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Lowering trade barriers can drive decarbonisation: WEF

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Deploying climate-related technologies globally to scale to accelerate global decarbonisation can be facilitated by lowering trade barriers. 

  • Removing tariffs and other trade barriers can help accelerate the response to climate change and realise a net-zero economic future, the WEF argues.
  • Policy implementation on emissions reductions from the largest economies, and heaviest polluters, will not help achieve nationally declared commitments. 
  • The poorest and least developed countries face the most daunting impacts of climate change, yet trade acting as an economic engine may provide incentives.

A World Economic Forum (WEF) report highlights the emission reducing technologies that need to be prioritised by trade policy makers drive innovation and decarbonisation.

Orchestrating trade in a way that exports sustainable technology and innovations across the world can help spur economic growth across all parts of society. Financing a ‘just transition’ by realising some economic benefit may provide an answer.

Based on projections by the WEF, the global carbon project and McKinsey, a 1% cut on tariffs on a large list of environmental goods by 2030 could result in 6.5 Gigatons of CO2 being abated, reducing the 36 Gt of annual emissions reductions needed to reach net zero by 2050 to 20 Gt, in line with the Paris agreement. 

Reduced trade barriers can trump climate change inertia

Focusing on three sectors, energy supply, transport, and buildings, the WEF report identifies 25 climate technologies to be prioritised by trade policy-makers that can help reduce global greenhouse gas emissions.

Some of these technologies include wind and solar power, electric vehicles, heat pumps, alternative refrigerants, insulation, efficient motors, LED lighting, smart thermostats, and biogas stoves.

A positive policy message can result from reducing tariffs on the vast number of components used to make wind turbines and electric vehicles, which are sourced globally, as can lowering non-tariff barriers relating to different testing and certifications standards.

Imposing trade barriers and tariffs, on the other hand, can actually cause economic harm that goes beyond the countries involved, and impede global progress, as seen by the Trump administration’s tariff war with China.

Enabling lasting change via transfer of knowledge 

Transferring technical knowledge in climate related fields could help bring more developing countries to negotiate environmental goods and services (EGS) trade deals. 

Lifting restrictions on the movement of professionals can also help with renewable energy installations. In solar PV installations, for example 60-85% of the value comes from design, installation, sales and other (downstream or non-manufacturing) jobs.

Liberalising the trade of climate-related services is also seen as a way of boosting trade in climate goods. A challenge identified by the report is agreement on the definition of climate services which may hamper trade talks.

Services that are classified as environmental by the world trade organisation (WTO) relate to sewage, refuse disposal and sanitation. However, the design, engineering, construction, legal, digital and IT portion of enabling renewable energy installations are not categorised as services by the WTO.

The WEF suggests using a cluster approach, identifying services based on their importance to climate change activities. Changing WTO rules, however, can prove challenging, requiring consensus among its 164 member countries.

Developing countries must become part of value chains

Electrification and growth in clean energy supply are the keys to a just and green transition for developing countries. Over 750 million people do not have access to electricity, mainly in sub-Saharan Africa, and South Asia.

Increasing the clean energy supply in developing countries is also vital to reducing the supply chain emissions of companies in the developed world. 

A positive trade story has been the growth in trade in clean energy products relating to renewable energy, biogas, and batteries among countries in the global south. This growth has been higher than the growth in world trade in the same products.

Making the developing world a part of global environmental value chains makes sense economically by boosting trade, enhancing environmental protection, and facilitating socioeconomic development via the transfer of technological knowledge.

Effecting policy changes in bilateral trade may seem simpler than trying to pass multilateral agreements through a body like the WTO, which has been criticised for not keeping pace with world developments, especially those relating to sustainability.

Multilateral agreements are, nevertheless, exactly what is needed to use trade to address global climate-change related challenges.

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