While trade is often considered to be a driving force of carbon dioxide emissions and climate change, I take the unconventional view that trade agreements have tremendous potential as legal instruments to help mitigate climate change and drive and deliver sustainable energy.
Trade agreements have been powerful instruments for change, including for poverty reduction (between 1990 and 2010, international trade helped lift one billion people out of poverty) and the protection of human rights (75% of national governments are involved in trade agreements with provisions for human rights). So why not use trade agreements as a novel tool to fight climate change, foster green growth and enhance sustainable energy, given that they are legally binding, unlike traditional environmental agreements?
In Trade Redemption: How Trade Agreements Can Help Decarbonize the Economy, I argue that this is an area that is currently under-explored, and the chapter spotlights existing knowledge gaps in energy trade governance. This research was developed to facilitate the creation of the planned European Energy Union, which aims to deliver secure, affordable and climate-friendly energy, but the suggested approach could potentially be replicated in other regions.
Trade as a vehicle for climate action and sustainable energy
The potential of the trading system to help mitigate climate change and enhance sustainable energy is enormous and can help achieve the sustainable development goals (SDGs). However, many substantive questions remain to be answered:
What are the trade instruments that best deal with climate action, bearing in mind that there is much public opposition to trade agreements? What kind of trade regime do we need to create for the great transformation of decarbonization? What should be the role of the trading system in reducing fossil-fuel consumption? In accordance with Article 4.2 of the Paris Agreement on Climate Change, how do the nationally determined contributions (NDCs) integrate with the trading system, taking into account that, unlike trade, they are a global public good? What will be the impact for investment flows, say, to expand carbon sinks? How can trade policy attract investments in climate action? How can trade policy help climate action? How can fossil fuel subsidies be reconciled with attempts to integrate the trade and climate change regimes? What is the role of fossil fuel subsidies and border tax adjustments in this equation? Is there a deficiency in the law of the World Trade Organization (WTO) regarding fossil fuel subsidies? Since the trading system should support sustainable development, has globalization (personalized by the world trading system) been de-legitimized? Will greater cooperation between both regimes be possible, in light of the current political threats to internationalism? Is the fact that the Paris Agreement offers a territorial approach to climate mitigation an issue for international trade? How will emerging technologies and business models affect both the trade and climate change regimes in the future?
What are the main messages for research and policy?
While we can certainly use trade law as a vehicle for climate action, sustainable energy and for achieving the SDGs, there are many unanswered questions about how exactly the trading system can be used as a vehicle to mitigate climate change, enhance energy security and foster green growth. Each of these questions could potentially be considered as a new horizon for scholarship and research.
In particular, further research is required to gain understanding of how trade can support renewable energy, potential synergies between the international trading system and the climate regime, and the role of trade in other sustainability issues (for example, gender).
An interdisciplinary approach that includes non-economic aspects of trade policy – including law, political economy, international relations and environmental protection – can help us develop a holistic analysis of the ever-growing and complex interface between trade and renewable energy.
Moreover, we must address the fragmented system of trade and renewable energy governance. It hinders transnational energy flows and, despite apparent overlaps between institutions and regimes involved in renewable energy trade governance, perpetuates significant gaps in the system. Achieving a more cohesive governance system will help to avoid unnecessary legal disputes, provide predictability, facilitate renewable energy usage, and ultimately help deliver clean and renewable energy for all.
The international community should agree on a gradual phase-out and eventual prohibition of fossil fuel subsidies, and we should allow non-discriminatory purchases of climate-friendly environmental goods and services under the WTO Government Procurement Agreement (GPA), while encouraging more WTO Members to accede to that Agreement. Subsidies should go to the renewable energy industry. A multilateral scheme for renewables subsidies may fall under permissible subsidies under the WTO’s Agreement on Subsidies and Countervailing Measures (see The Wrong Rules for the Right Energy: The WTO SCM Agreement and Subsidies for Renewable Energy).
Finally, there is a need to develop, adopt and enforce a framework for a global Emissions Trading System and border measures. Border tax adjustments can be perceived as a carrot to avoid or minimize a loss of economic competitiveness and to avoid carbon leakage, or as a stick to spur climate action.
Any futher insights?
Here below are some additional insights, not necessarily in order of importance:
- Preferential Trade agreements (PTAs) are worth exploring as a tool for promoting renewable energy and climate change mitigation.
- Citizen participation in energy policy decision-making processes is key to successful policy development and implementation.
- Creative avenues for international dialogue between finance and climate change ministers, instead of trade and climate change ministers, is very promising, especially as countries start to feel the economic effects of climate change and extreme weather.
- Climate action via the formation of “climate clubs” can promote green energy transfer among club members, and a club approach would overcome free-riding issues of climate change mitigation.
- Fostering sectoral approaches in key sectors including aviation and shipping will be key moving forward.
I invite you to read more in Trade Redemption: How Trade Agreements Can Help Decarbonize the Economy.