Report: The Role of Trade in the Green Transition

Trade policy can play a key role in facilitating the green transition. However, trade barriers on environmental goods make the green transition more expensive than necessary. In an attempt to address these barriers, several countries include specific environmental goods provisions in their regional trade agreements. The effectiveness of these provisions, has, however, not been established.

Erik Merkus, trade policy adviser, what is this report about?

In the spirit of Agenda 2030, all policy domains should contribute towards the creation of a more sustainable world economy. Trade policy can be used to ensure that trade barriers on environmental goods are removed, such that these goods are available at the lowest possible cost. In the absence of progress at the multilateral and plurilateral levels, bilateral regional trade agreements (RTAs) are frequently used to address these trade barriers. These RTAs include specific provisions that aim to promote, facilitate, or otherwise support trade in environmental goods. The main purpose of the report is to empirically investigate whether RTAs that include these environmental goods provisions affect trade flows in environmental goods.

What are the most important conclusions?

The results of our analysis indicate that, in general, RTAs with environmental goods provisions do not affect trade flows in environmental goods. This result leaves us with the question of how trade policy can be used to further encourage trade in environmental goods around the globe. In the end of this report, we therefore propose a number of concrete policy recommendations for trade policy makers in the EU, and elsewhere.

Was there anything that surprised you from your research?

Yes! We were expecting to find that these modern RTAs would have a positive impact on trade flows of environmental goods. There are several reasons why this expectation was warranted, given the reduction in trade costs as a result of lower trade barriers within a trade agreement. However, in our report we discuss some potential explanations of why this expectation was not met.

In what context do you think this report will be especially useful?

We hope that this report may feed into trade discussions and negotiations around the world. A first-best outcome would be that multilateral discussions on environmental goods are re-opened. However, more realistically it could contribute towards the ongoing discussions to update several of the EU’s older trade agreements, and also feed into negotiations with new partners. Our straight-forward policy recommendations could help trade policy meet the ambitions of Agenda 2030 and the Paris Agreement.

What do you hope to achieve by publishing this report?

Our ambition is that this report can contribute to bringing the diffusion of environmental goods back to centre stage in trade policy making. In a time of unprecedented need to move away from fossil fuels, and towards more resilient supply chains, the removal of remaining trade barriers on environmental goods should be prioritised.