Making the International Trade System Work for Climate Change

Context

The international trade system – the World Trade Organization (WTO) as well as regional and bilateral trade agreements – has often been criticised from a climate policy perspective, with trade rules perceived by some as a barrier to stronger climate ambition.

Looming conflicts between the climate regime and the trade system have so far been the main focus of analysts and policy-makers. This potential becomes even more relevant with the bottom-up system emerging under the Paris Agreement: each country is determining its own national contribution to global climate protection and this could lead to uneven implementation and potential trade related issues.

One of the most controversial issues is the idea that some countries could try to safeguard strong national climate policies by adjusting carbon prices at the border to protect competitiveness of their industries. However, some fear this may become a form of disguised protectionism.

Yet, as well as an obstacle, trade rules can also be looked at as something that could potentially help to achieve transformative change in climate policy. This could be done – for example – by challenging environmentally and economically damaging fossil fuel subsidies, or by liberalising trade in environmental goods and services. But progress on these issues has been slow and pathways remain unclear, due partly to a lack of communication between trade and climate policy communities and uncertainty about impacts on developing countries.

Research Team

The research is being conducted by four Climate Strategies members: Harro van Asselt (lead researcher), Kasturi Das, Susanne Droege and Michael Mehling. The project is managed by the Climate Strategies secretariat and funded by the KR Foundation.

About the Project

The project will consist of four work packages (WPs), which will be rolled out during the course of two years.

WP1 Mapping climate-trade interactions
This will be based on an extensive review of the legal, economic and policy-oriented literature on climate and trade, taking into account the Paris Agreement and the outcome of the WTO Ministerial Conference in Nairobi in December 2015. Interactions will cover issues such as emissions trading, border adjustments, energy subsidies, regulations and standards, carbon taxes, climate-friendly goods and services, and transfer of climate technologies.

WP2 Designing border carbon adjustments (BCAs) for climate protection
This will consist of a legal and political analysis of options for BCAs in the trade regime in order to identify how they can be designed to ensure political buy-in from a wide range of countries and avoid ‘carbon leakage’. Drawing on available literature and initial proposals made in the US and EU, the analysis will identify best (and worst) practices in the design of BCAs and how these could be implemented under existing WTO rules. It will also look at possible changes to the trading system that may be necessary to ensure that effective and fair BCAs can be implemented, keeping in mind the political sensitivity of the issue and potential impacts on developing countries.

WP3 Eliminating fossil fuel subsidies through trade agreements
This will include an analysis of the coverage of fossil fuel subsidies under international trade law, explaining how consumer and producer subsidies are currently – or not – covered by trade law. It will build on emerging insights on the scope and size of fossil fuel subsidies, taking into account the range of subsidy definitions used by different international organisations, in order to determine what type of subsidies may get challenged within the WTO. It will also analyse what kind of circumstances would be required to do so.

WP4 Making the international trading system work for climate change
Drawing on the insights derived from WPs 2-3, this WP will analyse and propose options for adjusting trade rules and practices to promote climate protection. These include procedural options, substantive changes in WTO law for specific issues and the option to address climate change through regional trade agreements. The WP will map and assess these options against a set of criteria, including environmental effectiveness, political feasibility, legal acceptability.

Climate Strategies will organise a series of workshops for each of the research outputs. It will also hold larger events at COP22 and COP23, or the WTO MC in 2017.  For updates on events follow us on twitter @climatestrat or check our event page on this website.

 

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