Ten things you should know about Trade and Climate Change

READING TIME 15 mins
Ten things you should know about Trade and Climate Change

In 10 short bullet points we show the links between trade and climate change.

1. International trade has been excluded from climate negotiations

Trade and investment policies are not covered by the Paris Agreement or COP26 and countries are not required to make any changes to the way they do trade as part of their climate actions. For example, the emissions associated with goods imported into the UK for consumption constitute 46% of our total emissions but are not counted towards our international climate commitments or our net zero targets.

2. Trade deals can increase greenhouse gas emissions

As currently designed, trade rules prioritise increasing trade above else, leading to increased emissions. Highly-emitting industries such as cement or steel can therefore grow in the UK and partner countries as a result of trade deals.

3. Trade rules can prevent governments taking action to tackle climate change

The number of legal challenges that have been raised against governments in response to climate policies is growing. Challenges come in response to a number of important policy measures. For example a number of challenges have been based on attempts by governments to ensure climate action benefits local communities: when Quebec and India tried to ensure that their new renewable energy programmes benefited local communities, they were successfully challenged under WTO rules by the EU and the US respectively, and the programmes were withdrawn. Countries have also been challenged for subsidising their green industries as they attempt to expand jobs, know-how and infrastructure to support climate-friendly industrial strategies.

4. Companies can use trade rules to sue governments for taking action to tackle climate change, including phasing out fossil fuels

Investment protection provisions in trade agreements or Bilateral Investment Treaties allow international investors to sue governments for policy decisions that harm their profits. One of the most frequently used of these treaties is the Energy Charter Treaty (ECT). For example, UK company Rockhopper is suing Italy for banning the exploitation of oil and gas within 12 nautical miles of its coastline and RWE are suing the Netherlands for phasing out coal-fired power stations. Under NAFTA, Westmoreland and Lone Pine are suing Canada for phasing out coal-fired power stations and banning fracking under the St. Lawrence river. Losing a case costs countries millions, sometimes billions. There is evidence that fear of such cases is preventing governments from introducing new legislation and even when countries cancel these agreements, so-called ‘sunset clauses’ means that they can remain in force for up to twenty more years.

5. Trade rules can make it harder to move away from high-emission farming

Currently, our food systems generate around a third of the world's greenhouse gas emissions. Trade deals seek to encourage international trade in food but creates pressure for countries to follow the same, often low standard, rules. International trade rules make it hard to reject products made to lower farming standards, or food production, that create more emissions and other problems e.g. pollution and deforestation. However trade deals also impact on countries’ abilities to offer direct support for more sustainable farming methods. This not only encourages low standard, high emission farming and food, but also inevitably makes the produce cheaper, threatening the livelihoods of farmers using more costly but sustainable methods.

6. Trade rules are making it harder to share technology around the world to help reduce emissions

Technology transfer is a crucial element of trade-related development under the new international climate regime. The Paris Agreement acknowledges this but provides little detail as to how it will be achieved. There are some moves to liberalise environmental goods and services, primarily through tariff reductions; the primary benefits of this will be existing industries, primarily based in the global north. However WTO rules and intellectual property provisions in trade agreements extend patent terms, making the technologies more expensive and making it harder for countries to learn from and adapt important climate technologies like solar panels to their own requirements.

7. Trade rules are binding and enforceable, commitments to cut carbon emissions are not

Trade deals are binding on governments and come with all the necessary mechanisms to enforce them. Under state-to-state dispute mechanisms, if a country is found to be in breach of trade rules, they can face costly trade retaliation from other countries, or be required to pay financial compensation. If countries lose a case under investor-to-state dispute settlement provisions, they are either required to change their policies or pay millions, sometimes billions, in compensation to investors. The Paris Climate Agreement contains a mix of legally binding and non-binding commitments; while countries are required to make Nationally Determined Contributions they are not bound to any minimum level of emission reductions and there is little to bind them to their reductions targets.

8. If climate change is referred to in trade agreements, it is never in enforceable provisions

Trade deals increasingly contain references to climate change. However these tend to be made either in the preamble to the deal or in separate environment chapters. Neither of these is enforceable through the state-to-state or investor-to-state mechanisms that apply to the rest of the deal.

9. Some countries are starting to rethink but the pace of change is glacial

Scientists say we have 9 years to deal with climate change. Countries like New Zealand, Norway, South Africa, France and the Netherlands are starting to push for change. For example, lobbying by France and the Netherlands means that the EU included climate change as an ‘essential element’ of the UK-EU deal, putting it on a par with provisions on the proliferation of weapons of mass destruction and human rights. However the new provisions in the UK-EU deal remain unenforceable and these measures are too little too late. A more fundamental overhaul of the trade system is urgently needed.

10. The UK has so far done nothing to ensure its trade deals are compatible with its climate ambitions

The UK has ‘rolled over’ 35 EU agreements and is pursuing new deals with Australia, New Zealand, the US and membership of the Comprehensive and Progressive Trans-Pacific Partnership agreement (CPTPP). The UK has introduced no new language on climate in rollover deals, has done little to assess the environmental impact of proposed new deals, and has not signalled any change from the status quo for new deals. In contrast, significant changes were introduced to the digital chapter of the Japan deal, demonstrating that change would have been possible had there been the political will to do so.