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Trade Can be a Driver of Climate Action

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By Scott Vaughan, Bernice Lee, January 29, 2019

If the findings of the 2018 special report on the impacts of global warming of 1.5° C from the Intergovernmental Panel on Climate Change have yet to convince decision makers of the urgency of climate action, the economic costs of climate impacts should.

The International Monetary Fund has long warned that climate change poses the biggest economic risks to the global economy. In its latest annual risk report, the World Economic Forum has again placed extreme weather events and the failure to deliver the Paris commitments as the two top risks facing decision makers. The Asian Development Bank recently estimated countries in Southeast Asia could see a loss of 11% in gross domestic product by the end of this century.

Merging trade and sustainable development
A noticeable laggard as part of the climate solution is trade policy.

All the while, the two indicators that matter – annual emissions and average global temperature increases – are going in the wrong direction. Global greenhouse gas emissions have climbed each year since 2012. The years 2015-2017 were, according to the World Meteorological Organization, the hottest ever recorded.

This means more action engaging all economic levers is urgently needed to shift the current trajectories towards lower-carbon outcomes.

A noticeable laggard as part of the climate solution is trade policy. Certainly, actual trade in clean technologies is now substantial and markets are growing.

Yet, experts have argued that trade agreements can support and accelerate climate action, with special measures. Trade levers include getting rid of tariffs and non-tariff barriers that hinder trade in green goods and services, disciplining subsidies that support fossil fuels or other environmentally harmful products and services, and many other areas. The World Trade Organization has discussed these and other opportunities since its founding, but is incapable of acting.

All the more reason why this week’s meeting in Brussels – bringing business leaders and non-governmental organisations together to implement trade and climate action – is so welcome.

The Canada-European Union Comprehensive Economic and Trade Agreement was signed just over a year ago and carves out a number of important provisions to support climate action. All tariffs on all goods – including a growing cluster of low-carbon products and related specialised services – are now or soon will be at zero. CETA sets out new provisions to enable the exchange of professionals. It also opens new and substantial opportunities in public procurement.

Much of the conceptual work that has led to this week’s meeting has been in the works for years, driven by the Organisation for Economic Co-Operation and Development and others. The International Centre for Trade and Sustainable Development – a Geneva-based think tank that recently closed after more than 20 years of work – played an indispensable role in identifying the benefits of aligning trade and environmental protection in ways that deliver benefits measured both in higher environmental outcomes and in helping households see bottom-line benefits in terms of income and improved labour market conditions, especially in developing countries.

CETA provisions have zeroed out all tariffs while introducing innovative clauses, such as a new regulatory forum to provide a non-negotiating setting to identify opportunities for better regulatory alignment. CETA also includes novel provisions like corporate social responsibility, opening potential avenues to examine how voluntary standards championed by a long list of business in low-carbon pathways could be accelerated within a bilateral trade arrangement.

Effective climate action must involve an array of economic solutions. The world can’t wait for the crawling negotiations of the WTO to support climate action. We hope newer examples of trade agreements, including CETA, can show that they can be one part of the larger actions within markets to find low-carbon pathways. This week’s meeting is thus a welcome first step.

Bernice Lee is Research Director for Global Economy and Finance at Chatham House and Executive Director of the Hoffmann Centre for Sustainable Resource Economy.

Scott Vaughan is President and Chief Executive Officer of the International Institute for Sustainable  Development and chairman of the IISD Experimental Lakes Area Board.

This article first appeared on Borderlex on January 23, 2019.