Tuesday, January 16, 2018

Workshop Held on Trade and Climate Change

The Yale Center for Environmental Law and Policy (YCELP) hosted the Yale Workshop on Trade and Climate Change on Nov. 30 and Dec. 1, 2017. YCELP organized this conference to discuss how trade policies could support climate action, outlining how the global trade system offers many opportunities for the climate and the global effort to reduce carbon emissions. This closed-door event provided an informal exchange of views among experts on how to utilize and strengthen the trade regime to address climate change.

Below are brief synopses of each of the workshop sessions.

How the Trade Regime Intersects with the 2015 Paris Agreement on Climate Change: Tensions and Opportunities

Three key background developments framed this discussion: the recent rise in protectionism coupled with a more general backlash against international institutions; the trend towards decoupling trade from environmental policy-making in some regions; and the myriad consequences of the Paris Agreement’s bottom-up approach. The conversation considered the role of emerging technologies and business models that will affect both the trade and climate change regimes in the future. It was generally agreed that the Paris Agreement’s bottom-up approach necessitated a cooperative framework to better integrate the trade and climate change regimes. Given the dynamic nature of the Paris Agreement and its focus on procedure rather than specific regulatory parameters, many aspects of the relationship between the trade and climate change regimes remain undetermined. There was general consensus that no broad, climate-related World Trade Organization (WTO) rule exemptions are likely to succeed because they would open the floodgates for similar, widely applicable exemptions in other contexts such as public health and human rights. Narrowly tailored waivers, provisions, and actions are more likely—although by no means guaranteed—to bypass trade law objections.

Disciplines in the Trading System that Might Be Applied to Promote Climate Change Action

The session began with a discussion of the Paris Climate Agreement and its hybrid nature, in which countries agree to collective targets but can also implement their own goals. Participants raised the question of how the global economy will respond to the Paris Agreement as countries begin implementing it and as pressure increases to meet self-determined objectives. The Agreement has the potential to introduce big changes in the production and trade of goods and services. Discussion focused on carbon pricing, carbon taxes, and emission trading schemes. There was wide consensus that there will need to be additional efforts to drive environmental trade protection outside of the WTO regime and that organically emerging initiatives are generally preferable.

Trade in Environmental Goods in Support of a Sustainable Future

This discussion centered on the WTO’s recent attempt to produce an Environmental Goods Agreement (EGA) between nations to reduce tariffs on environmentally beneficial goods so as to stimulate sustainable practices within global supply chains. The conversation focused broadly on whether an EGA would have a high likelihood of success in achieving its goal of promoting sustainability. Participants also discussed what the stalling of the EGA illuminates about the utility of trade agreements as a means to promote sustainability. For example, participants noted that the parties represented at the EGA discussions produce 90% of environmental goods, thus reducing – although not eliminating completely – the availability of free riding as a strategy (i.e. countries not party to EGA using higher tariffs to boost their own environmental goods production capabilities).

Does Climate Change Demand a Normative Shift in How We Think About the Trade Regime?

This session was framed through the classic economic problem of the tradeoff between efficiency and equity. This framing served as the starting point to present the heterodox ideas of the economist Herman Daly, who criticized mainstream economics for preferring or prioritizing efficiency over equity and for wrongfully assuming that efficiency and equity are necessarily competing goals. According to Daly, what mainstream economists consider as mere negative externalities, which can theoretically be corrected through taxes, might actually be primary or central considerations that deserve to be addressed directly. Another critical and relevant insight from Daly was the treatment of scale or sustainability as the superstructure on which everything (i.e. essentially all human activity) depends—a perspective that mainstream economics has largely ignored. What emerged as a major point of contention pertains to the propriety of the WTO and the international trade regime in general taking on non-economic concerns such as climate change, equity, and social welfare.

Could the Trade Regime Be Modified to Reduce Fossil Fuel Consumption? Should It Be?

This session dealt with the many issues arising from how fossil fuel subsidies can be reconciled with attempts to integrate the trade and climate change regimes. A major part of the discussion focused on the inherent difficulties involved in attempts to address fossil fuel subsidies, which are implemented in various ways domestically and focus both on consumption and production. There was wide consensus that a registry of existing fossil fuel subsidies would serve as an useful first step towards improving transparency, thus laying the groundwork for more concrete actions. Subsequently, the question of how to incentivize nations to join a regime aimed at identifying and eliminating fossil fuel subsidies was raised, particularly given the potential for national embarrassment.

Climate Clubs and How to Make Them Work

Participants noted that despite great progress in scientific and economic understanding of climate change, achieving international agreements on climate change has proven difficult because of the threat of free-riding. To address this issue, some suggested a Climate Club as a workable model for international climate policy. Economic theory and empirical modeling find that stable coalitions with substantial emissions abatement are not likely to form without sanctions against non-participants. By imposing small trade penalties on non-participants, a Climate Club could get around this problem and potentially create a large, stable coalition with high levels of abatement. However, no significant progress has been made in Climate Club development. Although the Paris Agreement represents a monumental achievement in creating widespread consensus around a global climate change regime, it currently provides only limited incentives for countries to act rigorously to combat climate change. Incorporating a Climate Club into this regime could greatly enhance such incentives.

The Path Forward

At the final session of the Yale Trade and Climate Change Workshop, participants looked back on their discussions and considered the path forward. Participants broadly discussed academic, diplomatic, trade, and business solutions to climate change. Discussion extended to the relative merits of the international climate and trade systems in their entirety. Opinions differed regarding the success of the trade regime in addressing climate change, but there was consensus that although the trade regime generally isn’t an obstacle to climate change action per se, it’s also not driving such action. Future work should focus on re-gearing the trade regime to spur innovation and capital flow toward sustainability initiatives.