Tim Harding, Associate Director and International Trade Lead
COP27 has been framed as being all about implementation, with delegates looking for substantial but practical solutions to a challenge of immense scale: A report commissioned by the UK and Egyptian governments estimated developing nations will require $2 trillion per year by 2030 for energy transition alone. International trade can play a pivotal role driving climate improvement and make progress on this implementation gap, if only governments and businesses seize it.
Last week, World Trade Organization Director-General Ngozi Okonjo-Iweala presented a report to COP27 delegates urging for trade to be embedded as a cornerstone of climate action. The report conveys four main messages:
- Climate change is a major threat to future growth and prosperity;
- Trade is a force multiplier for countries’ adaptation efforts in the face of climate disruptions;
- Trade can reduce the cost of mitigating climate change and speed up the transition to a low-carbon economy; and
- International cooperation on trade-related aspects of climate policy is vital for making climate actions more effective.
The notion of free trade bolstering economic development is not new. But extending this thinking to the climate crisis has raised some tricky conversations between developed and developing nations at this year’s summit.
The calls by developing nations for climate ‘reparation payments’ have been challenging for Western leaders to engage with politically at a time when domestic finances are gripped by inflation and debt-to-GDP ratios are rising. In the UK, for example, it prompted difficult discussions about funding for loss and damage in other countries while at home the Government has proposed significant spending cuts that will affect its own public services and support networks.
Meanwhile, the EU, Japan and South Korea have questioned whether incentives (effectively subsidies) included in President Biden’s Inflation Reduction Act, hailed as ground-breaking climate legislation by the White House, fall foul of WTO rules. Local content provisions in such legislation also run the risk of erecting de facto trade barriers that exclude developing nations.
The diplomatic challenges in these conversations are clear, and UN Secretary-General Antonio Guterres warned on Thursday of a “breakdown in trust north and south, and between developed and emerging economies.”
COP26 saw the Clydebank Declaration put in place to establish green shipping corridors, with signatories from 24 nations, a commendable achievement in tackling the emissions from trade itself. Now the conversation at COP27 and post-COP needs to focus on free trade.
Reducing trade barriers and bolstering green industries and green investment in emerging economies will provide domestic supply of the technologies that are required to combat climate change in the places that will be hardest hit by its effects. Trade can also be an answer for Western nations gripped by inflation, where pressure to reduce aid spending can be deflected towards funding more supportive trade practices.
Ahead of COP26, we recognised that free trade and free trade agreements absolutely have a role to play in delivering on climate commitments. This is more easily manoeuvred within bilateral agreements, but the climate crisis demands a far stricter timeline for action and global perspective than the current bilateral trade deal process allows. Even though trade, and better trade agreements and economic partnerships specifically, can be central to emissions reduction and low-carbon and zero carbon investment, we are still not there.
The outcomes of COP27 for trade must be more multi-lateral and more progressive. Finding consensus on this in Egypt has not been straightforward, but world leaders can no longer allow politically driven trade disputes to stall global climate diplomacy or climate action.
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November 20, 2023
November 15, 2023