Report: Trade barriers to goods and services important for climate action

The EU aims to be climate-neutral by 2050. To reach that goal, all policy areas must be mobilised, including trade policy. The National Board of Trade has analysed the role of trade policy in climate action.

What are your main conclusions?

The analysis shows that climate-relevant goods and services face a range of trade barriers. Despite the international consensus on the urgent need to reduce greenhouse gas emissions, our study indicates that trade policy is underutilised in helping to achieve climate goals. The most effective way to address these barriers is through global trade policy reforms. However, there is also a lot individual countries can do to reduce their own trade barriers for climate-relevant goods.

How do trade barriers impede the transition to a low carbon economy?

Barriers to trade in climate-relevant goods increase the costs for goods and services that are important for reducing greenhouse gas emissions. Sometimes trade barriers can even make it impossible to trade climate-relevant goods. This slows down the use of climate mitigating technologies which are so important in enabling large-scale emission reductions.

Can you give some examples of trade barriers?

A majority of countries covered by our study make imports of renewable energy goods and cleaner transport goods more expensive by applying tariffs. This is the case unless importers can make use of free trade agreements. For example, the EU has a tariff of 10 percent on electric cars and in India it is as high as 125 percent which is the same rate applied to petrol and diesel cars. Tariffs make electric cars significantly more expensive, which in turn reduces the benefits of the support that many EU-countries provide to increase the demand for electric vehicles.

Another example is the trade conflict between the United States and China. It has led to increased tariffs in trade between these countries when it comes to a large number of goods that are important for solar energy, wind power and the electrification of vehicles.

How did you carry out your analysis?

We looked at examples of trade barriers for goods and services that are important for enabling an increased use of renewable energy and cleaner road transport. We studied a number of large economies, including the EU, China and the United States. We chose to limit ourselves to energy and transport because these sectors account for such a large share of total greenhouse gas emissions. Our analysis considered tariffs, trade defence instruments, retaliatory measures, rules of origin, regulations related to the circular economy, and trade in services. Subsidies are also extremely important in relation to trade in renewable energy and cleaner road transport goods but were beyond the scope of this study.

What do you wish to achieve with this report?

We hope that the report will be a contribution to the important discussion on the role of trade policy in reducing greenhouse gas emissions by highlighting the need for greater coherence between different policy areas. We would also like to highlight the opportunities to improve trade policy to help reduce greenhouse gas emissions. Of course, we hope that those who work with trade policy or climate issues will take note of our proposals and consider ways forward for a better trade policy from a climate perspective.

In the study, we have also produced our own list of goods that are important in the manufacturing of vehicles that can contribute to cleaner road transport. This list might serve as a starting point for negotiations on climate-relevant goods and could provoke discussion and be further supplemented by other organisations or companies.