Great two day conference in Guangzhou on Climate Change at Sun Yat-Sen School of Law, Institute of South China Sea Strategy and DUANMU ZHENG Foundation. Photo with some of the speakers Dr. Marjan Peeters (Professor of Environmental Policy and Law at Maastricht University) Dr. Yue Zhao, Associate Research Fellow Sichuan University, School of Law, China, Associate Professor Junjie Zhang, Director Environmental Research Center, Duke Kunsban University, Jiangsu China.
The research paper I presented during the conference is reproduced below.
CLIMATE CHANGE AND PARIS AGREEMENT WORKSHOP
Opportunities and Challenges for International Environmental Law and
Politics
Sun Yat-sen School of Law, Institute of South China Sea Strategy and DUANMU ZHENG Foundation
________________
Coherence of the law of the global economy with the Paris Agreement in the context of barriers against harmful technologies to Climate Change and means to stimulate the diffusion of Climate Change technologies
Fabrice Mattei*
There are high expectations resulting from the Paris Agreement[1] (“PA”) as a milestone in global efforts to address Climate Change. Such efforts encompass a wide range of measures at many levels. Chief among them is the long-term global energy technology diffusion patterns required to reach a Climate Change target with a maximum average atmospheric temperature increase of 2˚Celcius by 2100. In the lead up to the PA, the United Nations Secretary-General Ban Ki-Moon has commented: ‘Intellectual property, technology transfer, and financing are among a wide range of topics that must be addressed in the context of Climate Change and sustainable development’[2]. This paper critically evaluates the coherence between the law of the global economy[3] with the PA by exploring the legality of barriers against harmful technologies to Climate Change (Section 1) and the legality of measures to stimulate the diffusion of environmentally sound technologies (“ESTs”) to address Climate Change (Section 2). The paper further investigates the impacts of the PA on international patenting activities covering ESTs (Section 3). The subject of the interrelationship of trade, intellectual property and environment is complex[4] and this paper is aimed at examining the conceptual underpinning of these regimes, revealing mutual supportiveness as well as some divergences[5].
Section 1) Barriers to the protection and exploitation of harmful technologies to Climate Change
Carbon intensive technologies are among the main causes to Climate Change. Low Carbon Technologies (“LTC”) are needed to bring down greenhouse gas emissions (“GHGs”). In this context, what are the available means provided by the PA and the law of the global economy to circumvent the protection (§.1) and exploitation of harmful technologies to environment (§.2)?
§. 1) Barriers to the protection of harmful technologies to Climate Change
PA
There is no specific provision in the PA prohibiting the protection, and access, of harmful technologies to Climate Change.
The General Agreement on Tariffs and Trade (“GATT”), Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”)
The TRIPS Agreement aims to harmonize international intellectual property rights as a step in the liberalization of trade. The TRIPS Agreement requires countries to provide patent protection for all fields of technologies including but not limited to climate change[6]. However, prior to any grant of a patent, an invention shall be a “patentable subject matter” which is a statutory tool for defining the types of inventions that can be patented or excluded from patentability[7].
Article 27.2 of the TRIPS list a number of inventions which WTO Members may exclude from patent protection:
“Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law.'"
This article allows two exceptions to patentability, based on “ordre public” and “morality”. The implementation of these exceptions means that a WTO Member may, in certain cases, refuse to grant a patent when it deems it necessary to protect higher public interests. “To avoid serious prejudice to the environment” is one of the grounds for refusing patent protection to an invention. The “environment” refers to the “surrounding objects, region, or conditions, especially circumstances of life of person or society”.
WTO Members can provide for the exceptions referred to in Article 27.2 but they are subject to one important condition: non-patentability may only be established if the commercial exploitation of the invention needs to be prevented to protect the interests referred to above (i.e Ordre Public and morality).
Article 27.2 does not provide a clear standard to assess when there is a serious prejudice to the environment. There is no specific WTO/TRIPS jurisprudence on this provision neither.
The provision also seems narrow because it refers to “avoid[ing]” prejudice to the environment, “which would seem to exclude cases in which the aim of the refusal would be to control such prejudice.”[8] The seriousness may be actual or potential since Article 27.2 does not distinguish between the two which is a positive aspect of the Article.
Coherence assessment between GATT, TRIPS and PA
Access to technologies as a theme predates the PA. It has been on the UN agenda since 1970s. The PA sets the stage for urgently needed climate change technologies’ access. Binding language of Article 10 of the PA, unlike Article 27.2 of the TRIPS Agreement, suggest that collective action will be undertaken. TRIPS Agreement provides protection to all inventions including EST and encourage their access too (Article 66.2 of the TRIPS). We could be tempted to say that it even goes beyond the PA by allowing WTO Members to exclude harmful inventions if their commercial exploitation is prejudicial to the environment. In reality, a non-patentability decision would only ensure that a harmful invention is not the subject of a patent, but by no means would this be sufficient to prevent its use by any interested person, since it would remain in the public domain. Consequently the harm to climate may still take place which makes Article 27.2 of limited positive effect on Climate Change. Overall, Article 27.2 is a step in the right direction to reduce levels of GHG emissions in and appears coherent with Article 10 of the PA.
§2. Barriers to the exploitation of harmful technologies to Climate Change
The issue covers the barriers against the access and exploitation of technologies which are hazardous to the environment. Two border adjustments can be deployed, price-based and non-price based. In the latter case, market access is limited to technologies complying with specific technical standards and/or technologies complying with labelling requirements.
Price-based barriers against the exploitation of harmful technologies to Climate Change
Border Adjustments Tax against harmful technologies to Climate Change
PA
The PA sets an objective of limiting the global temperature rise to “well below 2°Celcius above pre-industrial levels”[9]. However, each country’s measures are chosen individually and voluntarily and, currently, there is no mechanism to force a country to comply with its own “nationally determined contributions” (“NDC”) but simply to improve its NDC every five years[10]. This bottom up approach builds on unilateral actions and yields some kind of carbon pricing, not necessarily identical across countries. Consequently, NDCs may have negative drawbacks in terms of carbon leakage risks and loss of competitiveness for companies producing in a more ambitiously Climate Change regulating country using less environmentally friendly technologies. To minimize these negative effects, PA Members may decide imposing Border Adjustments Tax (“BAT”) against harmful technologies to Climate Change.
GATT
The GATT compliance test to BATs is laid out in two articles. Under Article II:2(a), Parties may impose a charge on an imported product, provided it is equivalent to an internal tax the Parties already impose on ‘like’ domestic products. Additionally, under Article III:2, the Parties shall ensure that the BAT abides by the National Treatment requirements, to ensure that imported products (Most Favoured Nation) are not discriminated vis-à-vis ‘like’ domestic products (National Treatment). The BAT cannot be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries” and cannot be a “disguised restriction on international trade.” In this context the relevant Party will argue that carbon adjustments are limited to fulfill its environmental objectives. If the BAT is however considered inconsistent with any of the above articles, it can still be considered justified and valid under Article XX of GATT[11], for example paragraph (b): “necessary to protect human, animal or plant life or health,” or paragraph (g): “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.”
A major issue relating to GATT Article II.2(a) and impacting Climate Change is how to interpret “in respect of an article from which the imported product has been manufactured or produced in whole or in part.” Whether inputs have to be physically incorporated into the final product or in the process of making the product? Article II.2(a) may not permit the application of Article II to fossil fuels or harmful climate change technologies used in manufacturing of a product which will then mean removing from the scope of the BAT polluting manufacturing process. In the 1987 GATT Superfund case[12], the GATT panel ruled that US taxes on certain imported chemicals were consistent BAT, because these chemicals were manufactured using feedstocks subject to a US environmental tax. It remained unclear whether those substances were still physically in the final product, or whether they had been exhausted in the production process but the Panel made no distinction. This decision creates an opportunity to cover under BAT polluting products-by-process, and not just products.
Coherence Assessment between GATT and PA
An initial question before turning to the coherence assessment review between PA and GATT is whether BATs remain relevant after the PA? Under the PA, almost all countries have some sort of emissions reduction policy. This is different from the Kyoto Protocol time, where only few industrialized countries were to meet stringent emissions targets and the rest of the world had no such obligations. Much of the “raison d’être” of BAs assumed a Kyoto-type world where leakage concerns were a big risk. Although the leakage risk and the need for BAs were reduced after PA, the problem is still present since countries agreed to a wide variety of emissions reductions policies as part of their NDCs.
Under the GATT, products may be considered identical as final products, although their production methods are different which create incoherence with the PA where GHGs emissions assessment cover products but also production process. The implementation by GATT/WTO jurisprudence of concept of ‘like’ products under Article II:2(a) of the GATT is not helping to address Climate Change concerns. For example, an aluminium product using electricity generated from coal be treated ‘like’ aluminium product using electricity from renewable energy, even if the carbon intensity of the former would be much higher than the latter. GATT/WTO jurisprudence use the following criteria in determining ‘like’ products, on a case-by-case basis: the products’ properties, nature and quality; the products’ end-uses in a given market, consumers’ tastes and habits, and the international classification of the products for tariff purposes. The Superfund case seems to address this incoherence. A BAT may be legally imposed on an input not physically incorporated in the final product but It would ultimately depend on how broadly any future WTO dispute interprets the terms of Article II: 2(a) and Article III:2 of the GATT.
Ultimately, the legality of BATs under the GATT depends on their design. The justification of the measure matters. BATs usually serve multiple purposes and not in an equal manner. An environmental rationale would help prove that a measure is ‘necessary’ to protect human, animal or plant life or health under Article XX(b) of the GATT. In contrary, an economic rationale such as safeguarding the competitiveness of energy-intensive industries would not be considered a legitimate objective under the exceptions of Article XX.
Whether a measure is consistent with the Most Favoured Nation provision, the national treatment provision and for its justifiability under Article XX, it matters how the level of the adjustment is determined and whether it is applied across the board. If the BAs applies to all imports of a product or technology regardless of the emissions in the production process it could help meet the most-favoured nation treatment under Article I. At the same time, by also including exporters of low-emission products, it would undermine the environmental justification of the BAT and raise incoherence with the PA.
Barriers against subsidies provided to harmful technologies to Climate Change
PA
There is a growing consensus that one crucial step governments must take to incentivise energy transition and keep fossil fuels in the ground is to remove financial support and subsidies they benefit from. The PA sets the framework for short term actions and long-term strategies to address harmful technologies, both products and process, to climate change. This includes opportunities to address public finance for fossil fuels. Taking steps to end public subsidies for high carbon energy is critical for meeting one of the key goals of the PA: ‘making financial flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development’[13].
Key pathways within the PA that governments can use to support the phase out of fossil fuel subsidies are:
· Ensure that global financial systems and flows work towards climate action and not against it[14];
· Include fossil fuel subsidy reform, and other fiscal policy tools, such as carbon pricing, in NDCs[15];
· Ensuring climate finance is a catalyst – not a barrier – to phasing out fossil fuels[16]
· Increasing public awareness on and access to information on fossil fuel subsidies[17]
· Include reporting on fossil fuel subsidies and tracking of progress in phasing out fossil fuel subsidies as part of national communications and provide clear and understandable information to the public regarding the scope and scale of fossil fuel subsidies and efforts to address them[18];
· Tracking progress and raising ambition on fossil fuel subsidy reform as part of wider mitigation efforts in the global stock-take[19]
· Develop long-term low-emission development strategies as a guiding point to ensure that all government incentives are consistent with the goals of the Paris Agreement. This could include setting an end-date for all subsidies and public finance for fossil fuels[20].
GATT
Similarly, there is broad acceptance that replacing conventional energy generated from fossil fuels such as coal, natural gas and oil with renewable energy can play an important role in mitigating climate change and achieving the internationally agreed 2 degrees Celsius target. Interestingly, at the multilateral level, renewable energy support measures have far been challenged in a handful of WTO cases: 635 out of the total 553 disputes brought to the WTO for resolution as of June 2018 whereas no single WTO case has thus far been initiated against the more prevalent and environmentally harmful fossil fuel subsidies.
Member that continues to subsidize fossil-fuel energy might well have a difficult time in the future justifying its measure as necessary under Article XX of the GATT, as there is the less trade-restrictive alternative of changing the relative pricing of clean and polluting energy through the removal of subsidies to polluting energy.
Non-price based barriers to Climate Change
Although less obvious than price based barriers, Technical Standards (“TS”) and labelling may act as deterrent barriers against harmful technologies to Climate Change. States can design these TS to protect their domestic industry catching the attention of WTO rules. In fact, TS and labels are reportedly the single largest cause of national notifications to the WTO under the Agreement on Technical Barriers to Trade (“TBT Agreement”)[21].
Technical standards barriers against harmful technologies to Climate Change
Several studies have revealed that TS have a high potential to reduce GHG emissions[22].
PA
The PA sets an objective of limiting the global temperature rise to “well below 2°C above pre-industrial levels” making policies that create incentives to maintain or further the energy system’s dependency on carbon intensive energy sources incompatible with the PA. By imposing TS that require greater energy efficiency or lower carbon use, technologies can be altered in favour of a low-carbon path. A core pillar of the PA requires that countries scale up their NDCs, every five years and issuing or raising TS is one of the various means to achieve this PA’s legal binding requirement[23].
TBT Agreement, GATT
Most of TS are technical barriers to trade subject to the disciplines of the TBT Agreement. The condition for TS to comply with the TBT Agreement is that they are not discriminatory vis-a-vis all “like” imports and “like” domestic products.
Article 2.1 of the TBT Agreement reads as follows:
“Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.”
The Appellate Body[24] (“AB”) observed that Article 2.1 contains a national treatment and a most-favoured nation treatment (MFN) obligation. The MFN treatment obligation prohibits discrimination through technical regulations among like products imported from different countries, while the national treatment obligation prohibits discrimination between domestic and imported like products[25].
The Appellate Body in US – Clove Cigarettes and US – Tuna II (Mexico) [26] set out a three pronged legal test for this provision:
"Article 2.1 of the TBT Agreement consists of three elements that must be demonstrated in order to establish an inconsistency with this provision, namely: (i) that the measure at issue constitutes a 'technical regulation' within the meaning of Annex 1.1; (ii) that the imported products must be like the domestic product and the products of other origins; and (iii) that the treatment accorded to imported products must be less favourable than that accorded to like domestic products and like products from other countries."
In US – Clove Cigarettes[27], the AB endorsed a competition based approach to the "like products" analysis under Article 2.1 of the TBT Agreement and rejected the approach based on the regulatory objectives of a technical regulation to justify a TS.
The AB disagreed with the consideration that the Panel gave to the health objective of the technical regulation in its assessment of the products and consumers' tastes. According to the AB:
"The very concept of 'treatment no less favourable', which is expressed in the same words in Article III of the GATT 1994 and in Article 2.1 of the TBT Agreement, informs the determination of likeness, suggesting that likeness is about the 'nature and extent of a competitive relationship between and among products. Indeed, the concept of 'treatment no less favourable' links the products to the marketplace, because it is only in the marketplace that it can be determined how the measure treats like imported and domestic products."[28]
The AB further investigated why likeness is a determination about a competitive relationship between and among the products rather than a determination based on the regulatory objectives of the measure:
"More importantly, however, we do not consider that the concept of 'like products' in Article 2.1 of the TBT Agreement lends itself to distinctions between products that are based on the regulatory objectives of a measure. If products that are in a sufficiently strong competitive relationship to be considered like are excluded from the group of like products on the basis of a measure's regulatory purposes, such products would not be compared in order to ascertain whether less favourable treatment has been accorded to imported products. This would inevitably distort the less favourable treatment comparison, as it would refer to a 'marketplace' that would include some like products, but not others.”[29]
Despite its conclusion that the determination of likeness should not be based on the regulatory objectives of technical regulations, the AB still acknowledged the relevance of regulatory concerns:
"The regulatory concerns underlying a measure, such as the health risks associated with a given product, may be relevant to an analysis of the 'likeness' criteria under Article III of the GATT 1994, as well as under Article 2.1 of the TBT Agreement, to the extent they have an impact on the competitive relationship between and among the products concerned".[30]
Finally, the AB recalled its earlier observation that the object and purpose of the TBT Agreement is to balance between the objective of trade liberalization and Members' right to regulate. In view of this, the AB considered that Article 2.1 should not be understood as prohibiting any detrimental impact on competitive opportunities for imports in cases where such detrimental impact on imports stems exclusively from “legitimate regulatory distinctions”[31].
In following cases, this approach matured into the two-step assessment of whether the TS at issue results in less favourable treatment under Article 2.1: (i) whether the TS modifies the conditions of competition to the detriment of imported products vis-à-vis like products of domestic origin and/or like products originating in any other country? and (ii) whether such detrimental impact "stems exclusively from a legitimate regulatory distinction"[32] ?
The AB was not persuaded that the detrimental impact of the TS on competitive opportunities for imported clove cigarettes stemmed from a legitimate regulatory distinction.
Besides attempting to prevent protectionism through discriminatory technical regulations in Article 2.1 (“non discriminating test”), the TBT Agreement also demands in Article 2.2 that technical regulations don’t unnecessarily obstruct trade (“necessity test”).
Article 2.2 and the fifth and sixth recitals of the TBT Agreement recognize that :
“Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create. Such legitimate objectives are, inter alia: national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment. In assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of products.”
The AB in US – Tuna II (Mexico) case provided guidance to Panels in assessing a technical regulation[33] . The AB explained that, in the context of Article 2.2 "the assessment of 'necessity' involves a relational analysis of the trade-restrictiveness of the technical regulation, the degree of contribution that it makes to the achievement of a legitimate objective, and the risks non-fulfilment would create"[34]. This assessment involves "a comparison of the trade-restrictiveness and the degree of achievement of the objective by the measure at issue with that of possible alternative measures that may be reasonably available and less trade restrictive than the challenged measure, taking account of the risks non-fulfilment would create"[35]
Labelling as barriers to harmful technologies to climate change
Another type of barrier is the use of labelling to regulate traded goods on the basis of their embodied carbon.
Energy efficiency labels for manufacturing equipment (e.g., motors) are often used to inform the consumer on the efficiency levels of products.
PA
According to Article 12 of the PA, ‘Parties shall cooperate in taking measures … to enhance climate change education, training, public awareness, public participation and public access to information, recognizing the importance of these steps with respect to enhancing actions under this agreement’. Increased access to information and communication on measures to enhance Climate Change through the mechanisms of the PA could support the necessary public participation to drive progress on fossil fuel subsidy reform. Labelling may contribute to achieve that objective.
TBT Agreement, GATT
WTO members generally agree that labelling schemes can be economically efficient and useful for informing consumers, and tend to restrict trade less than other methods. However, these same schemes could be misused to protect domestic producers. TBT Agreement applies to technical regulations including “marking and labelling requirements” (Annex 1). In two decisions U.S.–Tuna II and US-COOL, using the same approach as for assessing TS, the AB has rejected labels as trade barriers based on Article 2.1 the TBT Agreement.
Coherence Assessment between GATT, TBT Agreement and PA
In reviewing Article 2.1 and as far as term “less favourable treatment” is concerned the AB decided that the term “should not be interpreted as prohibiting any detrimental impact on competitive opportunities for imports in cases where such detrimental impact on imports stems exclusively from legitimate regulatory distinctions”[36] which is a new concept that was introduced for the first time in the US – Clove Cigarettes case. Accordingly, under the TBT Agreement, a detrimental impact arising from “legitimate regulatory distinctions” would not amount to “less favourable treatment” and would be compliant with the TBT Agreement. This line of argument lends itself well to the measures under the PA, drawing a legitimate, transparent, scientifically based and verifiable distinction between ESTs and those that are not.
The AB has been attempting to preserve the balance between the reduction of unnecessary obstacles to trade and the right to regulate the member countries. As for Article 2.2, the AB first identifies the legitimacy of the objectives of the measure and then reviews the alternative measures. The AB shows a deferential attitude to the regulation of the member countries.
The TBT Agreement covers “products, processes or production methods” in the definition of “technical regulation” under Annex 1.1 which should cover products, process (e.g manufacturing process), product-by-process (i.e. a product manufactured or assembled according to a specific manufacturing or assembling process). However, in EC-Seal Products[37], the AB has clarified that only product-related PPMs are within the scope of the TBT Agreement. If only PPMs that affect, leave a trace or are detectable in the final product are product “related”, then a large number of PPMs may not be within the scope of the TBT Agreement and would be examined under Article III of GATT. Article XI of the GATT generally prohibits quantitative restrictions on the importation or the exportation of any product, and then a less favourable treatment of imported products contrary to Articles I and III may still be justified under the exceptions in Article XX.
Section 2) Stimulating the access and diffusion of ESTs
The PA encourages technology development and diffusion as a key instrument in disseminating low carbon technologies widely, especially to developing countries. However, strengthening environmental regulation is a pre-condition to diffusing ETS successfully, as cutting emissions is generally not yet profitable under standard market conditions. In the absence of public policies promoting and supporting the use of EST (e.g. carbon taxes, cap-and-trade system, emission standards, labelling, TS, Feed In Tariffs (“FIT”) companies are less likely to adopt them. Diffusion of technologies towards emerging economies can only increase in the presence of ambitious climate policies. Both the PA and GATT, TRIPS provide voluntary mechanisms (§.1) and mandatory mechanisms (§.2) for encouraging the access and diffusion of EST.
§ 1 Voluntary mechanisms to stimulate the access and diffusion of ESTs
PA and technology transfers
Article 10 in the PA aims to advance TD&T to help developing country parties improve resilience to Climate Change by reducing their GHG emissions. The provisions in Decision 1/CP.21[38] further support these goals. Article 10 of the PA and Article 67 of the Decision 1/CP. 21 comprise a mix of actions that are quite concrete and detailed. The types of technologies to transfer are EST (Article 67 of the Cop 21/1 decision), both mitigation and adaptation in a balanced manner (10.6). They must be for early stage of the technology cycle (10.5) but also at different stages of the technology cycle (10.6). The transfer shall include development of the technologies (10.6). The transferees should be in priority the developing countries (Preamble of the PA, Article 10.5, Article 11, Article 13.9 ) while transferors are developed countries (Article 13.9). Transferees should assist transferors in receiving transfer of technologies and support in capacity building (Article 13.10). The TD&T should be supported, as appropriate, by the Technology Mechanism and through financial means, by the Financial Mechanism of the UNFCCC (e.g Green Fund) (Article 10.5) and the global stocktake, which according to Article 10.6 will also “take into account available information on efforts related to support in TD&T” provides opportunity to verify whether parties are fulfilling their obligations. Article 10 of the PA confirms the role of the Technology Mechanism and establish of a Technology Framework[39].
TRIPS Agreement and technology transfers
The objectives and principles of the TRIPS Agreement also affirm the importance of technological innovation and of the transfer and dissemination of technology. Transfer and dissemination of technology is the central focus of the TRIPS Agreement’s objectives as articulated in Article 6, Article 7, Article 8.1 and Article 8.2 notes that abuse of intellectual property rights may adversely affect the international transfer of technology.
WTO Members have also agreed specific obligations to assist least-developed countries. These are included in
Article 66.2 of the TRIPS Agreement and Decision of the Council for TRIPS of 19 February 2003 IP/C/28[40]. Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base.
There is concern that the provisions of the TRIPS Agreement that refer to the dissemination and transfer of technology to developing countries are insufficient[41]. Little effort has been made to operationalize Articles 7 and 8, raising questions about the capacity of the TRIPS to promote technology transfers. Moreover, efforts by developed countries to implement Article 66.2 have been so far limited.
Coherence Assessment between TRIPS Agreement and PA
TRIPS Agreement strengthens the position of developers of EST, but also demands a better dissemination via technology transfer. In this regard it seems coherent with the PA. The role of the TRIPS Agreement is still not settled, given an ongoing debate on what constitutes technology transfer. There is not yet any case of compulsory license issued in relation to climate change technologies, most compulsory licences that have been issued until now related to medicines and semi-conductors.
§ 2 Mandatory mechanisms to stimulate the access and diffusion of ESTs
The PA, TRIPS and Agreement on Subsidies and Countervailing Measures (“SCM”) provide mandatory measures to further enhance the access and diffusion of ESTs.
Nationally determined contributions & measurement, verification, and monitoring
The PA has sealed numerous commitments, in particular the five year submission cycle for nationally determined contributions (NDCs), which spells out voluntary short-term domestic climate policies and the generalization of a measurement, verification, and monitoring (MRV) system to all parties. These two instruments are critical in enhancing the access and diffusion of ESTs.
NDCs
The newly introduced five-year cycle of pledge-and-review is designed to increase the ambition of climate action over time. The starting point for this “ambition mechanism” is a Party’s NDC submitted to the United Nations Framework Climate Change Convention (UNFCCC), which pledges certain types of actions to reduce emissions and strengthen resilience and adaptive capacity to climate change impacts.
Each Party to the PA is required to prepare and communicate a successive NDC every five years under Article 4 of the PA. Each successive NDC must represent a progression beyond the Party’s current NDC and reflect its highest possible ambition, “as well as its common but differentiated responsibilities and respective capabilities, in the light of different national circumstances.” Following each NDC, Parties are required to pursue domestic measures to achieve their mitigation objectives.
Of the 190 Parties that submitted their intended NDC (INDCs), it is estimated that approximately 75% referred to technology as one of the measure to address Climate Change. 25 % of Annex I Parties referred to technology in the context of R&D and innovation to support their national action. Nearly 140 developing countries mentioned technology in their INDCs, representing approximately 95% of the total number of developing countries. More than 100 developing countries expressed the need for international support for technology development and transfer to implement their national plans.
MRV
The PA has established universal and harmonized measurement, reporting, and verification (MRV) provisions for climate change mitigation. It now applies to all parties to the PA. MRV is critical to effectively implementing the NDCs submitted under the PA.
Measurement is needed to identify emissions trends, determine where to focus GHGs reduction efforts, track mitigation-related support, assess whether mitigation actions planned under NDCs or otherwise are proving effective, evaluate the impact of support received, and monitor progress achieved in reducing emissions. Reporting and verification ensure transparency, good governance, accountability, and credibility of results, and for building confidence that resources are being utilized effectively. In this respect, MRV contributes to prevent the expansion of environmental harmful technologies.
Each Party to the PA shall regularly provide a national inventory report of emissions and removals, as well as information necessary to track progress made in implementing and achieving its NDC. Countries are also expected to provide information on climate impacts and adaptation, as well as information on financial, technology transfer.
NDCs’ targets and MRV motivate the Parties to prioritize, choose and adopt technologies such as solar, wind, bios, clean coal, and energy efficiency in order to reduce the carbon intensity. In doing so, they are able to incentivize Parties to the PA to promote EST and their use.
TRIPS Agreement and compulsory license
The TRIPS Agreement specifically recognizes the potential for abuse of patents and states that Members have a right to defend themselves against such abuses through issuing compulsory licensing. Article 8 of the TRIPS Agreement establishes the rights of Members to protect public health and the public interest[42].
As climate change regime develops and fears evolve, refusal to license to developing country members patents on Climate Change inventions may become problematic. Developing countries may implement compulsory licensing provisions to remedy a refusal to deal in situations where the patent has been filed in that country[43].
Subsidies to ESTs
Since almost two-thirds of GHGs are energy-related, any strategy to mitigate them needs to be focused on a shift from high-carbon to low-carbon energy production and use. Policies that create incentives to maintain or further the energy system’s dependency on carbon intensive energy sources are not compatible with the PA, but what about subsidies to renewable energy/EST, are they compatible with trade laws?
PA
ESTs face various barriers related to the financial markets, infrastructure, regulation, and information. Taking steps to support subsidies for low carbon energy is critical for meeting one of the key goals of the PA: “making financial flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development.”[44]
Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
Appraising the validity of renewable energy subsidies/EST under the SCM Agreement requires a two-step assessment:
Whether there is a “subsidy” within the meaning of the Article 1 of SCM Agreement?
A ‘subsidy’ will exist if three cumulative sub-conditions are fulfilled: (i) there must be a financial contribution (or income/price support) by a government or public body (or by a private body ‘entrusted’ or ‘directed’ by a government); (ii) it must confer a benefit; (iii) it must be specific to certain enterprises.
Whether the subsidy is compatible with the SCM Agreement?
All specific subsidies, except forbidden ones (export subsidies and import substitution subsidies) are SCM compatible unless it is demonstrated that they cause adverse effects to either the import-competing (‘material injury’), or export-competing ( ‘serious prejudice’) interests, of another WTO member. Different types of clean energy subsidies are exposed to higher or lesser degrees of non compliance risk with SCM Agreement depending mainly on whether any renewable energy support measure is linked to local content requirements (“LCRs”) or not. Subsidies that incentivize industries to use environmental friendly energy sources, LCRs free, yield high chances of compliance under the SCM Agreement. The presence of LCRs and therefore increasing the invalidity risk of the subsidy under the SCM Agreement should not be perceived as incoherent with the PA’s ojectives because there is no clear evidence that LCRs bring additional climate change benefits. LCRs are usually seen as “increasing the cost of renewable energy by forcing investors to rely on less competitive local suppliers rather than importing cheaper foreign RE technology, and hence result in environmentally inferior outcomes”[45] .
Coherence Assessment between SCM Agreement, TRIPS and PA
WTO decisions on the illegality of subsidies involving renewal energy having LCRs, whose environmental value added can be questioned don’t raise major concerns from a PA coherence point of view. Rather, from a mutual supportiveness angle, the key point is whether non-discriminatory FIT programmes and other RE support measures, without LCRs, are actually at risk under current SCM subsidy rules? They don’t seem to be exposed to risk due to (i) the flexibility built-in by the AB’s interpretative approach to the benefit analysis in Canada – Renewable Energy/FIT Program (2013) and (ii) the probability that non-discriminatory FIT schemes can cause trade distortions and be SCM non compliant is limited by actual geographical and infrastructural constraints on cross-border electricity trade. Furthermore, the often suggested applicability of Article XX GATT to the SCM Agreement may offer improvement from a mutual supportiveness standpoint. That is, it could shelter nondiscriminatory FIT programmes in the rather improbable scenario any such a measure is challenged and found SCM-inconsistent by the WTO dispute settlement bodies. There is also no reason excluding Climate Change mitigation or adaptation technologies from the spectrum of compulsory licences and clearly such licenses will comply with the TRIPS Agreement.
Section 3 – The impacts of the PA on international patenting activities covering ESTs
Projections indicate that by 2040 the world will require up to 30% more energy than it needs today. However, conventional energy supplies are not sustainable in the face of climate change. This requires shifting towards more efficient energy supply sources and scaling up their use. As a result of these challenges, higher level of innovation is needed, especially on the supply and storage side of the energy equation.
The Kyoto Protocol and the PA have placed an increased focus on renewable energy, and on its integration with innovative local distribution and storage solutions. This trend reflects a commitment to de-carbonize the economy, and is driven by the falling costs and increased competitiveness of these technologies. While the Kyoto Protocol has resulted in stimulating international patenting activities from countries in green tech area, the PA has yet contributed to encourage patent filings, its success in encouraging innovation through patenting and technology transfers remain an open question. Why are these slowdowns in green investment taking place in the face of increased need for energy innovation?
§ 1 The impacts of the Kyoto Protocol on international patent filings for ESTs
Several studies have concluded that the implementation of the Kyoto Protocol has had a positive impact on the patenting and international transfer of technologies relevant for climate change mitigation, “the protocol triggered a surge in new patent applications in the clean energy sector.”[46]
According to a recent study made by Mai Miayamoto and Kenji Takeuchi on the impact of the Kyoto Protocol on international patent applications for renewable energy technologies[47], using patent application data from 133 countries from 1990 to 2013, they find that the Kyoto Protocol increased international patent applications from the countries with emission targets. The study further reveals that countries with more stringent targets, the effect of the Kyoto Protocol is even stronger. The results of this study suggest that the Kyoto Protocol stimulated international patenting activities from countries that are committed to stringer targets for climate mitigation. Their study confirms prior researches which have concluded that the implementation of the Kyoto Protocol has had a positive impact on the patenting and international transfer of technologies relevant for climate change mitigation, “the protocol triggered a surge in new patent applications in the clean energy sector.”[48]
Dechezlepretre et al. (2008)[49] and Hašcicˇ and Johnstone (2011)[50] find that the Kyoto Protocol’s Clean Development Mechanism encourages the transfer of climate change mitigation technologies from developed Annex I countries to developing non-Annex I countries. Dechezlepretre et al. (2013)[51] find that the strictness of climate change policies encourages international flows of CCMTs.
Source: European Patent Office[52]
§ 2 The impacts of the Paris Agreement on international patenting activities for ESTs
In 2015 the United Nations Member States adopted the 2030 Agenda for Sustainable Development[53]
(the 2030 Agenda) and the PA. Both recognize that effective national innovation systems are key to promoting scientific and technological solutions that lead to improvement in energy efficiency systems. According to the GII 2018 report[54] there is an increasing market need for energy storage technologies and energy transmission technologies to cope with the imbalance between energy supply and demand. This imbalance calls for more flexible energy systems and for innovation in technology solutions that support the integration of variable renewable energy. Energy waste disposal, including nuclear waste or the recycling of batteries, is also in need of further innovative solutions. Overall, Innovation has been uneven across the different stages of the energy system value chain.
From 2004–17, the world invested US$2.9 trillion in renewable energy sources. Between 2004 and 2010 there was a boom in investment, with a compound annual growth rate in investments equal to 32%. In contrast, the period 2011 to 2017 witnessed a stagnation of green tech investments. The levels of investment in renewable energy recorded in 2017 are 2% higher than those registered in 2016, however they are 13% lower than the record set in 2015 of US$323.4 billion[55]. The 2018 Global Landscape of Renewable Energy Finance[56] also highlights waning growth in annual investments in renewable energy in 2016.
A similar slowdown is observed in the growth of green energy-related patents. According to WIPO’s World Intellectual Property Indicators 2017[57] patent applications in energy-related technologies such as solar energy, fuel cells, wind energy, and geothermal energy significantly increased over recent years, up until 2013. Since then, however, patent applications have declined. A decrease has also been observed in the number of clean tech patents granted by the United States Patent and Trademark Office: between 2014 and 2016 the number of clean tech patents granted in the U.S. have declined by 9%.
According to WIPO, the total number of patent families and PCT international patent applications in green tech almost doubled between 2005 and 2013 The number of patent families rose from 65,105 in 2005 to 113,457 in 2012, growing annually at about 8.3%. PCT international patent applications rose from 9,043 in 2007 to 17,880 in 2013, growing 12% each year.
An analysis conducted by the European Patent Office (EPO) for the GII 2018 confirms the above-mentioned slowdown for smart-grid technology. Related inventions as measured by numbers of new patent families show accelerated growth followed by deceleration, and even a decline in the number of internationally oriented smart-grid patent families. Accelerated growth was observed between 2005 and 2011. The number of new
patent families in smart-grid technologies grew from 441 to 2,500 in 2005–2011. In the same time, the number of internationally oriented smartgrid patent families increased six-fold, from fewer than 200 in 2005 to 1,168 in 2011. In 2012 the trend changed, the number of internationally oriented smart-grid patent families dropped by 41%, to 685 by 2014.
Why are these slowdowns in green investment taking place in the face of increased need for energy innovation?
The reasons for green energy investment and patenting slowdown are not fully clear. Many factors could be at play, including a lack of prioritization of green energy innovation due to the declining oil and fossil fuel prices, which decrease the incentives to go green. Also the decreasing profit margins in the area of select renewable energy technologies.
Potentially the major issue is now more one of failing technology adoption than an actual need for a redoubling of innovation. In other words, the green energy technologies required to curb emissions exist, yet the obstacles to their diffusion are manifold. Energy innovation is taking place mostly on the supply side. One of the biggest challenges with respect to energy innovation seems to be on the side of diffusion and adoption, which are slow and missing incentives especially at the social and organizational levels. New energy technologies need to demonstrate their viability with respect to their energy performance. The public and private interests that support the dominant often fossil fuel based energy technologies also need to be addressed to allow large-scale adoption.
Conclusion
This study investigated the interrelationship between the PA and WTO agreements which is well balanced both in terms of barriers to environmental harmful technologies and incentives to ESTs. The role plaid by WTO’s Jurisprudence remains critical in shaping the interaction in one way (conflict) or another (mutual supportiveness).
The coherence between the PA and WTO agreements such as the TRIPS Agreement is due to their common but challengeable assumptions. Both treaties strongly assume that inventions largely emanate from developed countries and need be transferred to developing countries to cope with Climate Change. The two agreements’ view on innovation is outdated and misleading. A report released in 2010 by the Organisation for Economic Co-operation and Development (OECD)[58] contradicts their theory. Although the 34 OECD member countries, which are all industrialized, are likely to dominate much of R&D for the foreseeable future, other nations are starting to make their mark in this area, and will help to redraw the global science, technology and industry map, according to the analysis. The OECD Science, Technology and Industry Outlook 2010 report says that "increasingly, countries as diverse as China, South Africa, Indonesia and Vietnam are developing broad-based innovation strategies that encompass existing and new technologies, as well as social innovations"[59]. In 2007, the share of renewable-energy patents among the total filed by BRIICS countries — Brazil, Russia, India, Indonesia, China and South Africa — came in at an average of 1.07%. That figure was already above the world average of 0.89% and a bit lower than the 1.19% recorded for the European Union, but was much higher than the 0.67% for the United States or 0.47% for Japan. 8 years have passed since the 2010 report and looking at solar thermal technologies only, 16 of the top 20 technology owners are new entrants and half of these new entrants are from China. Patent filings in China have increased steadily and now account for around 40% of all filings globally. A similar increase is seen when analyzing the office of first filings. China leads with a 57% share whereas Japan dominated in the period 1975- 2005 with 37% of all filings. The Republic of Korea shows an increased share of global filings from 1% to 6%; Japan decreased its share from 37% to 15%; and Germany decreased from 14% to 9%[60]. Since the assumption made by the PA and TRIPS Agreement to stimulate the access and diffusion of technologies is not fully well grounded, the two treaties’ ESTs diffusion mechanisms are weakened. Other avenues for innovation and multilateral research collaboration than north-south technology transfers are opening up and need to be further developed.
© Fabrice Mattei 201
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[10] Articles 4.3 and 4.9 of the Paris Agreement.
[11] See supra note 11
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[13] Article 2.1 c) of the Paris Agreement on Climate Change.
[14] Article 2.1c: ‘Making financial flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development’
[15] Part II [no. 17–20] of the accompanying decision to the Paris Agreement on national climate plans
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[17] Article 12: ‘Parties shall cooperate in taking measures … to enhance climate change education, training, public awareness, public participation and public access to information, recognizing the importance of these steps with respect to enhancing actions under this agreement’
[18] Article 13: Enhanced transparency framework for action and support
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[53] UNFCCC’s web site : https://www.un.org/sustainabledevelopment/development-agenda/
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