of China. Backed by the Chinese state, these firms can squeeze market opportunities even more for otherwise-competitive European producers. Now this development is happening in the MedTech sector. It is urgent for Europe to respond to China’s procurement protectionism. MedTech manufacturers in Europe are often small and medium-sized enterprises, and they already struggle with getting into the Chinese market. China’s new procurement policy has also had a significant impact on Chinese imports of medical devices: a 1.3 billion euro trade deficit for China in medical technology products in 2019 turned into a 5.2 billion euro surplus in 2020. In Africa, Asia and Latin America, competitive European manufacturers are now confronted with competition from Chinese MedTech companies that have the backing of the Chinese state. The competitive distortions in the Chinese market now spill over to the global market – making European MedTech manufacturers even more disadvantaged. Europe should consider a case at the World Trade Organisation (WTO) against China’s policies which reduce European market presence for medical devices. Once agreed, a new International Procurement Initiative might be a useful instrument to wield pressure against the Chinese government to agree to free and fair competition. Europe can also negotiate with China – for instance in the framework of the Comprehensive Agreement on Investment (CAI) or through the new initiative on trade and health that Europe proposed to the Ottawa Group in 2020. These responses should focus both on remedying China’s current policy for growing its domestic medical technology industry by distorting its market and setting out the core policies and rules that should guide the future market for medical technologies. Fredrik Erixon and Anna Guildea are Director and Research Associate, respectively, at ECIPE. Oscar Guinea and Philipp Lamprecht are Senior Economists at ECIPE. The authors are grateful to a number of experts in the private sector and from the European Commission, the Federal Ministry for Economic Affairs and Energy in Germany, China’s Ministry of Industry and Information Technology that have taken their time to share their knowledge with us.
- Topic:
- Health, Science and Technology, European Union, and Public Procurement
- Political Geography:
- China, Europe, and Asia
125. Taliban Takeover of Afghanistan: Consequences for NATO
- Author:
- Wojciech Lorenz
- Publication Date:
- 10-2021
- Content Type:
- Special Report
- Institution:
- The Polish Institute of International Affairs
- Abstract:
- The Taliban takeover of Afghanistan will not change NATO’s overall threat perception, which will be shaped mainly by the military threat from Russia, challenges related to the rise of China, and instability in Europe’s neighbourhood. Criticism of NATO may, however, influence discussions on a new strategy, which should facilitate adaptation of the Alliance to new threat assessment. There will be increased pressure on the development of crisis-response capabilities within the coalition of the willing and the European Union.
- Topic:
- Security, NATO, Taliban, and European Union
- Political Geography:
- Afghanistan, Russia, China, Europe, and South Asia
126. Ambitious Plans and Economic Pragmatism - China in the Face of Climate Change
- Author:
- Marcin Przychodniak
- Publication Date:
- 10-2021
- Content Type:
- Special Report
- Institution:
- The Polish Institute of International Affairs
- Abstract:
- China’s policy on climate change mainly serves to improve its international image, increase the competitiveness of its economy, and strengthen the legitimacy of the Communist Party’s (CPC) power. China’s activities include the development of green technologies and the announcement of a plan to reduce greenhouse gas (GHG) emissions by around 2030. However, the plans are unevenly implemented, sometimes even contrary to expectations, as evidenced by the construction of new coal-fired power plants. The problem of satisfying the country’s energy needs while protecting the environment means that the EU and the U.S. should treat China’s pro-climate declarations with caution.
- Topic:
- Climate Change, Economics, European Union, Green Technology, and Pragmatism
- Political Geography:
- China and Asia
127. A new direction for the European Union’s half-hearted semiconductor strategy
- Author:
- Niclas Poitiers and Pauline Weil
- Publication Date:
- 07-2021
- Content Type:
- Policy Brief
- Institution:
- Bruegel
- Abstract:
- A basic component in electronic devices, semiconductors are essential to the production of many products, from smartphones to cars. Securing reliable supplies of semiconductors to safeguard the production lines of a range of industries has thus become an important policy goal, especially in the context of an increasingly confrontational international environment in which high-technology leadership is also associated with military power and geopolitical reach. The semiconductor sector is highly concentrated, capital- and R&D-intensive, and particularly exposed to bottlenecks and political risks. High-end chip fabrication is centred in Asia, dominated by the duopoly of Taiwan’s TSMC and South Korea’s Samsung. In other parts of the supply chain, companies in the United States and Europe hold relative monopolies that have been leveraged for trade sanctions. The United States has taken steps to block the supply of chips and components to emerging tech giants in China, and to contain China’s ambitions of building its own cutting-edge chip production capacities. Heavy United states and Chinese investment poses a challenge to the European Union, which in response has set the goal of increasing European production beyond domestic demand. To increase its presence in this strategic and thriving sector, the EU needs a more targeted strategy that builds on its existing strengths while accommodating its relatively low domestic needs. Instead of investing public funds in a subsidy war over fabrication capacity, the EU should focus on inputs and chip design. However, no economy can hope to fully achieve independence in the sector and ensuring sustainable supply through diplomatic means should therefore also be a priority. Lastly, Europe’s small role in global semiconductor production is symptomatic of shortcomings in the European environment for high-tech innovation. These shortcomings should be addressed.
- Topic:
- Science and Technology, European Union, Economy, and Semiconductors
- Political Geography:
- China, Europe, and United States of America
128. Lithuania, China and EU lawfare to counter economic coercion
- Author:
- Steven Blockmans
- Publication Date:
- 12-2021
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- Without any formal notification, China recently declined customs clearances for shipments from Lithuanian firms in the pharmaceutical, electronics, and food sectors, and warned multinationals of secondary sanctions if they did not sever their ties with Lithuania. These covert actions were taken in response to Lithuania’s invitation to Taiwan, which the People’s Republic of China (PRC) claims as its own territory, to open a ‘representative office’ in Vilnius. No other country has ever found itself at the receiving end of such intense and politically motivated Chinese economic pressure. These actions on the part of the PRC are politically explosive because it raises serious questions about the international conduct of the Chinese Communist Party (CCP). If it can simply wipe a country off its trade book, a state belonging to the EU’s customs territory no less, then what does it mean to be a member of the WTO, or a signatory to any other number of international agreements? And, given the lamentable state the WTO is in: could the European Commission’s newly proposed anti-coercion instrument bring any solace to Lithuania and the EU?
- Topic:
- Law, European Union, Economy, Trade, and Coercion
- Political Geography:
- China, Europe, Asia, and Lithuania
129. Russian Foreign Policy in 2020: Strengthening Multi-vectorialism
- Author:
- András Rácz and Milan Nič
- Publication Date:
- 01-2021
- Content Type:
- Special Report
- Institution:
- German Council on Foreign Relations (DGAP)
- Abstract:
- In 2020, DGAP’s Strategy Group on Russia focused on Moscow’s long-term efforts to diversify its foreign policy portfolio, turn away from Europe, and build-up other non-Western vectors in its diplomacy. Against this background, this report assesses Russia’s relations with the EU, China, and the United States. While Russian relations with the West are unlikely to improve in 2021 – especially ahead of this fall’s Duma election – there is still a chance for limited engagement on issues of mutual interest.
- Topic:
- Security, Foreign Policy, Diplomacy, European Union, Democracy, and International Order
- Political Geography:
- Russia, China, Europe, Eurasia, and United States of America
130. Europe’s Capacity to Act in the Global Tech Race: Charting a Path for Europe in Times of Major Technological Disruption
- Author:
- Kaan Sahin and Tyson Barker
- Publication Date:
- 04-2021
- Content Type:
- Special Report
- Institution:
- German Council on Foreign Relations (DGAP)
- Abstract:
- Technological leadership has become a central dimension of geopolitical power. In this development, the primary front in the emerging tech power rivalry is between the US (United States of America) and China (People’s Republic of China). The European Union (EU) has fallen behind and needs to catch-up. The stakes in this race are high and will have an impact on economic competition, national security and broader values-based notions of political order. This study sheds light on Europe’s approach to technological mastery. This study looks into the progress of the EU and its member states across selected technological fields and their global entanglements with other nations and technology actors.
- Topic:
- Development, Economics, Science and Technology, European Union, and Geopolitics
- Political Geography:
- China, Europe, and United States of America