Why the Bonn Climate Agenda must shape UK trade

Posted on June 08, 2023
Bonn Climate Change Conference June 2023

Global leaders are meeting in Bonn to discuss progress on key climate commitments. At the same time, a number of countries, including the UK are looking at climate-related trade measures. Yet these agendas are discussed in silos, with potentially devastating consequences for developing countries.

China, the US, the EU27, Russia and Japan account for 68% of emissions globally. At the same time, countries such as China, Saudi Arabia and the United Arab Emirates have either high overall or high per capita emissions but much of this is embedded in products such as oil, gas, steel and cement that they sell to wealthy countries including the UK, EU and US.

Estimates suggest that we need to get to a global average of 2.5 tons per capita to keep warming to 1.5 degrees. By this measure, African countries, at around 1 ton per capita, have not only met their commitments, they have room to grow to support their development ambitions.

This is one of the reasons why the climate talks are based on the principle of ‘Common but Differentiated Responsibilities’ (CBDR): those who have polluted the most, and benefited from it economically, must put in the most effort to address the problem. There is therefore little doubt that the countries who most urgently need to drastically cut their emissions are the ones listed above.

Yet in the trade space, wealthy countries are poised to introduce a range of measures that are likely to be applied with little if any reference to CBDR. A clear example is a Carbon Border Adjustment Mechanism (CBAM) which is about to be introduced by the EU and on which the UK is currently consulting. The aim of a CBAM is to ensure that domestic companies that are reducing their emissions are not undercut by imports from other countries with less stringent climate policies, where production is therefore likely to be cheaper. There is a logic to this: what’s the point of country A introducing ever tighter emissions targets if production just switches to high pollution sites in country B.

The problem with the EU border tax is that it is a blunt instrument: it will apply to all polluting industries no matter which country they are based in or what the overall emissions of that country are. In the early days of the CBAM’s development, there were proposals to include exemptions for poorer countries and direct the funds from the tax to them to support climate measures, but these were scrapped. A recent study from the London School of Economics and the Africa Climate Foundation finds that the EU tax will probably cost Africa US$25 billion. This figure is one quarter of the total promised annual climate finance, and that’s before the EU’s proposed expansion of the CBAM to cover a greater number of industries. In effect, the EU will be taking back in trade taxes a significant portion of what it has promised to give in climate finance.

At the Bonn climate conference, support for developing countries will be on the agenda. This includes capacity building and technology transfer for developing countries to transition to low carbon economies. Such transfers are essential to maximise the potential for rapid emissions reductions: many developing countries lack the capacity to develop or implement programmes that would enable them to decarbonise. However wealthy countries have been slow to deliver on this commitment. If border taxes are implemented before these commitments are met, developing countries could essentially be penalised for a failure on the part of rich countries to uphold their side of the bargain.

CBAMs are not the only proposed measures that could negatively impact on developing countries. If not designed to fully incorporate the principle of Common but Differentiated Reponsibility, measures including the liberalisation of ‘green’ goods and services, the introduction of core environmental standards and a climate waiver could cost developing countries billions whilst highly polluting wealthy countries profit from the so-called ‘opportunities’ created by climate change. If the UK is serious about climate commitments, it must fully align its climate and trade policies so that it can help to avoid this, and any border taxes must take account of the relative emissions of different trading blocs.