Climate change and trade agreements Friends or foes?

The Intergovernmental Panel on Climate Change (IPCC) has shone a spotlight on the devastating humanitarian consequences the world can expect if global warming exceeds 1.5°C. Despite the 2015 Paris Agreement, most countries’ climate policies show a chronic lack of ambition and the world remains on track for temperature increases of more than 3°C. Against this backdrop, the world needs transformative solutions.

In climate policy discussions, relatively little attention is paid to the global trade architecture. Bilateral, regional or World Trade Organisation (WTO) trade agreements could help to meet climate goals—for example, by removing tariffs and harmonising standards on environmental goods and services, and eliminating distortionary and poorly designed subsidies on fossil fuels and agriculture.

Despite the potential for trade–climate synergies, the weight of historical evidence is heavy in the other direction. Universal tariff reduction has increased trade in carbon-intensive and environmentally destructive products, such as fossil fuels and timber, more than it has for environmental goods.

In some cases FTAs can also shrink the “policy space” available to countries to pursue environmental goals, for example if they prohibit, or are perceived to prohibit, a country’s ability to distinguish between products according to emissions released during their production. This report assesses the degree to which the WTO and four contemporary free trade agreements (FTAs)—CPTPP, EU–Singapore, EU–Canada and Korea–Australia—support seven opportunities for boosting climate-friendly trade flows.

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