Be wary of growing exports

News: Russia’s invasion of Ukraine and the western sanctions on Russia, and Sri Lanka’s ongoing struggles have created export opportunities for countries such as India. However, there are environmental concerns into it.

What are the issues?

The developed countries consume polluted goods which are produced elsewhere like China and India. Such exports from developing countries are said to be carbon emissions-embodied products

About Net CO2 exports

It can be calculated by taking the difference between carbon emissions-embodied exports and carbon emissions-embodied imports.

Global Trends

(A) Net CO2 Export

China is the largest exporter of carbon emissions-embodied products, followed by the U.S., Russia and India.

China’s net exports began to decline from 2007-08, whereas India ‘s net CO2 exports or carbon emissions-embodied products started to steadily increase in that period. India’s recent export performance has been attributed to petroleum products, electronics and chemicals.

India’s agricultural and food export items involve virtual export of depleting natural resources such as water. For example, Rice export.

Net CO2 Import

Most developed countries, for instance, the OECD member 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.

Why did the development countries become Net-CO2 import countries?

Pollution haven hypothesis

Due to the stringent environmental measures adopted by developed countries, pollution-intensive industries relocate from developed countries to developing countries. They impose an environmental tax to address a broad spectrum of environmental issues. For example, in OECD countries, the tax roughly constitutes 2% of the GDP.

The destination countries have the lowest environmental standards/weak enforcement of environmental standards in order to cut resource, labour costs among other costs. For example, the environmental tax in India is around 1%. Further, the tax as a percentage of GDP has marginally come down from 1.38% in 2005 to 1.07% in 2019.

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.

Consequences of such export

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

The virtual water trade will have an adverse impact on long-term sustainability and food security in India.

For example: (1) the agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7% in 1993 to 36% in 2022, and (2) The total per capita renewable water resources have also declined from 1909 cubic metres to 1412 cubic metres during this period.

Way forward

As per the water use efficiency index, there has been an overall improvement in water-use efficiency.

Strict environmental measures need to be explored in order to ensure long-term sustainability. For example, increasing the environmental tax, water-saving policies to promote sustainable production of rice and also safeguarding food security in the country.

Source: The post is based on an article “Be wary of growing exports” published in the “The Hindu” on 26th May 2022.

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