Embracing green trade could accelerate India’s export diversification and growth as global demand for low-carbon goods and services is rising. However, India’s exports of environmental goods and services still trail behind that of its peers, highlighted a recent World Bank report on India’s trade opportunity.
The report outlines several initiatives to enhance India’s trade prospects such as integration in the global value chain. Among them, it emphasises the potential of environmental goods and services exports. “With the increasing global demand for low-carbon goods and services, India can capitalise on the opportunity by investing in clean technology, promoting sustainable production and consumption, and implementing policies to reduce GHG [greenhouse gase] emissions,” it says.
The report adds that environmental goods and services could help diversify exports while prioritising sustainability and socio-economic needs throughout the supply chain.
India lags behind Bangladesh, Costa Rica, Indonesia, Thailand, Vietnam, and South Africa in environmental goods and services exports. However, experts say the reality is more complex.
Abhijit Das, an expert on international trade policy and World Trade Organisation issues and former head of the Centre for World Trade Organisation Studies, explains that each country has unique initial conditions and strengths, including the size of its domestic market. “Some countries are more reliant on exports than their domestic markets to boost incomes,” he adds.
Das notes that until a few years ago, India had been very prudent in ensuring that trade and environmental commitments did not hinder its development aspirations, particularly in the manufacturing sector.
Ronald Steenblik, a trade analyst and senior technical advisor at the Quaker United Nations Office, a non-governmental organisation, adds, “My guess is that Chinese producers of key traded EGS [environmental goods and services] such as solar PV cells and panels have shifted production – or at least exports through re-exportation – to other Asian countries in response to higher import barriers, such as countervailing and anti-dumping duties, imposed by importing nations.”
Sanvid Tuljapurkar, an international trade lawyer, explains, “Clean technologies are concentrated in developed countries (with China being an exception among developing countries). Most clean technology patents granted will remain valid until after 2030, creating barriers for India to access these technologies. The research, development, manufacturing, and deployment of low-carbon goods and services require significant investment – a persistent challenge for India.”
Green boom
A World Trade Organisation report highlights that global trade in environmental goods surged by 243% between 2000 and 2020. A United Nations report highlights that amid a global trade slowdown in 2022 and 2023, the trade in green goods remained resilient.
Due to rapid growth, urbanisation and environmental challenges like air and water pollution, India’s market for green technology is gaining the attention of major international players. According to the International Trade Administration of the US government, India’s ongoing air and water pollution issues will fuel demand for environmental technologies and solutions. The Indian environmental technologies market, valued at around $23 billion, is expected to grow at a compound annual growth rate of 7.5% from 2023 to 2028. India ranks as the sixth-largest global market for environmental technologies.
The International Trade Administration highlights India’s water and wastewater management market, valued at $11 billion and expected to grow to over $18 billion by 2026. After China, India is also the second-largest market for air pollution control and municipal solid waste management.
By 2029, India’s air pollution control systems market is expected to reach $6 billion, while the waste management market is projected to reach nearly $36 billion by 2028. With climate investment opportunities in India valued at around $3 trillion from 2018 to 2030, the report advises US companies to explore project announcements from organisations like the World Bank, which offer consulting and equipment supply opportunities.
Defining green trade
The World Bank report, released in the first week of September, highlights that there is no universally accepted list of environmental goods. Three key lists are used to guide their trade: the World Trade Organisation, Organisation for Economic Cooperation and Development, and Asia-Pacific Economic Cooperation.
Steenblik says that most references to a definition of environmental goods and services, established jointly by the Organisation for Economic Cooperation and Development and Eurostat about 25 years ago, mainly relate to pollution or other environmental objectives, such as the protection of natural habitats. However, that general definition should not be confused with the various lists that have been compiled over the years, he adds.
Tuljapurkar agrees that there is no consensus among World Trade Organisation members on the definition of environmental goods. During negotiations for the Environmental Goods Agreement, which aimed to reduce tariffs goods, members were unable to agree on what constitutes an environmental good. However, countries have reached agreements on lists in other forums, such as Asia-Pacific Economic Cooperation, and in free trade agreements like the EU-New Zealand and New Zealand-UK.
The lack of a clear definition significantly impacts the overall understanding of the trade of environmental goods and services. The lack of clarity leads to a lack of reliable data, which Tuljapurkar says is one of the most significant barriers to analysing and understanding environmental services and their contribution to global trade.
This ambiguity leads to such services being lumped with other service sectors, making it difficult to track their specific contributions. As a result, data is rarely collected or reported, leaving stakeholders without accurate information about the market. This data gap also hinders informed decision-making, making it difficult for policymakers to engage in effective trade negotiations.
Uneven distribution
A discussion paper written by Anshuman Gupta for Research and Information Systems for developing countries, a New Delhi-based autonomous think-tank under the Ministry of External Affairs says that historically, developing countries have been reluctant to include non-trade issues like environmental provisions in trade policies, whether at the multilateral level through the World Trade Organisation or in regional trade agreements.
The paper that appeared in March, underlines two trends. With the World Trade Organisation’s functionality in decline, there has been a surge in regional trade agreements and free trade agreements worldwide. Second, while developing countries have traditionally resisted this, they are increasingly agreeing to include environmental provisions in free trade agreements to secure market access in developed economies. The US, European Union Canada, United Kingdom and New Zealand are leading advocates for including environmental provisions in free trade agreements.
It also highlights a shift in India’s traditional stand. It was once opposed to mixing trade and environmental policies. However, the India-South Korea free trade agreement, signed in 2009, marked a significant change, and the India-Japan Comprehensive Economic Partnership Agreement signed in 2011, is India’s most ambitious free trade agreement regarding environmental provisions. More recent agreements, like the India-Mauritius CECPA (2021) and the India-UAE CEPA (2022) had even fewer environmental provisions.
Though India has increasingly incorporated environmental aspects into its free trade agreements, the paper says these provisions are mostly non-binding.
Steenblik observes that while India prefers broad, multilateral deals that allow trade-offs across various sectors, it has been largely absent from initiatives focusing on trade in environmental goods and services, such as the 77 co-sponsors of the Trade and Environmental Sustainability Structured Discussions.
Tuljapurkar explains the developing countries’ position, “Currently, nearly 85% of clean energy investment is concentrated in developed and advanced economies, while emerging markets and developing economies [EMDEs], excluding China, receive just 15%. This imbalance exists despite EMDEs accounting for two-thirds of the global population and being poised to drive the majority of future energy demand.”
She is one of the authors of a World Trade Organisation report published in November 2023 that highlights the uneven distribution of global trade in environmental goods. It states that the top 200 firms in this sector saw their revenues grow from $58.9 billion in 2019 to $112.7 billion by the end of 2021, with over half of this revenue generated in the US. The vast majority of these firms are based in developed economies like the US, Europe, Canada, and Australia.
India’s Larsen and Toubro Ltd became the first firm from a developing country to be ranked in the top three globally in the 2021 list of the world’s top 200 firms providing environmental services.
Similar is the case with green services as the top 20 firms controlling significant shares in hazardous waste management (78.6%), water treatment (82.7%), and wastewater treatment (70.8%). Most of these firms are based in the US and western Europe.
Tuljapurkar explains that World Trade Organisation members from developing countries have generally adopted a defensive stance in negotiations aimed at further trade liberalisation in environmental services. They argue that such liberalisation would neither address the significant trade-distorting subsidies provided by members from developed countries in this sector nor bridge existing infrastructure and capacity gaps.
“In their view, these discussions are driven more by economic interests than environmental concerns. Specific commitments have largely aligned with the comparative advantages of members from developed countries, failing to reflect the interests or strengths of those from developing countries,” she adds.
However, Das adds that India no longer appears hesitant in negotiating environmental provisions in trade agreements. However, the specifics of these provisions remain unclear until the first such agreement, such as those with the UK or European Union, comes out.
This article was first published on Mongabay.
