WTO calls for free trade in goods to cope with climate change

Last week, delegates from nearly 200 countries concluded two weeks of climate talks by agreeing to establish a fund that would help poor, vulnerable countries cope with climate disasters made worse by the greenhouse gases from rich countries. But, finance is only one part of the solution; a good trade policy framework is necessary to turn climate investment into climate transformation, says the World Trade Organization (WTO) in its World Trade Report 2022.

The WTO report argues that trade is part of the solution for achieving a low carbon, resilient, and just transition. It says about 40 per cent of the cost decline in solar panel systems is due to scale economies made possible in part by international trade and value chains. The capacity of solar panels traded across borders in 2017 reached almost 80 gigawatt (Gw), equivalent to over 9 per cent of global electricity generation. It estimates that reducing tariffs and non-tariff measures on energy-related environmental goods could increase total exports of these products by 5 per cent by 2030 and, at the same time, lead to a net reduction in carbon emissions. It can also generate about 14 million new jobs in clean energy sectors and 16 million employment in related sectors globally by 2030.

The WTO simulation analysis suggests that eliminating tariffs and reducing non-tariff measures on some energy-related environmental goods and environmentally preferable products could increase global exports in these products by $109 billion (5 per cent) and $10.3 billion (14 per cent), respectively, by 2030. The resulting improvements in energy efficiency and renewable energy adoption are estimated to reduce net carbon emissions by 0.6 per cent, while the knock-on effects of accelerating the spread of environmental innovation would do much more, including increasing the demand for ancillary services relating to the sale, delivery, installation, and maintenance of environmental technologies.

The WTO says 64 of 349 notified regional trade agreements (RTAs), explicitly contain climate change-related provisions. Some of these RTAs commit parties to effectively implement the Paris Agreement and adopt climate change policies, including carbon pricing, while a few others remove some trade and investment barriers to climate-friendly goods, services and technologies. Our government should take note that further movement on even bilateral trade treaties will be difficult without similar clauses.

The report says Sub-Saharan Africa and South Asia are expected to experience larger adverse agricultural yield shocks than other regions; and given their high share of agricultural employment, they may face more severe labour-market disruptions. Manufacturing sectors dependent on climate-sensitive inputs, such as food processing, could suffer from reduced access to raw materials.

Labour-intensive production could also be adversely affected as rising temperatures diminish capacity to work and raise risks of accidents and heat exhaustion.
 

About 70 carbon-pricing schemes are presently in operation worldwide. There are different de-carbonisation standards, almost 20 in the steel sector alone. They create confusion for producers and could potentially lead to trade frictions. Common approaches are needed in these areas and WTO can help evolve common standards and carbon-pricing schemes, says the report.

The WTO report has more takeaways for our policymakers. It is, however, doubtful if the report will get much attention from a government inclined to protecting domestic producers, giving them subsidies and preferring bilateral treaties rather than multilateralism.

Email:tncrajagopalan@gmail.com