Trade in the Balance: Reconciling Trade and Climate Policy

The world is at a turning point in global economic policy-making. With the Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change, there is convergence on a new set of goals for the future of the earth’s economy, people and ecosystems. In each of these arenas, world leaders overcame traditional North-South divides to agree on an agenda for the world economy that is low-carbon and socially inclusive. To that end, in 2016, the Global Economic Governance Initiative at the Boston University Global Development Policy (GDP) Center teamed with the Georgetown University Law Center’s Harrison Institute for Public Law to convene an interdisciplinary working group examining the extent to which the World Trade Organization (WTO), free trade agreements (FTAs) and international investment agreements (IIAs) are compatible with climate change goals. In a report by the Working Group, “Trade in the Balance: Reconciling Trade and Climate Policy,” the authors found that the trade regime in general, and United States-led FTAs and IIAs in particular, are in tension with the goal of aggressively reducing greenhouse gas emissions and the policies necessary for achieving this goal. The working group identified two core areas where the current model is incompatible with aggressive climate action: (1) trade and investment agreements tend to increases greenhouse gas emissions and (2) trade and investment rules can undermine climate policies and impose limits on government regulatory authority.

The WTO made a promising start toward addressing the implications of trade rules for climate change in 2007 when it collaborated with the United Nations Environmental Programme for a study on trade and climate change which concluded, inter alia, that trade liberalization “most likely lead(s) to increased CO2 emissions.” Unfortunately, governments have done little to promote consistency between the trade regime and climate policy, and in some instances have actually taken aggressive steps to avoid any consideration of climate in trade negotiations. The United States, for example, eliminated references to climate change from the text of the TransPacific Partnership and does not consider climate change in its environmental reviews of trade agreements.

Overall, the Working Group on Trade, Investment and Climate Policy finds that trade and investment treaties can be instruments to advance the global climate and development agenda, but that the prevailing model of trade and investment treaties is largely incompatible with the world’s broader climate goals. The model rules for trade and investment treaties need to be redesigned with an overriding principle to reward climate-friendly modes of economic activity, curb activity that worsens climate change and provide the proper policy space so that nation-states can adequately address the climate challenge. At the very minimum, the trade model should be adjusted in such a way that treaties do not result in net increases of greenhouse gas emissions.