9 November 2019

A free trade initiative to tackle climate change

by Barney Trimble, IFT Researcher

Originally published by British Conservation Alliance.

In September 2019, the Governments of New Zealand, Iceland, Fiji, Costa Rija and Norway announced plans for a trade agreement designed to tackle climate change: the Agreement on Climate Change, Trade and Sustainability (ACCTS). Following its launch at the United Nations, more countries are expected to announce their support in due course, with negotiations set to start in February 2020.

The initiative revolves around three core policy proposals. The first is the removal of tariffs on environmental goods and services. This builds on the agreed definition by the Organisation for Economic Co-operation and Development and Eurostat which includes “activities which produce goods and services to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems.” In practice, this translates to parts for solar panels, wind turbines, air quality monitors, and the like.

Second, ACCTS aims to establish concrete commitments to eliminate fossil fuel subsidies. The fossil fuel industry received global subsidies in excess of $4.9 trillion in 2015, distorting energy costs. Experts say that the abolition of these would have reduced global carbon emissions by a fifth, deaths by fossil fuel air pollution by over half, and raised revenue of 4% of global GDP.

The third core goal is the development of voluntary guidelines for eco-labelling programmes and mechanisms. These are intended to provide consumers with more information about the environmental cost of products through a universal set of standards.

All of these are built on the joint principles of free trade and environmental protection. It is an important statement that the way to combat climate change and environmental degradation is not through de-growth, but through the mechanisms that have enriched so much of the world over the past half-century. If widely adopted, they have the potential to do much good.

However, these policies will need refinement. Exactly what goods and services fall under “environmental” will be up for debate; no doubt some countries will look to exclude certain products and services from that category, particularly where they have domestic industries and interests. Furthermore, many subsidies are sufficiently indirect to muddy the waters, which may allow states to continue to artificially prop up their own industries. If the wrong type of information is supplied (e.g. air miles, rather than emissions generated), eco-labelling can mislead consumers all while providing a burden that has a disproportionately higher impact on smaller businesses. To illustrate, imagine shipping a glass of milk from New Zealand (the most carbon-efficient dairy farmers in the world) to a farm in Ireland (the second most). Despite having travelled over 11,500 miles, it would still have a lower carbon footprint than an equivalent glass of milk that came from that farm.

It should be stressed at this point that these goals are still aspirational and abstract. The aforementioned flaws and others should be ironed out through the negotiations. Yet the negotiations will bring to light many questions, such as how strict the rules are. At present, the countries who have voiced their support are all relatively small economies with limited geopolitical concern and fewer pressure groups. For ACCTS to fulfil its goals, however, larger economies, such as the US, China, and the EU, will have to join.

This is the ambition of these countries. We have seen New Zealand’s success in leading trade agendas like this before. In its leadership of CPTPP (the world’s gold standard trade agreement) and its leadership of DEPA (cutting edge digital agreement), we see them applying smart economic diplomacy by building agreements in such a way that larger countries will be able to accede in future. Their example of relying on innovation and political entrepreneurship, rather than leveraging large market access, is a powerful one for post-Brexit UK trade policy to follow.

Open markets have borne a good deal of blame for the current climate crisis. In her UN speech, Greta Thunberg accused world leaders of only talking about “…fairy tales of eternal economic growth”. While Ms. Thunberg has been correct and powerful on many fronts, this line is not one of them. As this IFT article by Michael Liebreich explains, it is simply not accurate to suggest that eternal growth and environmentalism are an incompatible “fairy tale”.

Open economies have created the conditions for astonishing technological leaps forward from affordable renewable energy to electric cars. If we wish to sustain our way of life, we cannot combat climate change without more efficient supply chains and the innovation spurred on by private enterprise. The ACCTS presents a path forward, allowing us to march onwards toward a pro-trade, pro-environment future where everyone wins.