Environmental Goods and Services: Nature and Trade.

The notion of environmental goods and services has two meanings, one related to the purely environmental sphere and the other referred to international trade. Although both are based on the concern to meet human needs with a focus on sustainability, their application is different and they only complement each other indirectly.

In the environmental sense, environmental goods are the resources obtained from nature, used by human beings as inputs in production or final consumption, such as water, minerals, wood, fruits, skins, meat, seeds or medicines. Environmental services are functions of nature that provide benefits to people and communities. They are the capacities that ecosystems have to generate useful products for man.

Environmental services are grouped into three categories:

•       regulation: climate, air quality, carbon sequestration and storage, waste decomposition, moderation of natural phenomena, wastewater treatment, erosion prevention and soil fertility conservation, pest control, pollination, and regulation of water flows.

•       supporting: vital and conservation processes for flora and fauna that in turn support other ecosystem services, such as soil formation, photosynthesis, primary production, nutrient cycling and water cycling.

•       cultural; aesthetic inspiration, cultural identity, feeling of attachment to the land and the spiritual experience related to the natural environment. Recreational and tourism activities are included in this group.

At the United Nations Conference on Environment and Development (UNCED), also known as the 'Earth Summit', or 'Rio Summit', held in Rio de Janeiro in 1992, the market for environmental goods and services was acknowledged as one of the most appropriate strategies to achieve conservation and sustainable development objectives.

This gave rise to discussions about the interaction between trade and the environment, including questions about the extent to which trade without environmental considerations contributed to the continued degradation of the planet and, conversely, about the way in which protection of the environment would limit economic activity, generating costs in terms of people's material well-being.

In this way we arrive at the second meaning of environmental goods and services. According to the definition of the Organization for Economic Cooperation and Development (OECD), environmental industry is any set of activities for the production of goods and services aimed at measuring, preventing, limiting and minimizing or remedying environmental damage caused to water, air or soil, as well as problems related to waste, noise and ecosystems.

The European Union builds on this definition and describes environmental goods and services as products manufactured or services provided for the primary purpose of:

·      prevent or minimize pollution, degradation or depletion of natural resources;

·      repair damage to air, water, waste, noise, biodiversity and landscapes;

·      reduce, eliminate, treat and manage pollution, degradation and depletion of natural resources;

·      carry out other activities such as measurement and monitoring, control, research and development, education, training, information and communication related to the protection of the environment or the management of resources.

In recent years, the concept has been expanded to include goods that make it possible to address problems arising from climate change, mainly technologies for the development of renewable energies and low-carbon solutions for transportation, buildings, and other applications.

The convergence of interest in stopping and reversing environmental deterioration, together with the desire to do business and generate economic well-being have led to the liberalization of trade in environmental goods and services, understood as environmentally friendly products and inputs that can accelerate the adoption of cleaner technologies and processes.

Increasing access to and use of environmental goods and services, along with the implementation of multilateral environmental agreements, can contribute to improving environmental quality and reducing pollution in both developed and developing countries. Trade in these sectors can also be a powerful tool for economic development by generating economic growth and employment and enabling the transfer of valuable skills, technology and knowledge embedded in such goods and services.

This liberalization consists of the reduction or elimination of tariffs and other trade restrictions for products that meet the criteria to be classified in the environmental category, as well as establishing favorable conditions for direct investment flows in this sector.

The process of trade and investment liberalization is carried out through multilateral and regional trade agreements following the guidelines of the World Trade Organization, and can offer companies incentives to adopt more stringent environmental standards. As a country becomes more integrated into the world economy, its export sector is exposed to environmental requirements imposed by major importers. The changes necessary to meet these requirements, in turn, flow backwards throughout the supply chain, stimulating the use of more efficient production processes and technologies by reducing the use of inputs such as energy, water and harmful substances for environment.

Unfortunately, there is resistance to liberalization in certain vulnerable industries in developing countries, particularly by small and medium-sized enterprises. In fact, this also occurs in sectors not related to environmental goods and services, which is why the commercial policy prevailing in many countries, mainly emerging and developing, has a high protectionist component that, with the argument of maintaining the jobs generated by existing industries, restricts the entry into their countries of products that could displace those industries.

Additionally, since there is no universally accepted definition of what an environmental good is, for the purposes of negotiations on free trade and investment, the list is still short. While Canada, Japan, and the United States have adopted broad definitions, Italy, Germany, and Norway have narrow definitions. For this reason, developing countries find it difficult for products in which they would have a competitive advantage to be included in the negotiating lists, which limits their access to the benefits mentioned above.

Notwithstanding, in addition to the dissemination and access to environmentally friendly products and technologies, trade agreements incorporate measures that directly promote the protection of ecosystems and biodiversity. In this regard, the OECD published in 2021 a report on its work on trade and the environment, in which it presents the findings of a review of the elements of environmental measures included in agreements concluded up to 2014 and which have served as a guide for those concluded afterwards.

These measures are grouped into five categories:

·      Climate change and renewable energy,

·      Transition to the circular economy

·      Biodiversity

·      Environmental labeling and information schemes

·      Digitization

Although the OECD analysis revealed that many of the agreements had not been fully implemented, mainly by emerging and developing countries, it was found that these provisions had yielded positive results, including robust environmental regulations, new institutional arrangements, environmental cooperation at the national and international level and better public awareness of environmental governance.

As an example of the measures incorporated in the agreements, in most cases they include the commitment to join or the implementation of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). This convention seeks, among other things, to combat the illegal trafficking of thousands of endangered species of birds, reptiles, fish, amphibians, mammals and plants, forest crimes, illegal fishing, as well as to integrate biodiversity and ecosystem services in areas such as legislation, land use planning, finance, taxes, research and development.

Other environmental agreements whose provisions are incorporated into trade agreements are the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal.

Trade in environmental goods and services is a powerful way to generalize access to and use of planet-friendly products and technologies and, through trade agreements, promote compliance with multilateral environmental agreements. These tools can be of enormous help for the protection and sustainable use of the resources and benefits that we obtain from nature.

Ecosystem restoration for climate change mitigation and adaptation relies heavily on the trading of carbon credits. Carbon markets have become popular since the greenhouse gas (GHG) emission reduction commitments of the Kyoto Protocol. They are now an important source of financing on a global scale for reforestation and the prevention of deforestation. In this system, an entity - be it an organization or individuals like you and me - can offset its GHG emissions through the purchase of carbon credits that delegate to specialists (such as 2°much! ) the restoration or conservation of terrestrial and/or marine ecosystems.

Another recent development strengthening the carbon market is the use of digital tokens running on the blockchain. Examples of these include Natcoin, Klima DAO, Moss, Brokoli.

By buying one or more trees you are supporting the production of environmental goods and services that benefit the planet. By doing so through decentralized finance services or DeFi, you can also benefit from economic returns. It is important to mention that this field is still in the process of maturing, there are projects with integrity and others that are not so much, many people still do not know how they work and yet it is growing at an accelerated pace, so it is certainly worth taking an interest in the subject and be part of the digital evolution in carbon markets.