Toward a Green and Just Transition: A New Framework for Trade and Investment Rules and Climate Action

Given the environmental and economic impacts of climate change, especially for developing countries, global institutions and national governments have begun to respond to the challenge with climate finance and policy. Despite these efforts, a significant financing and policy gap remains between the status quo and achieving shared climate goals – a gap that is further complicated by the constraints of the international trade and investment regime. 

What reforms of global trade and investment rules are needed to put the global economy on an ambitious course toward a green and just transition? 

In a new policy brief, Rachel Thrasher and Yudong Liu draw on a November 2022 workshop hosted by the Boston University Global Development Policy Center to develop a research agenda for evaluating the progress and addressing the pitfalls of ensuring the trade and investment regime is compatible with achieving shared climate and development goals. 

Pulling from presentations and discussions among experts in trade and climate at the workshop, this policy brief reflects three major conclusions:

1. The global green industrial revolution requires a new, inclusive framework for economic change, focused on building capacity sustainably for developing countries.
2. To combat climate change, the world needs rapid, diverse and experimental climate action by all nations, regardless of development or income level, that aligns with principles of climate justice to protect against negative spillovers.
3. A key component of the climate action required is a reformed trade and investment regime that removes obstacles to climate action and facilitates economic restructuring toward a low-carbon economy.

However, effective climate policy may have negative spillovers for vulnerable populations and countries. As such, an inclusive framework for economic change will need to account for possible spillover effects and allow developing countries access to finance and policy space to facilitate economic restructuring.

Given this, the brief posits how, with the existence of new data, researchers may be able to better understand how trade and investment rules intersect with the climate crisis and what it would take to align those rules with inclusive development and climate priorities, especially for developing countries.

Any new framework for economic change must be quick and decisive, as well as inclusive. The authors argue that trade and investment rules are already presenting tremendous legal challenges which must be addressed to preserve policy space. As Thrasher and Liu write, the status quo is antithetical to a sustainable, just and inclusive future, and bold research and even bolder policymaking are needed to reshape what the future looks like.