Climate & Trade

Trade Policy is Crucial for Climate Success

25%

of global GHG emissions come from trade

Protecting the Earth’s climate will depend on how quickly and successfully the international community aligns trade policy in service of climate goals. Goods in international trade account for 25% of global greenhouse gas emissions. Given this large share of global emissions and the urgency of climate action, the international community needs to use all reasonable policy tools, including those relating to trade policy, to decarbonize traded goods. Specifically, nations need to work internally and together to promote trade in green goods (those embodying few emissions), while also discouraging trade in comparatively carbon intensive versions of those goods. Uncoordinated approaches have the potential to be ineffective or unfair, possibly contributing to new trade disputes. It is vital that trade issues do not undermine climate action, and that policymakers avoid carbon leakage—the shifting of manufacturing from countries with ambitious climate policies to countries with less stringent policies. Carbon leakage harms the economy and communities by moving production overseas and undermines the effectiveness of climate policies in nations with the most stringent climate targets.

Climate-smart trade policies are also needed to make climate policies economically, politically, and socially sustainable. Unless efforts are made to address carbon leakage, climate policies could contribute to the offshoring of industrial production and jobs. As policymakers look to accelerate clean energy markets and reduce carbon leakage, it is important that they guarantee a just transition for workers that could be left behind. Otherwise, the disruptions from transitioning to a cleaner economy could bring about widespread job losses and dramatic changes in local economies. It is also vital that trade policies be free and fair in order to avoid trade disputes or create disadvantages for certain countries. By aligning climate and trade policies, leaders can help create strong incentives for the development and diffusion of low emission goods and environmentally friendly technologies, leading to increased coordination among countries and greater reductions in emissions.

Decarbonizing Industry Is Essential

Heavy industry represents nearly 1/3 of global emissions and is expected to become the largest source of emissions by 2030. Industrial sectors like steel, fertilizer, cement, industrial heating and more still have unclear pathways for achieving net-zero emissions by 2050. Policies that develop low-carbon technologies and practices to reduce emissions are needed and rapidly being developed to move the sector forward. Governments can use trade policies to support rapid adoption of these innovations.

"As countries rush to restructure their economies to achieve climate change goals, their efforts will increasingly affect high emitting heavily traded sectors like steel, cement, aluminum. The G7 has a unique role to play in garnering international agreement on what is appropriate, what is best practice, for countries implementing trade-affecting climate policies."

"We believe that G7 leaders should commit to developing a policy framework for climate-aligned trade before 2030, because failing to do so could stifle climate progress and lead to harmful trade disputes.”

“Today's trade rules need to be aligned with new economic and political realities of what it means to transition to a net-zero economy. They must be fair and as open as possible. But they must also balance new and legitimate concerns about carbon leakage, green industrial development, and clean energy security.”