ICC speaks with Geneviève Pons on the alignment of trade and climate policy

Trade and environmental policies are oftentimes developed in separate silos. How can we better align these issues?

Ms Pons:

Breaking the silos is exactly what Pascal Lamy and myself are trying to do at the Jacques Delors Institute by putting together our respective expertise in the fields of trade and environment! It means efforts but also enrichment for both of us.

On the global scale, there is a historical imbalance between an old and powerful trade system and more recently created and sometimes weak environmental organizations. The link between the United Nations Environment Program (UNEP) and the World Trade Organization (WTO) should be strengthened. They have been working together and have published very insightful reports on the trade/environment nexus. But it is not enough: UNEP, such as many other environmental organizations or conferences (CITES, Basel, Intergovernmental Conferences like IPBES or IPCC) should play a bigger role in WTO negotiations.

At the European level, there is a desire to “break the silos”, in particular through the designation of Vice Presidents overseeing a broad range of matters. The appointment of Frans Timmermans as Executive Vice President in charge of the Green Deal sends a positive signal. His impressive portfolio and his experience should give him a strong influence inside this Commission. However, trade does not belong to his portfolio and trade-offs inside the Commission will still be necessary.

On trade policy, the solution should come from a better integration of environmental considerations into trade agreements and instruments. Progress has already been made in this respect with the so-called “new generation” of some bilateral and regional trade agreements (CETA, JETA, Mercosur), which include a chapter on sustainable development. However, as reactions of the public opinion show, this is not enough and these provisions should be reinforced to be more effective. The implementation and impact of trade agreements could be better monitored via upgraded Sustainability Impact Assessments. A step further would be to make the implementation of the Paris Agreement an “essential element” which, if breached, can result in the suspension of the agreement.

The 2019 European Union (EU) elections demonstrated impressive gains for the European Green Party. How will this support translate at the national level?

Ms Pons:

The European elections’ electoral sociology is not entirely comparable to national elections as fewer citizens, coming from other segments of the population, are going to the polls for the European elections. The elections of May 2019 resulted in a number of novelties: increased participation, especially among young people, a more diverse pro-European majority as well as prevalence of environmental and social issues in the voting choices. As for the green wave, it is mainly the result of a massive mobilization of educated urban youth, which as we know, goes ways beyond our continent, demanding more Europe, and more of a Europe that responds to the climate crisis.

However, this mobilization has been much stronger in northern and western Europe than in eastern and southern Europe. These differences in priorities reflect differences in levels of development and sensitivities and raise the question of the social aspects of the energy transition. Without a social approach to the energy transition, it will be difficult to convince people in Poland, for instance, whose jobs are threatened by the exit from coal, to embark on this societal endeavor.

On this subject, the Jacques Delors Institute has proposed concrete measures to make the energy transition a European success.

What are the most realistic and meaningful policy options for mitigating climate change while not resorting to protectionism?

Ms Pons:

Protectionism is not an option. Empirical research shows that increasing tariffs or implementing barriers to trade is not an efficient way to fight climate change as an important increase in tariffs (from 5 to 17%) will result in a significant impact on growth but a modest reduction of CO2 emissions by 2030 (3.5%; 7 times less than the reduction in emissions from the full implementation of the Paris Agreement).

We must find multilateral solutions, give a price to CO2, whatever way we do it, either with taxation or with regulation or emission trading schemes which now exist in a growing number of countries. It is a path on which Europe is now better engaged, thanks to a rather successful reform of its Emission Trading Scheme (ETS), which has brought the price of a ton of CO2 above €25.

In order to solve competitiveness or carbon leakage problems stemming from different CO2 pricing systems, various carbon adjustment systems have been proposed. They all raise complex technical issues.  Two options seem to be interesting:

• Implementing an ETS-based border adjustment measure. It could be directly applicable to imported products entering in the field of application of the ETS, and subject to border controls.
• Another option consists of imposing a simple tariff on all imports from countries that do not respect, de facto or de jure, international environmental agreements, starting with the 2015 Paris Agreement (Nordhaus option). Such a tariff could be graduated and modelled on the existing EU GSP (General System of Preferences) and should not penalize clean producers in foreign countries.

What is the stance of the Jacques Delors Institute on the nexus of climate change and trade policy?

Ms Pons:

Trade is sometimes targeted by public opinion as responsible for all the ills of the planet. We explore the theories that sustain that trade is good for the environment as well as the ones that put accent on its negative effects, without being convinced by any of them.

We also look with attention at the hypothesis that the core of the problem is elsewhere, in our growth model that under values our natural resources, leading to over exploitation of these resources. Putting the right price on them should guide both our growth model that should evolve from an economy of exploitation towards an economy of regeneration and our trade flows.

Putting the right price on CO2 and other common goods is the royal way to a new model of development. However, it is not likely to happen in the short term. Meanwhile several second best solutions can be implemented to reduce the negative impacts of trade (end harmful subsidies, modulate tariffs according to carbon content or environmental impacts…) and put it at the service of the ecological transition (new generation of bilateral and multilateral agreements, ambitious norms applicable to imported goods, certifications schemes, labels…).

A list of these second best solutions can be found in our first paper published in July 2019.

How does the Jacques Delors Institute engage with European policymakers and business leaders to promote the adoption of green trade policies?

Ms Pons:

The Jacques Delors Institute is known to be influential in various circles, starting with EU institutions, but also business and civil society, including trade unions. In the continuity of the paper mentioned above, the Jacques Delors Institute has undertaken to publish a series of  papers on available solutions to green EU trade policy.

It is very important for us to follow what is happening and what is being thought about on these issues to continue to respond as accurately as possible to the question: how to put trade opening at the service of environmental protection?

We have presented our first paper to the press and to main stakeholders in September in Brussels and recently at the Sustainable Development Forum of the International Trade Center and will continue this effort of promotion.

ICC consultation series on trade and climate

Over the coming months, ICC will be organising a series of consultations to gather business leaders, policymakers, academic experts, and economists to discuss the nexus of international trade and climate change.

Launched on the sidelines of this year’s UNGA, the first consultation examined the feasibility of a WTO climate waiver with Jim Bacchus, author of The Willing World: Shaping and Sharing a Sustainable Global Prosperity and chairman of the ICC Commission on Trade and Investment Policy, chairing the conversation.

The next edition in this consultation series will take place on 22 November 2019 on Border Adjustment Taxes at ICC France Headquarters in Paris. The conversation will be moderated by Rodolofo Lacy, Director, Environment Directorate, OECD with opening remarks by Nikolaus Schultze, ICC Director of Global Policy.