Be wary of growing exports

The growing consumption in rich countries has come at a cost for developing countries such as India

Updated - May 26, 2022 02:33 pm IST

Published - May 26, 2022 12:15 am IST

Farmers plant saplings in a rice field on the outskirts of Ahmedabad

Farmers plant saplings in a rice field on the outskirts of Ahmedabad | Photo Credit: REUTERS

The uncertainties in the global economic environment, significantly driven by Russia’s invasion of Ukraine and the resultant sanctions on Russia by the West, along with Sri Lanka’s ongoing struggles to stay afloat amidst a deepening crisis, have all been believed to have created export opportunities for countries such as India. However, this well-celebrated export spike needs to be viewed with a pinch of salt.

Emissions-embodied exports

The 2009 United Nations Climate Change Conference in Copenhagen witnessed a vociferous argument from countries such as India and China that developed countries who are consuming polluted goods produced elsewhere also have an obligation to clean up the mess. The data available from the Organisation for Economic Co-operation and Development(OECD) indicates that India is one of the leading exporters of carbon emissions-embodied products, and that there is a steady increase in the total carbon emissions embodied in exports. China is the largest exporter of carbon emissions-embodied products, followed by the U.S., Russia and India. India’s total carbon emission exports increased from 80.3 million tonnes at the time of it joining the World Trade Organization (WTO) in 1995 to 426.1 million tonnes in 2018. The sharp increase in carbon-embodied exports brought India closer to that of the U.S.’s carbon emission exports. In the case of the U.S., carbon emission exports were more or less stagnant between 1995 and 2018.

Net CO2 exports can be calculated by taking the difference between carbon emissions-embodied exports and carbon emissions-embodied imports. The striking difference between China and India is that while China’s net exports began to decline from 2007-08, net exports in India started to steadily increase in that period. While India’s net exports of carbon emissions were observed to be the lowest in 2007 (-11.6 million tonnes), at present the net exports are 55.4 million tonnes. Another way of calculating the net export of carbon emissions is by taking the difference between domestic carbon emissions embodied in gross exports and foreign carbon emissions embodied in gross exports. By using this definition also, there is a steady increase in net exports of carbon emissions from India. In 1995, net exports were 75.8 million tonnes; it increased to 372 million tonnes in 2018.

India’s recent export performance has been attributed to petroleum products, electronics and chemicals. Although net carbon emission exports have been declining in the case of chemicals and electronics as imports have been rising at a greater rate, the carbon emissions-embodied exports of all these products have been steadily increasing over the years. For example, the domestic carbon emissions-embodied exports of chemicals was only 2.1 million tonnes in 1995, which increased to around 9.8 million tonnes in 2018. Similarly, carbon emissions exports of electronics increased from 1.3 million tonnes to 8 million tonnes, and exports of petroleum carbon increased from 6.6 to 25.5 million tonnes during this period. The net exports of carbon emissions have also been increasing in the case of petroleum products.

Most developed countries are the net importers of polluted goods produced elsewhere, especially in the developing countries. The largest net importers of carbon emission-intensive goods are the U.S., Japan and Germany. The U.S. net carbon imports increased from 262.3 million tonnes in 1995 to 834.1 million tonnes in 2018. The OECD member countries which are developed are net importers. Due to the stringent environmental measures adopted by developed countries, pollution-intensive industries show a tendency to relocate from developed countries to developing countries with the lowest environmental standards/weak enforcement of environmental standards in order to cut resource and labour costs — a phenomenon researchers term as ‘pollution haven hypothesis’. Thus, developing countries that are lax in enforcing environmental policies eventually become pollution havens.

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One could possibly argue that an increased GDP as a result of expansion in export revenue can be utilised for improving the environmental quality. As per the environmental Kuznets curve, there is an inverted U-shape relationship between the income of a country and its environmental degradation. This implies that as income increases, environmental quality begins to deteriorate, but improves after some time. However, there is no consensus across studies with respect to this possibility.

Coming to the exports of agricultural and food products, India is virtually exporting some of its depleting natural resources such as water through exports. India is the leading exporter of rice in the world market. Given that rice is a water-intensive crop, India is indirectly exporting water to other countries. This virtual water trade will have an adverse impact on long-term sustainability and food security of the country although there has been an overall improvement in water-use efficiency. (As per the water use efficiency index developed as part of the sustainable development goals, water efficiency has risen from 0.95 ($/m3) during the period 1993-97 to 3 ($/m3) during the period 2018-22.) The agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7% in 1993 to 36% in 2022. The total per capita renewable water resources have also declined from 1909 cubic metres to 1412 cubic metres during this period.

The way forward

The growing consumption in rich countries has come at a cost for developing countries such as India. Countries have begun imposing an environmental tax to address a broad spectrum of environmental issues. For example, in OECD countries, the tax roughly constitutes 2% of the GDP. While the environmental tax in India is around 1%, the tax as a percentage of GDP has marginally come down from 1.38% in 2005 to 1.07% in 2019. In order to ensure long-term sustainability, strict environmental measures need to be explored, such as revisiting the possibilities of increasing the environmental tax, even though the short-run implications, especially on the trade front, may not be pleasant. Similarly, water-saving policies that seek to improve the water use efficiency are also the need of the hour, in order to promote sustainable production of rice and also safeguard food security in the country.

Poornima Varma is faculty and chairperson at the Centre for Management in Agriculture, Indian Institute of Management Ahmedabad. The views expressed are personal

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