Rethinking trade’s relationship to the fight against climate change

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Mari Elka Pangestu, Managing Director, Development Policy and Partnerships, World Bank Group

• Cross-border trade and better integrated economies will play a key role in the global fight against climate change.
• Developing economies need access to supply networks for green-tech solutions and trade in Environmentally Preferable Products (EPPs).
• Developing economies must be part of the dialogue on negotiating trade regulations to transition the world to a low-carbon future.

Trade sometimes gets a bad rap as it conjures up images of goods crisscrossing the planet via land, sea, or air, contributing to transport emissions. New evidence on the intersection between trade and climate change shows that trade is playing an important role in creating more inclusive, resilient and sustainable economies.

Trade means access to green solutions for problems in remote locations

Ann is a Kenyan farmer who was struggling with irrigating her fields. A few years ago, she switched to solar-powered irrigation water pumps designed by Futurepump. Futurepump is a small British firm who builds environmentally friendly water pumps in India, field tests them in Nepal and Kenya, and sells them across Africa and Asia to smallholder farmers like her. This switch has allowed her to halve her monthly costs, while ending her need for polluting diesel pumps.

Hers is an example of how trade promotes environmental goods and services that contribute to emission reductions and better environmental management. Trade in such climate-friendly products is now worth over $1 trillion. It has also spurred demand for a range of environmental service providers who equip people like Ann with the skills necessary to do business in environmentally-conscious ways.

The importance of trade for developing economies climate change adaptation plans

Climate change is adversely affecting what countries can produce and export. Agriculture-dependent nations are extremely vulnerable to weather patterns and need green-tech solutions to adapt.

Crop yields in regions close to the equator have fallen, while dry-land areas in Africa, Asia and South America face greater food insecurity. Madagascar is suffering from the double shock of crop failure and the Covid-19 recession, causing famine in the nation’s south.

Countries such as these urgently need to adapt to the threats of climate change. Access to new technologies, enabled by global trade systems, can help build their economic resilience.

A seat at the green table

During a crisis, the need for transparency and predictability in policies affecting trade is particularly important. Imports are critical for immediate recovery when essential items such as food and medicines are in short supply. Trade measures, therefore, must aid in crisis response and not impede it.

Sustainability across the supply chain is a growing concern for many countries and companies. Currently, in many countries, tariffs on goods with a high carbon content are mostly lower than those on “cleaner” goods.

Removing this preference for imports of carbon-intensive “dirty” goods is an easy way to create cleaner supply chains and reduce carbon emissions. With the right environmental policies in place, trade will ensure that production shifts to those areas with lower carbon footprints. This will boost competitiveness and drive adoption of greener solutions across the supply chain.

Developing economies will benefit from new economic opportunities as the world transitions to lower-carbon growth. Developing countries often hold a natural advantage in producing Environmentally Preferable Products (EPPs) – regular products made more cleanly. Tariffs for such products, however, remain high. Liberalization of EPP trade among developing and least developed countries, especially in agricultural products, is an immense opportunity.

Another growth opportunity is building proper infrastructure for carbon tracing. Calculating carbon footprints are more complicated in developing countries where relevant data is sparse and digitalization still nascent.

Developing countries must be at the multilateral trade-negotiating table to reap the rewards of such opportunities. These negotiations should focus on tariffs on EPPs as well as on environmental goods such as solar panels that have a specific environmental objective. They should also engage in dialogue on non-tariff barriers affecting these goods and regulations regarding trade in environmental services and other climate-responsive goods. By contributing to the rules governing environmental trade, they’ll ensure that their interests are considered.

The chance to build a greener and more inclusive global economy

As we enter the third year of the pandemic, it’s important to envision the world we want for future generations. Increasingly, extreme weather from climate change is devastating transport, logistics and digital infrastructure. So too, it erodes capital stock and export capacity, damages agricultural land and disrupts food security.

This has grave consequences for our long-term development goals. Development progress made over the last 20 years has been severely hurt already. All the while, the poorest are being hit hardest, exacerbating inequality.

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Trade can play a significant role in addressing these many challenges, but business-as-usual approaches will not be sufficient. The stakes are high. Global cooperation has never been more important.

We can ‘reset’ trade to being a green, resilient and inclusive development mechanism, actively promoting climate-ready solutions to vulnerable economies. We need to make trade work for all so that developing countries can adapt and thrive in a low-carbon future.

To learn more about how trade can help in the fight against climate change, visit the World Bank’s dedicated Trade and Climate Change research section.