Tackling trade in trying times

19 December 2018

Trade is an unspoken element in the Paris Agreement, yet it will have broad impacts on climate change-focused nationally determined contributions.

Striking the balance between the environment and economics – and ensuring humans benefit from trade while climate change measures are in place – is a tricky act.

A new ‘rulebook’ to deliver the 2015 Paris Agreement was achieved at the COP24 global climate summit in Katowice, Poland in December.

But the role of trade, which is not directly mentioned in the Paris Agreement, is still not central despite its impacts on carbon emissions and other mitigation areas.

UNCTAD and the trade community are working to make trade part of the climate change solution.

This was the subject of a debate on fiscal policy, financial markets and trade on the sidelines of COP24.

Climate Change

The discussion highlighted research and perspectives on the interrelationship between trade and climate change from the International Fund for Agricultural Development (IFAD), International Monetary Fund (IMF), UNCTAD, United Nations Environment (UNEP) and World Trade Organization (WTO).

A key concern for UNCTAD is the potential in and necessity of the expansion of global value chains (GVCs) for economic diversification of developing and least developed countries’ economies facing the biggest environmental threats.

New methods that take into account climate change’s impact on everything from infrastructure to trade flows, while factoring in green methodologies to keep countries on track to meet the mandates of the Paris Agreement on climate change, need to be considered.

This is difficult when trade is neither mentioned nor discussed in the forums focused on climate change, UNCTAD believes. 

“Both trade and climate change are central to the 2030 Agenda of the United Nations. But trade has become a taboo subject when talking about climate change. This should not be the case,” said UNCTAD senior economic officer Alexey Vikhlyaev, speaking at COP24.

“We need to shift the focus from seeing trade as a part of the climate change problem to accepting that as climate change effects are seen, countries – many developing and least developed – will be looking for new ways to upgrade their economic and social systems and value chains.”

“This will happen both as a response to climate change and an economic necessity. Many developing, and least developed, countries have to look at ways to diversify their economies from overdependence on oil, energy intensive trade-exposed goods, tourism and agriculture.”

While there is no mention of trade in the Paris Agreement, several nationally determined contributions (NDCs) contain trade elements.

This means signatories must consider trade in compliance efforts.

NDCs is a term for reductions in greenhouse gas emissions that all signatories to the United Nations Framework Convention on Climate Change (UNFCCC) were asked to publish in the lead-up to the 2015 United Nations Climate Change Conference in Paris, also known as COP21.

Balancing trade and climate scales

Trade has always been thought of as part of the problem in climate change. But it could and should be part of the solution as well.

UNCTAD’s work, discussed on the panel, brings into focus the large and unexplored role of trade in implementing the Paris Agreement.

“We want to promote a positive agenda on climate and trade, demonstrating how they are linked and what the co-benefits are,” Mr. Vikhlyaev said.

“It is common to think of trade as competing with climate change. However, trade has an enormous cooperation potential. For instance, trade can shorten distances in the delivery of goods and services.”

Response measures and their impacts can also be an opportunity for cooperation between trading partners.

“The challenge is changing the approach from trade restrictive measures to figuring out how trade can help countries share the benefits of transforming their economies,” he said.

But co-benefits, or win-win outcomes, do not mean there are no losers.

“The current disaffection with globalization is rooted in the same legitimate concerns that give rise to the desire for a just transition, mainly concerns about the inequity of economic transitions. How these are balanced, taking climate change into consideration, is critical,” he said.

UNCTAD has developed a concept note on climate policies, economic diversification and trade, to highlight the big issues and debates – and to highlight trade in climate debates.

Trade on the table

The IFAD, IMF, UNEP and the WTO have all recognized the centrality of trade and climate and fiscal policy in their recent work.

UNCTAD’s work focuses on the role of trade in delivering and ratcheting up NDCs, as well as on promoting cooperative approaches to response measures.

The WTO and UNEP’s recent joint study, “Making Trade Work for the Environment, Prosperity and Resilience”, sees trade as an “amplifier” in achieving the objectives of the Paris Agreement.

The study, presented at the panel, underscores that the WTO and WTO rules can make a positive contribution to climate action by ensuring that trade-related measures are coherent and fit for purpose.

The panel also discussed carbon pricing and other mitigation policies and the importance of mobilizing climate finance as important in the trade-climate change debate. 

Promoting a better understanding of the economics-environment contradiction, and areas of convergence will be part of ongoing UNCTAD efforts.