Are Climate Policies and Trade Policies on a Collision Course?
How can countries reconcile their climate and trade commitments? That’s the question moving to the forefront of public consciousness, according to Adam Creighton, the Washington correspondent for The Australian. Moderating the discussion on Climate and Trade Commitments, Creighton noted that “the urgency of addressing climate change is intensifying” in light of a recent Intergovernmental Panel on Climate Change (IPCC) report spotlighting the “irreversible” impacts of global warming.
This educational program was developed by the Association of Foreign Press Correspondents in partnership with the Hinrich Foundation (www.HinrichFoundation.com).
According to Stephen Olson, a Senior Research Fellow at the Hinrich Foundation, trade policies and climate policies are, at least to a certain extent, on a collision course as climate change accelerates. The European Union’s proposed Carbon Border Adjustment Mechanism (CBAM), a carbon-pricing system for imports into the European Union, arguably runs contrary to some of “the most foundational precepts of our global trade rules and global trade architecture"; for instance, the Most-Favored-Nation (MFN) principle, which essentially states that you cannot discriminate among members of the World Trade Organization (WTO). Adjudicating the WTO-legality of the CBAM would be a complicated mess and the outcome would be unclear.
For Aaron Cosbey, a development economist with 30 years’ experience in the law and economics of sustainable development, it is evident that the world will see more collisions in the future, particularly because climate policies "are starting to get more meaningful" as countries continue to work out plans to meet climate mitigation objectives. He notes that many of these countries have put these commitments into international law, as the science behind climate change, public perception of its impacts, and technological trends drive more ambitious climate policies.
Cosbey points out, however, that “in a world of uneven climate ambition", it is inevitable that conflict may arise “between what is allowed under trade rules and what tends to be done” under mechanisms like CBAM.
The hour-long discussion that followed touched on issues within trade governance and what form increasing tensions between climate and trade objectives might take – issues pertinent to journalists specializing in foreign affairs, climate policy, and economic policy. Below, readers will find a summary of the most important takeaways from the presentation and the subsequent Q&A segment.
ON THE “COLLISION COURSE” BETWEEN TRADE AND CLIMATE POLICIES:
Climate change has made clear “how difficult it is going to be to reconcile our trade governance... with our climate and environmental goals,” says Olson, who, along with Cosbey, points out that:
● CBAM would raise WTO compliance questions, motivating countries to file dispute settlement cases.
● There are multiple “flashpoint” issues, such as the implementation of subsidies and incentives to purchase electric vehicles produced in the United States, that are “good news” from an environmental point of view but that risk impairing relationships with the trade ministers of Canada and Mexico and could be construed as a flouting of US obligations under the United States–Mexico–Canada Agreement (USMCA), which proposed the creation of “a single North American production base in the automobile industry.”
● “Wrapping up” carbon prices domestically demands that you also compensate for the fact that you put domestic producers at the risk of “leakage” because climate change emissions increase due to industries relocating elsewhere, undermining efforts to respond to climate change on a global scale.
● Complainants to the WTO will ultimately fail to change measures like CBAM.
ON THE ROLE OF THE WTO
● While it is true that nations cannot discriminate between products under the General Agreement on Tariffs and Trade (GATT), it is also true that there exist exceptions for certain types of regulations, such as environmental ones, that countries have acknowledged supersede other obligations under GATT.
● In the long term, the WTO may be forced to contend with an organization-wide legitimacy crisis amplified by “years of erosion of trust in multilateralism.”
● Reforming the WTO has proven difficult because the organization is full of "broad, vague, self-judging exceptions that have never been tested before" and it is difficult to reach a consensus between nations of varying degrees of development.
KEY QUESTIONS
Olson explores the importance of trade considerations between climate policy and environmental objectives, stressing the “complexity” of navigating countries’ individual systems and the resulting administrative burden that will culminate in “major trade issues” that would deal significant damage to small-to-medium enterprise.
Cosbey explores how there is a “fundamental crisis” on the question of dealing with “sticks,” defined as carbon pricing and regulation, and a less obvious one on the question of “carrots,” long-term policies such as the Biden administration’s reworked Build Back Better (BBB) initiative, underscoring the tension between green industrial policy objectives and trade objectives.
