D2 - Trade and climate change: the linkage

Summary

Can trade policy support climate policy? The answer depends on how we define the linkage. In my view, there are three sets of linkages that the world must consider. First is the ‘carbon footprint’ of the international trading system, and whether trade policy can somehow be directed at reducing this footprint. Second are the issues of ­‘carbon leakage’ and of ‘competitiveness effects’, which some would like to use trade policy to curtail. These are issues that are of particular interest to countries that consider themselves to be ‘first-movers’ on climate mitigation, and who do not wish to see their competitiveness impacted by being the ones to take the ‘first step’ so to speak. First-movers also argue that their efforts would be undermined if polluting industries were to simply migrate from carbon-constrained economies to the non-carbon constrained. After all does the planet care about the identity of the emitter of CO₂?

I hasten to add that the competitiveness effects of climate mitigation and the issue of carbon leakage are not issues that will immediately be resolved with the conclusion of a new post-Kyoto climate accord. The principle of ‘common but differentiated responsibility’ which currently applies in the negotiation will by definition mean that uneven carbon constraints will continue to prevail in different parts of the globe, even after an agreement is reached. Third is the relationship between the rulebook of the World Trade Organization (WTO), the Doha Round of trade negotiations and climate change.