Green economy  |  Publications  |  17.06.2011

Climate and Trade - Why Climate Change Calls for Fundamental Reforms in World Trade Policies

This publication from the Heinrich-Böll-Stiftung addresses the connection between global free trade and greenhouse gas emissions, the question of how trade in climate-damaging goods can be curbed, and how to best facilitate the diffusion of climate-friendly products and technologies and introduce them onto the market.

The fundamental objective of world trade policy is to limit failures in state intervention and policy measures. The aim of trade policymakers, in reducing duties and abolishing non-tariff trade barriers, has been to reduce state interventions so that the hampering of market mechanisms is kept to a minimum. Climate policymakers, on the other hand, seek a response to what they see as the greatest market failure in history: human made climate change. They take it as read that climate change cannot be solved by the ‘invisible hand’ of the market, and that further externalisation will only compound climate damage. Their aim is therefore to change the general framework of the market through interventions and to regulate the behaviour of market actors. More state or more market? This question fundamentally divides trade and climate policymakers.
Chapter 1 of this publication discusses the connection between world trade and greenhouse gas emissions. Nearly a quarter of all CO2 emissions worldwide arise from the production of internationally traded goods. Carbon leakage is occurring through international trade, insidiously but on a large scale, as industrial countries displace greenhouse gas emissions to emerging economies and developing countries. So long as reduction goals do not apply for all developing countries, the result is an increase in total global emissions. This can only be successfully controlled if export-related emissions are made transparent through systematic reporting and taken into account in the future allocation of reduction obligations.
Chapter 2 deals with the question of how trade in climate-damaging goods can be curbed. It goes on to outline the debate over border adjustment measures, concluding that at present it seems unnecessary either in the EU or in the USA to prevent emissions-intensive industries from relocating overseas by imposing a border levy. Instead it is worth asking whether trade sanctions could be an important building block in ensuring the implementation of the climate regime. In order for this to work, trade would not have to be deregulated but fundamentally (re)regulated. In the long term, a trade ban should be considered for goods produced with fossil fuels.
Finally, Chapter 3 focuses on how to best facilitate the diffusion of climate-friendly products and technologies and introduce them onto the market. This is a central question in the current climate negotiations. Trade policy promotes the liberalisation of trade with environmental goods and services, as well as foreign direct investment, yet this can run counter to the goals of climate protection and energy security. Technology transfer should be expanding the production capacity of climate-friendly industries in all countries of the global South, rather than primarily serving as a ‘green export promotion programme’ for industrial countries and some emerging economies. Alongside improved technology transfer, an intelligent regulation of foreign investment and intellectual property is suggested.


Edited extract from the introduction.


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