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It’s time to secure climate-compatible trade

Written by Jodie Keane

Expert comment

The UK is hosting the Climate and Development Ministerial ahead of COP26 to discuss the challenges and priorities for implementing the Paris Agreement in countries most vulnerable to climate change. This includes a focus on carbon markets, but the interrelated issues of trade, investment policy and finance must feature more prominently within discussions too.

As President of the G7, the outgoing Chair in Office at the Commonwealth Heads of Government meeting, as well as participant at the 15th session of the United Nations Conference on Trade and Development and the 12th World Trade Organization Ministerial, the UK will be leading conversations this year alongside other countries at the Ministerial and other high-profile meetings. These all provide opportunities to discuss key themes of the UK’s COP presidency this year: clean energy, clean transport, nature-based solutions, adaptation and finance.

Unlocking climate finance and links to trade, investment and development policy

Unlocking (new and additional) climate finance will help countries to achieve their objectives as specified by their Nationally Determined Contributions (NDCs). But trade and investment policy frameworks must also adapt to enable the required flows of technology, goods, services, ideas and finance required to kickstart greener growth trajectories, and support the implementation of NDCs. International investment reform is needed to help reduce disputes from governments efforts to mitigate as well as adapt to climate change, as well as to support cleaner, greener production and trade.

The Measuring, Reporting and Verification (MRV) systems and the price of carbon emission reductions is becoming increasingly important within the international trade regime. This is especially the case as the EU is likely to apply a border carbon adjustment (BCA) measure on imports this year on a limited number of sectors. While it remains unclear if the financial resources raised by the EU BCAs will plug gaps in climate finance needs, supporting the development of robust carbon MRV systems could boost low carbon export competitiveness. This is something that countries which have contributed the least to historical emissions really need.

Sluggish trade growth and rising debt

Even before the pandemic struck, debt had already reached historic levels for some of the countries most vulnerable to climate change where trade growth had already been decreasing during the last quarter of 2019. Boosting trade performance helps reduce debt, and diversifying value chains can build resilience and help countries to achieve structural economic transformation.

Many climate vulnerable economies struggle to achieve these objectives. There may also be ripple effects across supply chains, arising from unilateral measures such as the EU’s BCAs. This could adversely affect the export interests of countries like Mozambique, for example, which has contributed the least to historical greenhouse gas (GHG) emissions.

Given the physical impact of climate change, as well as the effects arising from efforts to mitigate it, the trade landscape beyond Covid-19 could become even more challenging for low-income countries to navigate, particularly in Africa.

The UK has an unparalleled opportunity to influence key decision-making processes this year given its role as G7 President and co-host of COP26 to secure climate compatible trade and development trajectories. The countries most vulnerable to climate change face an unprecedented challenge of lifting millions out of poverty within low carbon business models and development strategies, which demand major technical and financial assistance.

These proposals and more will be explored in a forthcoming ODI ten-point plan to secure climate and development compatible trade. It is important that climate, trade and development communities across and within countries feed into ideas for climate and development compatible trade strategies.