barriers agreements including the Sanitary and Phytosanitary (SPS) and the ... under the World Trade Organisation (WTO) agreements on TBT increased from.
Chapter 4
Assessment of carbon emissions embodied in South Africa fruit supply chains Sifiso Mboneni Ntombela Masego Moobi and Yolanda Potelwa13
1. Introduction The adoption of the General Agreement on Tariff and Trade (GATT) in 1947 played a pivotal role in lowering global average tariffs from over 50% in 1950 to 12% in 2000 (Smith, 2014:7). However, the emergence of non-tariff barriers in the 1980s undermined the free trade benefits gained from tariff reduction. This led to the expansion of the GATT Agreement in 1994 which established two non-tariff barriers agreements including the Sanitary and Phytosanitary (SPS) and the Technical Barriers to Trade (TBT) (Love and Lattimore, 2009:60). The most contested TBT policy measures are related to environmental issues such as climate change, ozone depletion, protection of seas and forestry. Environmental policies are formulated to achieve sustainable developments by maintaining a balance between economic growth and resource exploitation. According to Khatun (2009:5), policy measures that aim to address environmental issues tend to create both direct and indirect opportunities to introduce new technical barriers to trade. Hence a number of researchers find that developing countries are increasingly raising concerns that environmental policy measures are often implemented in a protectionist manner and are increasingly becoming a technical barrier to trade (WTO & UNEP, 2009; Khatun, 2009; Copeland & Taylor, 2004). To support the developing countries’ claims of expanding environmental related barriers to trade, Greenhalgh (2004:6) finds that the share of environmental related notifications
13
Authors are representatives of the National Agricultural Marketing Council SA
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under the World Trade Organisation (WTO) agreements on TBT increased from 9.7% in 1991 to 11% in 2001. The increasing cases of environmental related trade barriers have motivated this study. The study focuses on climate change which is a key environmental issue facing both South Africa and the world. South Africa has high carbon intensity per capita because of heavy reliance on coal generated electricity (SANT, 2013). The environmental impact (e.g. carbon emissions) of agricultural value chains is poorly understood in South Africa. This means that should South Africa’s trading partners invoke the carbon trade based policy measures, South Africa is likely to see declining fruit exports. Therefore the study attempts to increase the awareness of climate change policy measures and their potential effect on trade development. The study assesses the carbon emissions embodied in traded goods, specifically the South African fruits exports. This is conducted through the employment of the life cycle assessment method based on British greenhouse gas (GHG) accounting principles.
2. Literature review The General Agreement on Tariffs and Trade was adopted in 1947 as a platform to coordinate and enforce the international trade rules. Between 1950 and 1980, tariff was the major barrier to free trade and GATT was very successful in lowering the tariff. The first six multinational trade negotiations of GATT reduced the world average tariffs from over 50% in 1950 to 12% in 2000 (Smith, 2014:7; Love and Lattimore, 2009:60). The free trade benefits derived from declining tariff barriers have been diminishing in the last three decades largely because of emerging nontariff barriers (Smith, 2014). The eighth round of GATT negotiations held in Uruguay in 1994 recognised the emerging challenge of non-tariff barriers on international trade. In response to this challenge, the Uruguay round expanded the GATT Agreement on Trade to cover non-tariff barriers. There were two agreements that were established to control and administer non-tariff barriers. These include the Agreement on Application of Sanitary and Phytosanitary Measures and the Agreement on Technical Barriers to Trade. The SPS Agreement aims to protect consumers, animals and plants’ health against known dangers and potential hazards (Love and Lattimore, 2009:62). It also aims to avoid the use of health and safety regulations as protectionism to limit free trade. The TBT Agreement relates to the trade restrictive effect arising from 185
the application of technical regulations or standards such as testing requirements, labelling requirements and marketing standards. The TBT Agreement attempts to ensure that regulations, standards and certification procedures, which vary from country to country, do not create unnecessary obstacles to trade (Khatun, 2009:8). The environmental policy measures, particularly climate change, have been noted as the main technical barriers to trade. Environmental policies are formulated to achieve sustainable developments by maintaining a balance between economic growth and resource exploitation. However, a growing number of developing countries have raised concerns that environmental policy measures are often implemented in a protectionist manner and are increasingly becoming a technical barrier to trade. The popular environmental measures found in literature include standards, taxes, subsidies and labelling (WTO & UNEP, 2009; Katun, 2009; Copeland & Taylor, 2004). Trade and environment nexus The trade and environmental nexus debate first made way into multinational negations in 1972 at the Stockholm conference. Trade is considered to be beneficial for the economic growth of nations since trade liberalisation makes more resources available for manufacturing and production. Trade is also instrumental in sourcing resources and technology that can be used to protect the environment. Trade liberalisation may also precipitate changes in product composition entailing less resource-intensive and less environmentally damaging production processes (WTO & UNEP, 2009;Khatun, 2009:6). Some environmental issues such as climate change have been found to reduce the productivity of agricultural products, subsequently enhancing the incidents of food insecurity in certain regions of the world (IFPRI, 2009:15). In this situation, trade becomes pivotal because it can move products from regions experiencing production surplus to regions that are experiencing production declines, thereby reducing the effects of climate change. Trade policy is also considered to be a platform that can be used to encourage participation in international environmental agreements to deal with transboundary environmental problems (Khatun, 2009:6). Generally, environmental activists are concerned with protection and regulation of (i) biodiversity; (ii) land; (ii) seas; (iv) chemical and hazardous waste; and (v) atmosphere. They aim to preserve these broad environmental elements and ensure that trade activities do not encourage their exploitation and damage. The 186
atmosphere component, which is the subject of this study, relates to the protection of the atmosphere by mitigating the accumulation of greenhouse gas emissions. The primary greenhouse gases accumulating in the atmosphere are carbon (CO 2), methane (CH4) and nitrous oxide (N2O). GHG emissions originate predominately from anthropogenic processes such as fossil burning, deforestation and agricultural production. GHG emissions can also be produced from natural processes such as volcanic eruption, earthquake and solar radiation (IPCC, 2001:36). The next section discusses the relation between GHG emissions and climate change. Climate change and GHG emissions The accumulation of greenhouse gas emissions in the atmosphere leads to temperature rises and subsequently to climate change. According to the Intergovernmental Panel on Climate Change (PICC) (2007:30), climate change refers to shifts in the climate (i.e. average weather) over a long period of time and this involves significant and relatively permanent changes of average weather in a geographical location. The report by IPCC (2007) finds that because of accumulating atmospheric GHG emissions, the earth’s annual average temperature increased by approximately 0.6 degrees Celsius between the year 1861 and 2000. IPCC (2007:44) further estimates that the earth’s average temperature will likely increase by an additional 1.4 to 5.8 degrees Celsius between 1990 and 2100. The science integrity of climate change has improved significantly in the past three decades. However, the criticism on climate change science has also grown. Makarenko (2007:2) and McGinnes (2001:11-12) note that the greatest concern of climate-change critics is that different climate change models generate different projections (indicating embedded uncertainties) due to either assumptions made in modelling or data quality issues. The uncertainty issue inspires the critics to question whether the efforts to mitigate GHG emissions are worth the cost given the uncertainty issue. They claim that current climate-change projections are not adequate to support the high cost associated with mitigation efforts Although the criticism on climate change is growing, there is enough evidence in literature that shows that climate change is indeed taking place and that it cannot be further ignored. For example IPCC (2007:48), later supported by IFPRI (2009:15-19) finds that climate change is causing a decline in agricultural productivity, particularly in African countries where vulnerability is very high. It 187
also emphasises the shortages of water and food resources exacerbating the challenges of food insecurity and poverty related diseases. Sir Nicholas Stern (2006:9) and other scholars warned that if GHG emissions are not reduced quickly, the risk and cost associated with climate change effects will be equivalent to 5 % of global GDP each year in the near future and this could increase to 20% by the end of the 21st century. Triggered by growing evidence of climate-change effects, the industrialised countries have taken a lead in attempting to reduce the carbon emissions. For example, the European Commission (EC) has developed and endorsed an integrated approach to climate change and energy policy (Vickers, 2012). The purpose of this policy is to transform Europe into a highly energy-efficient and low-carbon economic region. The United State of America (US) passed the American Clean Energy and Security Act in 2009 (USDS, 2010). This act aims to transform the US into an energy-efficient and low-carbon economy. Although these climate policies and acts are gradually reducing GHG emissions in industrialised countries, global emissions are still growing because of carbon leakage problems (Sato, 2012:8). Carbon leakage is a process where there is an increase in emissions in one country (usually a developing country) as a result of an emission reduction by a second country (usually an industrialised country) with a strict climate policy. The work of Peters and Hertwich (2008:1400-1407) supported by Wiedmann (2009) and Aichele and Felbermayr (2010) finds that emissions from industrialised countries (Annexure I according to United Nations Framework Convention on Climate Change – UNFCCC classification) have become net importers of GHG emissions embodied in trade whereas the developing countries (non-Annexure I) were net exporters of GHG emissions embodied in trade. The researchers also found that about 22% of global GHG emissions are embodied in global trade leading to a carbon leakage problem. Strict climate policy in Annexure I countries and weaker climate policy in nonAnnexure I countries also lead to competitiveness issues. Industrialised countries raise concerns that their competitiveness is reduced due to the high compliance cost of conforming to a strict climate policy (Cosbey and Wooders, 2011:3; and Böhringer et al, 2011:4). The carbon leakage and competitiveness decline problems have impelled industrialised countries to consider carbon trade based policy measures that will help address issues of climate change. The considered 188
policy measures also aim to indirectly obligate developing countries to participate in reducing global GHG emissions. Types of climate change barriers to trade Climate-change policy measures are considered as technical barriers to trade if they are applied in a manner that restricts trade and causes market distortion. The popular climate changes related to trade-policy measures that are found in literature include (i) regulations and standards; (ii) green labelling; and (iii) border tax adjustments. Regulations and standards There are two types of standards related to product which are (i) product standards and (ii) production standards. Product standards refer to characteristics that goods must possess, such as performance requirements, minimum nutrient content and maximum toxicity. Production standards refer to conditions under which products are made. Countries are at liberty to develop their own regulations and standards to assess imported products. Developing countries view some of the standards as technical barriers to trade (Khatun, 2009:8). Carbon labelling Carbon labelling refers to providing information to producers and consumers on the health and environmental impact of products. It enables consumers to be informed about a product’s characteristics or its conditions of production (Khatun, 2009). Labelling that describes how a product is produced is termed as labelling based on a process or production method (PPM). PPM can be classified into two types i.e. production-related PPMs and non-product-related PPMs (Khatun, 2009). Product-related PPMs refers to process and production methods which affect the nature, properties or qualities of the product itself. Product-related PPMs are often used when assessing the product specifications. This type of PPMs is frequently found in the industrial sector where they are used to ensure the product’s quality or fitness for use. Non-product-related PPMs describe a process or production method which does not affect or change the nature, properties and qualities of a product. This means the final product is not affected by the production method. Assessing the carbon emissions of fruit value chains using the life cycle method is a typical example of non-product-related PPMs. 189
Border Tax Adjustments The Border Tax Adjustments (BTAs) policy measures entail charging a carbon tariff on imported goods or providing export subsidy to domestic firms to level the playing fields in countries that have strong environmental policies. BTAs focus mainly on commodities that are carbon intensive such as agriculture, minerals and manufactured goods. Literature indicates that the European Union (EU) and the US are likely to adopt the BTAs policies in the future (Vickers, 2012, Cosbey and Wooders, 2011; Wiedmann et al., 2009; Weber et al., 2008). Howse and Eliason (2008) warn that environmental policy measures like BTAs may face legal and practical challenges during implementation. For example, from a legal perspective, though exception is made in Article XX(b) and (g) of GATT, 14 these measures are generally not applicable to trade agreements. It is therefore not clear whether BTAs will fare well in cases of WTO dispute settlements when brought by developing countries which oppose BTAs (Howse and Eliason, 2008). The technical challenges relate to the calculation and application of appropriate tariff rates. The complexity of calculating defensible measures of embodied carbon in goods with long and complicated value chains is likely to limit tariff coverage to a fraction of the total emissions embodied in trade, thereby reducing their effectiveness. Despite the legal and practical challenges of BTAs, they remain a serious threat to trade growth in developing countries like China, India, Nigeria, Brazil and South Africa. South Africa has one of the highest per capita carbon dioxide emissions in the world (SANT, 2013). This is due to its heavy reliance on coal-generated electricity. South Africa exports large quantities of soft and hard primary products to the EU and US markets. The BTAs and carbon standard policy measures in the EU and the US have the potential to affect South Africa’s exports because of their high carbon intensity. Cosbey and Wooders (2011:3-5) and Vickers (2012) find that about 30% to 40 % of South Africa’s exports to the EU and the US may attract taxation under proposed BTAs policy measures. They find that the main sectors likely to suffer from the considered carbon tariffs include mining, agriculture and manufacturing, including wood products.
14
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Article XX(b) and (g) of the General Agreement on Tariff and Trade (GATT) allows an exception to the general trade rule where measures are necessary to protect human, animal and plant life, or when the issue relates to conservation of exhaustible natural resources (Cosbey and Wooders, 2011).
Limitations and uncertainties about emissions embodied in trade The greatest concern about the measured emissions embodied in trade is their inconsistency. Different studies have quantified the emissions for certain countries and came up with different estimates, even though they used the same methods. The inconsistency has been attributed to data issues. Weber et al. (2008:5) note that the biggest challenge in estimating emissions embodied in trade is the availability of quality data. The quality of the underlying input-output data depends on both the underlying Supply and Use Tables (SUT) and the procedure used for the compilation of the symmetric input-output table. SUT is usually obtained by grossing-up methods, extrapolations, estimates of a more or less subjective nature all of which raise concerns about the reliability of the data. Additional uncertainties are introduced during the processes to harmonise and interlink input-output tables. Harmonisation requires multiple assumptions and aggregation of sectors, which induce further uncertainties of unknown magnitude (Weber et al, 2008:5; Sato, 2012:16). Another source of uncertainty in Emissions Embodied in Trade (EET) estimations is aggregation bias. Aggregation bias is caused by errors and assumptions that are made when the data is aggregated. Aggregation is usually preferred by researchers as it makes the running of the model simpler and more manageable. South African fruit industry background The study will focus on fruit industries that are export oriented, including those producing citrus, table grape, pome and stone fruits. Figure 1 shows fruit export trends measured in value terms over the past 12 years. It is evident that the EU and the US remain important markets for South African fruit exports. The EU regional market accounts for approximately 66 % of market share and the US accounts for 3% of all South African fruit exports measured in value terms in 2012. The Asian markets have shown significant growth since the global recession that occurred in 2008, although traditional markets (i.e. EU and US) are projected to regain their dominance once they have fully recovered from the global recession.
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Figure 1: South African fruit expert trends
Source: World Trade Atlas, 2013
3. Method and data collection Life cycle assessment based on the British GHG accounting standards The growing literature on carbon emissions embodied in trade has focused on three aspects, namely the scale on which EET are measured, the methods used to quantify the EET, and the focus of studies. This study will measure emissions at a micro-scale in order to identify hotspot areas and improve self-sufficiency within the selected four key fruit export supply chains to the EU, the US and Asian markets. This study will adopt the Life Cycle Assessment method at micro-scale based on British GHG Accounting Standards (PAS 250-1). The assessment will cover the fruit supply chain from cradle to grave (i.e. from farm boundary into the port of entry in the importing country). The life cycle inventory method adopted in this study is very useful in the sense that it can enable an organisation or industry (i) to develop a baseline for a fruit supply chains’ resource requirements for benchmarking efforts; (ii) to identify components of the fruit supply chain that are good targets for emissions reduction efforts; and (iii) to compare alternative materials, products and activities within the fruit supply chain. Figure 2 provides a schematic presentation of the process map for all four selected fruit subchains. The system’s boundaries (i.e. farm, packhouse and shipping) are clearly defined in order to ensure all activities and their emissions are analysed adequately for this study
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The emission factors used in this study are source from the literature, and are therefore used as secondary data in this study. The carbon emissions in each boundary are calculated using the following formula: 𝐶𝑎𝑟𝑏𝑜𝑛𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 = 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦𝐷𝑎𝑡𝑎 𝑥 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝐹𝑎𝑐𝑡𝑜𝑟 Figure 2: Process map to assess carbon emissions embodied in South African fruit supply chains
(Source: Authors)
Required data The diagram presented in Figure 2 shows the data type required to assess the carbon emissions embodied in the fruit supply chain. The activity data required includes raw materials used at farm, packhouse, coldstore, transportation and shipping boundaries. The South African fruit and wine industries have established an initiative called Confronting Climate Change which is aimed at collecting primary data and assessing the carbon emissions embodied in the South African fruits supply chain. 15 The South African Confronting Climate Change (SACCC) Initiative has developed a credible and user-friendly database which contains most of the data required in this study. The SACCC database was developed over a period of five years covering all fruit-producing regions in South Africa. 15
For more information on South African Wine and Fruit Confronting Climate Change initiative visit www.climatefruitandwine.co.za. 193
The SACCC database has a sample population of over 1,942 units including farms, packhouses, coldstores, exporters and transport data activities. The sample population was collected following the purposive sampling technique. The initiative continues to host workshops in different production regions with the aim to increase the sample population captured in the database. Prior to this study, the SACCC carbon emissions were measured from the farm to packhouse boundaries. The key contribution of this study was to strengthen the cradle to grave assessment which now includes shipping activity data and extends the grave to the port of entry in the importing country (i.e. from farm to destination market port). Furthermore, the study has enhanced the credibility and accuracy of some previously captured datasets by reviewing and verifying the data captured. In this sense, the study uses the combination of secondary (i.e. farm to packhouse) and primary (i.e. coldstore to importing port) datasets. The primary data was collected using a structure data form that was specifically developed to collect data for life cycle assessment purposes.
4. Results and discussion Using the Life Cycle Assessment method which is based on British GHG Accounting Standards (i.e. PAS 250-1) the carbon emissions embodied in South African fruits were assessed and the results are reported below. It is important to note that the results reported in this study are for the sample population that participated in the SACCC workshops and that are part of the SACCC database. Figure 3 graphically presents the total amount of carbon emissions embodied in South African fruit export chains to the European market. The results show that the type of transport used to export fruit has a significant impact on carbon emissions. The emissions on fruit exported through shipping (sea transport) are seven times less than emissions on fruit exported through air transport. Figure 4 presents the total carbon emissions embodied in each of key selected fruit export chains. The table grape export chains emit the largest emissions when compared to other fruit supply chains such as citrus which has the lowest carbon emissions. The high perishability of table grapes and stringent handling and cold chain standards can be attributed to the high emissions emitted from the table grape export chain. The high level of inputs required (packaging material, electricity for irrigation or cooling) also contributes to the emissions measured. As each fruit supply chain is unique, a direct and equitable comparison is not possible, however; 194
at a high level it does illustrate which commodities will be more vulnerable to carbon trade base climate policies such as carbon labelling and border tax adjustments. The emissions reported in Figure 4 cover the fruit exported from South Africa to the EU markets (Rotterdam port marked as a benchmark). It was found that the emissions from exports destined for other markets such as Asia, the Middle East and the US do not differ significantly from those destined for the EU markets. As a result of minimum differences between emissions to various markets, a decision was taken to only report on EU markets’ emission since it constitutes the largest share of South African fruit exports. Furthermore, more than 95% of South African fruits are exported through sea transport (shipping). Therefore the focus of this study will be on assessing the carbon emissions per fruit chain that are exported through sea transport (i.e. shipping).
Figure 3: Carbon emissions embodied in fruit export per transport mode
Source: Authors
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Figure 4:Total carbon emissions embodied in each of South Africa’s key fruit export supply chains
Source: Authors
Citrus fruit supply chain Based on the SACCC sample group, Figure 5 provides a detailed breakdown of carbon emissions emitted per boundary in the citrus supply chain. It was found that the carbon emissions from farming activities contribute 23% of total emissions. The biggest carbon emissions are emitted from the transportation to domestic ports and shipping to importing ports collectively, accounting for 42% of the total emissions embodied in the citrus export chain to the European market. Table grape supply chain Based on the CCC sample group, Figure 6 provides a breakdown of carbon emissions emitted per boundary in the table grape supply chain. The packhouse and coldstore boundaries constitute the largest carbon emissions in the table grape chain, accounting for 43% of total emissions. The farm boundary accounts for 32% of the total emissions of the table grape chain
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Figure 5: Carbon emissions emitted per boundary in the citrus supply chain
(Source: Author)
Figure 6: Carbon emissions emitted per boundary in the table grape supply chain
Source: Authors
Pome fruit supply chain Based on the CCC sample group, Figure 7 indicates that 53% of total pome fruit emissions are produced during the packhouse and coldstore stage (including controlled atmosphere storage). Farm activities account for the least equating to 17% of total supply chain emissions.
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Stone fruit supply chain Figure 8 gives an overview of the total amount of carbon emissions emitted in each boundary of the stone fruit supply chain. The packhouse and cold store boundary accounts for 40% of the total stone fruit supply chain emissions. Transportation is identified as the second contributor to the total emissions emitted from the stone fruit supply chain, responsible for 32% of total emissions. Figure 7: Carbon emissions emitted per boundary in the pome fruit supply chain
Source: Authors
Figure 8: Carbon emissions emitted per boundary in the stone fruit supply chain
Source: Authors 198
5. Concluding remarks The study has assessed the carbon emissions embodied in key South African fruit exports to major destination markets. The study found that fruit exported through air is seven times more carbon intensive than fruits exported though sea transport. Since more than 95% of South African fruits are exported via sea, it can be concluded that South African fruits are exported using a relatively less carbonintensive transport system. Furthermore, a deeper evaluation of all four supply chains reveals that transportation constitutes the largest share of carbon emissions emitted from the supply chains. On average, transportation accounts about 45% of total emissions embodied in South African fruits, while farming activities account for about 25% of total emissions embodied in exported fruits. At farm level, the biggest contributor to emissions is the usage of electricity for irrigation pumps. South Africa uses a coal-generated electricity which consequently leads to high carbon emissions. The South African electricity emission factor is measured at 0.960 kg CO2e / kWh. It was also found that the usage of fertilisers and agrochemicals contributes the lowest share of total emissions embodied in fruits. This can be attributed to the fact that South African fruit industries conform to the highest quality and safety international standards (e.g. GAP) that require minimum usage of chemicals. At packhouse level the biggest contributor to the emissions is the usage of virgin packing material, particularly corrugated cardboard. Emissions attributed to cooling activities within the supply chain are directly related to the time spent in coldstorage. Therefore certain commodities that require more cooling such as table grape and pome fruit tend to emit high carbon emissions at the coldstore boundary.
6. Recommendations
to conduct similar assessments on an annual basis to monitor the mitigation rate of South African fruit industries to encourage the shift to renewable electricity and fuel (which could significantly reduce emissions emitted from the fruit industry) to encourage the usage of packaging material that is made from environmentally friendly sources (which could significantly reduce the emissions emitted from the packhouse). 199
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