Report: Trade and Climate Change – promoting climate goals with a WTO agreement

The WTO and its members can do a lot to promote climate goals. In this report, the Swedish government agency National Board of Trade, highlights issues that WTO members might focus on and different legal forms an agreement might take. Emilie Eriksson, legal adviser and co-author of the report, tells more.

Why this report?

Within the WTO, members have tried to negotiate an agreement on environmental goods and services on different occasions, beginning in the early 2000s, but have not succeeded. Despite these efforts, much more could be done to integrate trade and climate policy.

In light of the ongoing climate crisis, we have analysed how trade policy could contribute to achieving climate goals. We highlight issues that WTO members might focus on and different legal forms an agreement might take.

What do you conclude?

Our main conclusion is that the WTO and its members can do a lot to promote climate goals. An ambitious multilateral agreement that includes the liberalisation of climate-friendly goods and services and the reform of fossil fuel subsidies would contribute considerably to reducing greenhouse gas emissions. However, as it is difficult for all WTO members to agree on this, we highlight different legal options that do not have to encompass all members.

What important points do you raise?

We recommend that decision-makers remove as many barriers to trade for climate-friendly goods and services as possible. This would promote the spread of climate-friendly technology across borders and reduce mitigation costs.

Our starting point was to review technical issues from previous negotiations as well as potential solutions. One of the main problems has been agreeing on what goods and services to include. We therefore recommend that negotiations have a clear mandate with a statement of purpose that aims to contribute to reducing greenhouse gas emissions. This would allow selection to be based on methods that are as objective as possible with negotiators justifying proposed goods or services according to a climate change mitigation aim.

We also believe that certain goods that are not climate-friendly goods per se but are indispensable for the production of climate-friendly goods, should be included.

What are your recommendations on fossil fuel subsidies?

Phasing out inefficient subsidies for fossil fuels is almost certainly necessary to achieve the objectives of the Paris Agreement. In light of international agreements on phasing out inefficient fossil fuel subsidies, we analyse which subsidies should be classified as inefficient and conclude that they all should, with the exception of subsidies in the form of certain tax breaks related to carbon pricing. We also show that it is possible to use existing agreements that regulate subsidies within the WTO as inspiration to create disciplines for fossil fuel subsidies.

What key issues have you identified?

In addition to how to select climate-friendly goods and services and how to define and discipline fossil fuel subsidies, the inclusion of a critical mass provision is also important. A critical mass provision would require a certain number of parties to participate in an agreement for it to enter into force to avoid the risk of free riding. However, a critical mass provision could also mean that an agreement is never reached.

From a climate perspective, for goods and services, we have concluded that a critical mass provision is desirable but not necessary, as benefits could still be realised by removing barriers to trade. However, for disciplines on fossil fuel subsidies a critical mass provision may be more important in order to avoid carbon leakage and the risk of free riding.

What recommendations do you make in relation to developing countries?

The participation of developing countries is important from a climate point of view, but also from a development perspective. To enable the participation of developing countries, we propose that technical assistance be offered to help meet commitments under an agreement and that a longer phase in period for obligations is offered.

What do you hope to achieve with this report?

We hope that this report can help prompt decision-makers to begin negotiations by setting out what could be possible under an ambitious WTO climate agreement. To negotiators, we hope this report provides practical solutions to problems that may arise during negotiations, such as how to select climate-friendly goods and services, and how to define and reform fossil fuel subsidies.