Climate and trade

Climate and trade

In a globalised economy, trade can have a big impact on any one nation’s efforts to decarbonise. Trade is critical to ensuring all countries have access to climate-neutral technologies and products at affordable cost. However, the rules of global trade need to be set up in a way that promotes both ambitious and just climate action.

It is important that major markets are a source of demand for green products from Global South countries to support these economies to industrialise sustainably. At the same time, Global North and large industrialised economies need to ensure that their obligations to take faster action to decarbonise do not lead to their industries simply moving offshore, but not reducing emissions, in response to stricter climate regulations – so-called “carbon leakage.” Further, it is important that large economies do not pursue excessively nationalistic or mercantilist trade-related climate policies for either short-term political or geo-strategic reasons. 

Good domestic trade policies and better international rules and governance of trade must work in tandem to create these conditions. For instance, strategic partnerships can allow mutual gains from trade between Global South and Global North countries in new green value chains. Cooperation to define international standards for green products and technologies, and related topics like reporting of embodied carbon emissions – emissions generated during the whole lifecycle of a product – can help to accelerate green lead markets globally – to the benefit of both exporters and importers. Clear and fair rules or principles on carbon leakage policies, clean technology support and the creation of domestic markets would help to avoid unnecessary trade conflicts and give space to policy makers to implement domestic climate policies for industry.

Agora Industry’s climate and trade work provides evidence-based policy ideas on these topics. It proposes pragmatic and effective solutions to issues like carbon leakage or green standards, so that such questions do not become obstacles for the industrial transition to net zero. This work ranges from topics such as strategic trade partnerships in clean value chains, carbon border adjustment mechanisms, proposals for CO₂ performance requirements and international initiatives to govern and coordinate trade rules for green products. We also engage actively with major trading partners around the world, from China to Latin America, to South Africa and South-East Asia, to propose ways to leverage trade to the benefit of all.