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BRIEF September 7, 2021

Trade and Climate Change

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Watch: The role of trade in the climate-change fight



  • ⬇️New report  - Download now!⬇️

    The Trade and Climate Change Nexus:
    The Urgency and Opportunities for Developing Countries

     

    Fighting climate change is vital to equitable global development and poverty reduction—and international trade can have an important role to play in this endeavor. Trade can help countries adapt to higher average temperatures and more extreme weather events by offering consumers lower-emissions goods and services and facilitating the use of climate-friendly technology. But climate change may also negatively affect trade as extreme weather events raise the cost of trade, by destroying or degrading transport infrastructure and reducing agricultural production.

    The World Bank is engaged with external partners and academic experts to deepen our understanding of the complex dynamics between trade and climate change, to help us identify the critical solutions required to inform our work with client governments. 

    The findings from the first phase of this work program have been encapsulated in this newly released summary report The Trade and Climate Change Nexus: The Urgency and Opportunities for Developing Countries

    This report explores the different ways in which trade and climate change intersect and confronts a number of myths concerning the two phenomena. The report focuses on the impacts of, and adjustments to, climate change in developing countries and on how future trade opportunities will be affected by both the changing climate and the policy responses to address it. It also discusses how trade provides the goods and services that can drive mitigation and adaptation, and the new opportunities for promoting trade diversification in the transition to a low-carbon world. Suitable trade and environmental policies can offer the right economic incentives for attaining both sustainable growth and poverty reduction through trade.


    Research

    Distributional impacts of carbon pricing policies under the Paris Agreement

    Emerging Emitters and Global Carbon Mitigation Efforts

    How Could Trade Measures Being Considered to Mitigate Climate Change Affect LDC Exports?

    Assessing the economic impacts of a ‘perfect storm’ of extreme weather, pandemic control and deglobalization: a methodological construct

  • Trade and Climate Change Webinar Series

    The expansion of global trade is increasingly recognized as playing an important role in climate change. While attention is focused on reducing greenhouse gas emissions, trade will also play a key role in how countries adapt to higher average temperatures and more extreme weather events. However, it is also important to understand how trade may be affected by climate change. Average temperatures are rising, and extreme weather events are increasing. This will have implications for production and trade in all countries.

    In this series of webinars, World Bank researchers and external panellists discuss new research and analysis on trade and climate change and the emerging policies and strategies that governments and firms are developing in response, especially on the implications for low-income countries. 

     

    Webinar 8: Trade in Tourism Services – Making it Sustainable and Resilient (in partnership with the Tourism for Development webinar series)
    July 14, 2021

    • Martha Martinez Licetti, Practice Manager, ETIMT, World Bank Group
    • Stefan Gössling, Professor of Tourism Research at Linnaeus University and Human Ecology at Lund University
    • Kimarli Fernando, Chairperson of Sri Lanka Tourism
    • Megan Morikawa, Global Director of Sustainability Office at Iberostar Group

    Session highlights: 

    • Tourism is a key source of export revenues and jobs in many developing countries, but it is increasingly being affected by and contributing to climate change. Specifically, while the sector is highly vulnerable to climate change, it also contributes to the emission of greenhouse gases (GHGs)—for example, through its influence on the demand for air travel services. 
    • Tourism’s vulnerability to climate change is highest in Africa, the Middle East, South Asia, and Small Island Developing States (SIDS) and typically in countries where tourism accounts for the largest share of GDP and in regions where tourism is expected to grow strongly. 
    • Plans for decarbonization in global tourism requires substantive efforts – achieving a net zero carbon goal by 2050 will need a massive upscaling of technology and demand management.
    • A destination model for the future to deliver high-value, low-carbon, resilient tourism will require aspects of i) reducing leakage ii) lowering carbon; and iii) adding value. Opportunities for developing economies include: 
      • Reducing energy use (20% at zero investment) – research shows that for most tourist accommodation, it is economically feasible to reduce energy use and utilize renewable energy.
      • Implementing environmental levies - all tourism stakeholders should support, and lobby for, low-carbon policies, including CO2 taxes (“environmental fees”).

     

    Webinar 7: How can the global community catalyze and promote trade in environmental goods and services? 
    July 13, 2021

    • Aik Hoe Lim, Director, Environmental Division, World Trade Organization (WTO) 
    • Paul Brenton, Lead Economist, Trade and Regional Integration, World Bank Group
    • Ronald Steenblik, International Institute for Sustainable Development
    • Kimberley Botwright, World Economic Forum
    • Ana Laura Lizano, Permanent Mission of Costa Rica to the WTO
    • Mahesh Sugathan, Senior Trade and Sustainability Expert

    Session highlights:

    • Access to environmental goods and services will be essential in the transition to a low-carbon global economy. 
    • Noting that few countries, if any, alone have all the required resources, technology, and expertise to convert to a low-carbon economy, trade plays a vital role in the global diffusion of low-carbon technologies through environmental goods and services. 
    • Trade will provide access to a wider range of lower-cost environmental goods and services. This will in turn create new business and job opportunities in areas that use these new technologies, as well as in their distribution and maintenance.
    • Removing barriers to trade in the products that can support the move to a low-carbon future and facilitating the sharing of knowledge on how to implement the low-carbon transition is critical. The challenge for the global community is to facilitate these economic transformations in ways that support sustained growth and poverty reduction in developing countries.
    • Trading in renewable energies such as wind and solar show a significant contribution to a country’s emission removal effort. Modelling estimates provide that if import tariff rates on products from carbon-intensive industries between all countries are increased by 30 percent whilst, import tariff rates on low-carbon products from high-tech industries between all countries are set to 0, then there will be a significant drop in emissions. 

     

    Webinar 6: A three-way ‘perfect storm’: climate extremes; a pandemic; and, deglobalization
    February 25, 2021

    • Olivier Mahul, Practice Manager, Crisis and Disaster Risk Finance, World Bank
    • Dabo Guan, Consultant, Trade and Regional Integration Unit, World Bank
    • Alexei Kireyev, Senior Economist, International Monetary Fund (IMF)
    • Andrew Burns, Global Lead Macroeconomic Modelling and Statistics, Macro and Debt, World Bank

    Session highlights: 

    • Regional or global cooperation is needed to address the spillover effects of compound events i.e. extreme weather events and pandemics. A widespread deglobalization reaction will drag down the global economy and then backfire at each individual country through the global supply chain. 
    • Modelling results signal that an increase in the degree of export restrictions involving all sectors would cause a sharp rise in economic losses of all regions in the aftermath of an extreme weather event that is occurring in parallel to a pandemic.
    • Policies in favor of trade barriers and production specialization are easily made when a country decides to protect its domestic industries and safeguard its stocks. However, this could undermine the efforts of other countries battling these disasters. 

     

    Webinar 5: The effectiveness of environmental provisions in regional trade agreements – and implementation difficulties 
    February 24, 2021

    • Urvashi Narain, Lead Environmental Economist for East and Southern Africa region, World Bank
    • Ryan Abman, Assistant Professor in the Department of Economics at San Diego State University
    • Clark Lundberg, Research Agricultural Economist US Department of Agriculture, Economic Research Service
    • Michele Ruta, Lead Economist, Trade and Regional Integration, World Bank
    • Prudence Sebahizi, Chief Technical Advisor on the African Continental Free Trade Area, African Union Commission 
    • Allen Asiimwe, Chief Technical Officer, Trademark East Africa

    Session highlights:

    • Concerns over the adverse impacts of trade liberalization on environmental degradation have led to a debate over the need for environmental provisions in regional trade agreements (RTAs), however the effectiveness of such provisions is often unknown.
    • New research shows that inclusion of specific provisions aimed at protecting forestry and/or biodiversity entirely offsets the net increases in forest loss observed in similar regional trade agreements without such provisions.  The inclusion of these provisions limits agricultural land expansion but not increases in total agricultural production.  
    • These effects are concentrated in tropical, developing countries with greater biodiversity. However, these countries often face implementation difficulties and thus require substantive support towards execution.

     

    Webinar 4: Sustainability and business carbon management schemes
    February 23, 2021

    • Shari Friedman - Ag Global Head, Climate Strategy and Business Development, IFC
    • Michael Friis Jensen, Consultant, Trade and Regional Integration, World Bank
    • Penny Naas, President, International Public Affairs and Sustainability, United Parcel Service, Inc (UPS), USA
    • Steve Nicholls, Head of Environment, National Business Initiative (NBI), South Africa

    Session highlights:

    • Over the past two decades, the public has increasingly demanded that business takes more responsibility in managing environmental problems. Firms in turn have adopted more complex policies and codes of corporate social responsibility, including in environmental management. 
    • The public is pushing global business on climate change too. Additionally, governments may use sustainability standards to reduce carbon emissions from particular products. The way such standards are formulated, and the verification mechanisms established to make sure producers follow them will determine market access, including for least developed countries. 
    • Carbon measurement is often based on carbon-footprinting methodologies that have predominantly been developed by industrialized countries for use in industrialized country contexts – as such, this choice of methodology, coupled with limited data availability, and uncertainty about key variables can paint a misleading picture of the carbon footprint of developing country exports.
    • Critical support is needed in developing the appropriate infrastructure for data collection. Carbon labelling is methodologically complex, often expensive, and difficult to understand for consumers. The data needed for such detailed carbon accounting are extensive. In principle, carbon footprinting requires measuring emissions at every point along every possible value chain. 

     

    Webinar 3: Emerging emitters and global carbon mitigation efforts
    December 17, 2020

    • Caroline Freund, Global Director, Trade, Investment, and Competitiveness, World Bank
    • Dabo Guan and Paul Brenton, Trade and Regional Integration, World Bank
    • Grzegorz Peszko, Lead Economist, Environment and Natural Resources, World Bank
    • Lourdes Sanchez, Senior Policy Advisor and Lead on Indonesia, International Institute for Sustainable Development

    Session highlights: 

    • It is often misunderstood that because they are not large emitters individually, least developed countries do not need to play a major role in negotiating rules on trade and environment.
    • However, new research shows that collectively, developing countries have been increasingly carbonizing over the last decade in pursuit of their development goals. 
    • As such, these countries need to be at the forefront of climate change adaptation and mitigation and this will require a rapid spread of low carbon technologies and related services to influence production and consumption.  
    • This is especially critical as least developed countries (LDCs) will be more severely affected by the effects of climate change. As such, contributing to the rules governing trade and the environment, can help ensure that their interests are properly considered.

     

    Webinar 2: The effects of trade and trade policies on land use change
    December 16, 2020

    • Holger A. Kray, Practice Manager, Agriculture and Food Security, World Bank
    • Vicky Chemutai, Trade and Regional Integration, World Bank 
    • Edwini Kessie, Director, Agriculture Division, World Trade Organization (WTO)
    • Steven Stone, Chief UN Environment Programme (UNEP)

    Session highlights:

    • Trade-induced land use displacement can have positive effects—with global environment benefits i.e. leaving production to areas that use less carbon-intensive methods. 
    • Trade measures can promote sustainable agricultural management by facilitating:
    • Access to digital technologies from advanced economies and improved seed varieties
    • Transfer of knowledge and expertise on improving yields
    • Access to quality fertilizers that can boost farmer uptake—need for better regulation, but not trade-restrictive
    • To minimize the adverse impacts of trade liberalization and to maximize its positive impacts for sustainable land management, two land degradation issues need to be addressed: expansion of agriculture for export and marginalization of smaller farmers
    • Land-use change impacts are not constrained by borders and thus require regional solutions. Trade agreements need to use specific, legally binding language in all climate-related provisions for any change to occur.

     

    Webinar 1: Carbon Border Taxes – EU plans and implications for low-income countries
    December 15, 2020

    • Richard Damania, Chief Economist, Sustainable Development, World Bank
    • Michael Friis Jensen, Trade and Regional Integration, World Bank
    • Vicente Hurtado Roa, Head of Unit, European Commission, Directorate-General for Taxation and Customs Union
    • Georg Zachmann, Senior Fellow, Bruegel

    Session highlights:

    • A number of countries have been considering schemes to reduce carbon emissions from their domestic production and how to deal with possible ‘leakage’ to countries with weaker regimes. 
    • Carbon border adjustment, which adds a tax to imports corresponding to the price of carbon emissions that domestic firms pay, is increasingly being seen as the solution to the problem of carbon leakage. This adjustment is designed to nullify the cost advantage that firms producing in non-regulated countries enjoy when selling in a regulated country. 
    • Early simulations (in advance of the July 2021 announcement) of the potential economy-wide impacts of the EU Carbon Border Adjustment Mechanism (CBAM) suggested that, countries with the most emission-intensive sectors and fossil fuel exporters would bear the brunt of the scheme. 
    • It remains important to understand how developing countries, and their trade, will be affected by the standards and approaches being considered in the design of similar schemes. In general, it is imperative to ensure that these designs are not too narrowly focused.
    • With these heavy impacts on carbon-intensive sectors, new opportunities could arise in trade of low carbon goods and services. Seizing these opportunities should be country priorities.

     

    For more information on the Trade and Climate Change research agenda and materials presented at the webinars, please contact Paul Brenton and Vicky Chemutai. For any queries and suggestions on the webinars, please contact Victoria L. Fofanah.



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