COP27 Side Event: Accelerating the Low-carbon transition through sustainable and inclusive trade
10 November 2022
Dear Pamela Coke-Hamilton, Executive Director of the International Trade Centre,
Dear Rabab Fatima, High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States,
Dear Inger Andersen, Executive Director of the United Nations Environment Programme,
Dear Kanayo Awani, Executive Vice President of the Intra-African Trade Bank, Your Excellencies,
Ladies and Gentlemen,
In this room, we all agree on the need for the transition to low carbon economies. We all agree that this transition is urgent. And we all agree that trade can play a role. So, we agree on the “what”.
But now we need to agree, and fast, on the “how”.
The climate change clock is ticking, and trade in many developing countries depends on sectors that are severely affected by climate change, such as agriculture, fisheries, or tourism.
With warming temperatures, the survival of these sectors is under question.
Trade has the power to stir economies towards the track of sustainability and resilience.
But it needs the right incentives, the right policies, and the right funding arrangements.
This is central for micro, small and medium size enterprises, which employ around 70 per cent of the workers in developing countries.
These enterprises are the backbone of economies, and their ability to adapt and contribute to the energy transition will determine the effectiveness and inclusiveness of our climate agenda.
Now, what does this imply?
First, it means diversification as diversification is key for resilience.
Developing countries, and their MSMEs, must explore options to diversify within sectors, and into new sectors, where their comparative advantage is expected to increase, also when considering future climate impacts.
And there are opportunities.
Many developing countries have much potential to participate in the production and trade of non-fossil fuels, such as those based on solar, wind, geothermal, hydro, or biomass energy.
For products that maintain potential with a changing climate, it is important to transition from exports of primary products, into exports of higher value-added products.
As the demand for climate conscious products will be increasing, linking to ‘climate- conscious’ international products can be an opportunity for MSMEs to access knowledge, standards, and competitiveness.
But meeting these standards can be challenging to implement, especially in countries with patchy institutional capacities.
Second, the energy transition implies a change in the business model.
We need more use of renewables in production, more circular business models, more digital technologies, and more sustainable oceans practices.
MSMEs that are exposed to international trade are, in fact, especially likely to adopt environmental improvements in their operations owing to competitive pressure.
But these risks leaving behind those that are least exposed to international trade – the ones, indeed, that are already most left behind.
Here, policymakers must step in and fill the gap.
And those companies who are capable of transitioning already, should lead by example, and show the way.
Third, lastly, we require changes in policy – at the national and international level.
The energy transition cannot happen without the right incentives.
At the national level, we must reduce fuel subsidies and incentivize alternative energy production through increased investment in renewable energies, technologies, and capabilities.
Government and international finance institutions, and particularly multilateral development banks, must crowd-in investments and offer much-needed technical assistance.
These conditions are needed for sustainable MSMEs to flourish.
But at the heart of the problem is the issue that in many developing countries, millions of people still lack access to energy.
For many governments, the priority policy objective remains closing this energy access gap by any means possible.
This is why international policy is so important.
The right international policies can ensure that governments in the developing world close the energy access gap through renewables, and not through fossil fuels.
Also in the international arena, tariffs, and non-tariff measures, particularly on agriculture products, can act as an impediment for climate adaptation and diversification.
These need to be adjusted.
Similarly, amendments to the WTO Subsidies Agreement and the Agreement on Trade-Related Investment Measures – TRIMS – are needed to support the ability of MSMEs to participate in renewable energy value chains, such as through allowing subsidies for incorporating local content, or for allowing local content requirements related to investment.
And of course, there is the long-standing issue of technology transfer.
Without transfer of green know how and technologies, the energy transition will be slow and elusive.
We need to ensure these technologies flow to the global south and its MSMEs. Technologies are key to make the low-carbon transition a high-growth transition.
Ladies and Gentlemen,
The low carbon transition is one of the most pressing challenges we face. It is vital that we enable MSMEs to make this transition.
For this, we need diversified economies, changed business models, and inclusive national and international policies.
I wish you an engaging discussion ahead.
There is no time to lose.