Climate action and free trade have been perceived as contrary agendas for a long time. Despite more and more governments seeing tremendous potential for win-win outcomes, aligning trade and climate has become harder. This is due to changes in our current geopolitical landscape, as Christian Hübner explains in light of the upcoming G20 summit.
How trade laws can affect climate policy
Linking climate change and (free) trade agendas can reveal several win-win opportunities but also potential conflicts. The most evident link concerns trade and investment laws that impact measures to tackle climate change. For instance, the non-discrimination principles within the WTO General Agreement on Tariffs and Trade (GATT) prohibit discrimination against goods with a higher carbon footprint, meaning that at each border, a ton of steel must be treated just like a ton of wheat. This rule presents a challenge to border carbon adjustment policies and illustrates how the scope of climate action is often limited by trade and investment laws.
The question of energy subsidies is an interesting one, widely discussed in politics and science. Reducing fossil fuel subsidies, which added up to 373$ billion in 2015, by reforming existing trade laws could have a huge impact on global climate change mitigation.
How climate policy affects trade and investments
On the other hand, climate change policy tremendously influences trade: Any kind of emissions regulation, such as domestic CO2-taxes or international emission trading schemes can alter a country’s trade balance or redirect investment flows. The carbon footprint of trade patterns could thus be improved. Ever more large-scale investors – insurance companies and pension funds – take carbon and sustainability criteria into account when making investment decisions (see rising “divestments” movements). Therefore, sustainability targets in general can act as a driver of innovation, shaping new free trade impulses.
Enhancing the multilateral framework towards a climate change and free trade agenda
The current G20-troika with Germany’s presidency in 2017, Argentina this year and Japan in 2019 share common values on this topic, but the reality is different: The current US administration decided to prioritize economic bilateralism and leave the Paris Agreement. Climate change and free trade – the top priorities of Germany’s G20 presidency – are now very difficult to be followed-up on by Argentina.
Rather, Argentina has a very complex political situation to manage. The trade conflicts initiated by the US, threatening or imposing tariffs – even against political partners in some cases – overshadow G20 negotiations. For Argentina, finding compromises to keep the US at the negotiation table is a very difficult task. The Argentinian government itself is following a free trade policy, for example by trying to bring long-standing MERCOSUR-EU negotiations to an end and by supporting international climate finance. In addition, Argentina is the first country in Latin America to take on the G20 presidency.
It tries to apply a special regional focus emphasizing fair and sustainable development with equal opportunities for all but the region itself has changed in recent years. Mexico recently elected a new president, who has been campaigning for the nationalization of the energy sector. This could complicate international investments in the renewable energy sector. Brazil also holds general elections and the right-wing candidate Jair Bolsonaro won that race. It is not yet certain what this means for Brazilian sustainability politics, but his proximity to the agricultural lobby which fights any forest protection regulation and his deliberation of leaving the Paris agreement will certainly weaken climate multilateralism in Latin America.
A diplomatic G20 agenda?
In sum, the circumstances under which Argentina’s G20 presidency has to try and work on an ambitious climate change and free trade agenda are not the best. Argentina itself has pronounced (1) future of work, (2) infrastructure for development, and (3) sustainable food as their top priorities on the G20 agenda. This reflects Argentina’s current political challenges, but is also a compromise given the current political landscape. The separation of energy and climate change policy into the two separate working groups “Climate Sustainability” and “Energy Transition” seems to convey the difficult political climate. As the reader will see, the agenda setting is a very diplomatic approach to “work where it is possible”, attempting to keep all G20 countries at the table. From a climate change and free trade point of view, the political conditions are tough, but the agenda holds some opportunities to work on both.