Why open markets are our best hope to fight climate change

Comment: Claims free trade is the enemy of climate action are dangerously misleading and must be rebutted, argues head of International Chamber of Commerce

(Pic: Maersk Line/Flickr)


The anti-trade rhetoric from the US presidential primaries suggests that many Americans essentially view global economic change in zero-sum terms.

Asia rises, we decline. Economic inequality is reduced between countries, but widens at home. Globalisation is no longer something we do, it is something that others do to us. Polls show that an increasing number of Europeans feel the same way.

This zero-sum equation is even more forcefully applied when it comes to the nexus between trade and climate change. Newspaper headlines point to a raft of “secretive agreements” destined to scupper the Paris agreement before its ink is barely dry.

The narrative from campaign groups is clear: trade liberalisation comes at the cost of climate action and never the twain shall meet.

But this logic is dangerously misleading. While the global trading system is by no means perfect, open markets are still the best tool we have for increasing global welfare.

Ditch fossil fuel subsidies

Trade matters for growth, for job creation and for poverty reduction—and it matters for our environment too.

This reality was recognised at the landmark Rio Earth Summit and, more than two decades later, it is woven at the heart of the United Nations’ new global development agenda.

Viewed through this (more optimistic) lens the question we should ask is how can trade policy be properly deployed to meet the challenge of climate change? As the world’s largest business organisation, we see three areas for immediate and concerted action.

First, there must be an end to trade distortions that enable unsustainable activities or result in unnecessary waste. Fossil fuel-subsidies have no place in a climate-friendly economy and should be eliminated without undue delay.

At the same time, we must work to make trade more efficient overall. Research shows, for instance, that streamlining customs procedures—through so-called “trade facilitation” reforms—could make a significant dent in global transport emissions which today account for almost a quarter of greenhouse gas output.

Report: G7 leaders set 2025 deadline to scrap fossil fuel subsidies

Second, there is real potential to enhance the positive contribution that trade can make to speeding emissions reductions and building climate resilience.

Total global trade in environmental goods, such as wind turbines and solar panels, amounts to US$1trillion according to some estimates and is growing fast. But tariffs on some of these products are as high as 45%.

Eliminating these needless taxes at the world’s borders should be viewed as an overarching priority to speed the flow of green technologies to the places in the world that need them most.

The good news is that over 40 governments are currently negotiating a new agreement to cut tariffs on environmental goods under the auspices of the World Trade Organization (WTO).

Many thorny issues in these negotiations remain: from what products should be classified as “environmentally friendly”, through to how such an agreement can be future-proofed given the dizzy pace of technological change.

Finding answers to these questions in an ambitious deal should be a first-order priority for trade policymakers in 2016.

Report: Former WTO chief calls for ‘G90’ to tackle climate change

Finally, we need to look at how governments and businesses can most effectively utilise the global trading system to support implementation of the Paris accord.

How should competitive imbalances arising from differences in national climate policies be dealt with as a matter of global trade law? How can we ensure mutually reinforcing environment, energy and trade policies in a post-COP21 environment?

Can the WTO dispute settlement mechanism act as a quasi-enforcement instrument for the Paris Agreement?

Further attention on this crucial interface is required to support effective implementation of the Paris climate deal and to enable enhanced climate action by businesses and investors.

The 2016 Business & Climate Summit will provide the ideal forum to energise global debate on this vital agenda.

We encourage business leaders and policymakers to join us in London to help set out a focused agenda to reinforce the positive relationship between trade and climate action in the months and years ahead.

This post is part of a thought leader series ahead of the 2016 Business & Climate Summit, due to be held in London, June 28 – 29. ICC Secretary General John Danilovich will moderate a session on trade and climate.  For more information, visit the summit website.

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