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The Impact of Free Trade on Climate Change

| Wednesday July 1st, 2009 | 2 Comments

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On Friday, the World Trade Organization (WTO) and the United Nations Environment Program (UNEP) published a report that indicates increased economic activity could result in a rise in carbon dioxide emissions. However, the report also stipulates that increased ease of trade can also help combat climate change through delivering energy efficient and renewable energy technologies to more markets.
Although these findings align with the existing beliefs of numerous business managers and policy makers, the conclusions issued in the report are significant because this is the first time the WTO and UNEP have collaborated to examine the connections between trade and climate change. These types of multilateral cooperation and findings are critical measures to ensure the success of the upcoming UN climate negotiations in Copenhagen (December 2009).


In summary, the report illustrates that it is within the scope of WTO rules to enact trade policies that address climate change at the national level, but that the efficacy of these policies are determined by the design of the policies and the implementation conditions in the local regions.
Although the report does not highlight specific examples, it does assert that the energy intensive sectors of our global economy (agriculture, forestry, fisheries, tourism and transport) can reduce their contribution to GHG emissions if we increase the diffusion of mitigation technologies through free trade policies.
In support of this notion, WTO Director General Pascal Lamy and UNEP’s Executive Director Achim Steiner are urging nations to adopt policies that open up trading for environmental goods and services as a means of reducing GHG emissions.
Specifically, Lamy and Steiner issued a joint news release, urging the international community to finalize the stalled Doha trade talks that began in 2001 in hopes of and opening trade reducing barriers for innovative products and services that support cleantech economies.
The comprehensive, 161-page report examines the relationship between trade and global climate change through four perspectives:
1) Climate change science
2) National and international economics
3) Multilateral efforts to combat climate change
4) The implications of national climate change policies on trade.
The report provides an overview of the traditional regulatory instruments, economic incentives and other financial measures that have been used worldwide to increase energy efficiency and to reduce emissions. More in-depth coverage of the mainstream pricing mechanisms (carbon tax and emissions trading) provide insight into how to prevent emissions leakage through off-shoring production and how to protect competitiveness across markets.
A common concern among policy makers is that new taxes and tariffs could be put in place, which protect domestic industries and exclude products and services that are made available through countries with weaker environmental standards. The new report indicates that these types of border adjustment measures would become trade barriers that negatively impact the shared international goals of increasing income and reducing harmful impacts to the environment.
Environmentalists, economists, business leaders and policy makers may differ in their beliefs regarding the potential for free trade policies to successfully address increasing global GHG emissions. However, the consensus seems to be that climate change and free trade are intricately linked and that there is a critical need to address both arenas when shaping a new, clean energy economy.


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  • http://blog.maxdunn.com Max Dunn

    Wow, it is nice to see that the WTO is finally looking at the relationship between trade and climate change. I hope that this is just the start, and that they continue to explore the effects of their policies on all aspects of sustainability!

  • Sean McNamara

    I’m not certain about the WTO’s motives on this. More than anything, I think they might be trying to protect free trade policies through rolling environmental services and products into the list of goods.