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Confronting the climate emergency with climate, trade and development policy in sync

November 17, 2022

One of the defining features of climate negotiations is the emphasis on aligning climate and development goals. The three long-term goals of the Paris Agreement – mitigation of warming, adaptation to impacts and climate-consistent finance – are all pledged “in the context of sustainable development and efforts to eradicate poverty”.

If we fail on climate, we will fail on development. But if we fail on development, we will also fail on climate because people and countries will – rightly – continue striving to improve their quality of life through any means necessary, including fossil fuel consumption, land use conversion and other polluting activities.

Yet it is beyond the scope of the UN climate convention to deliver on development. The international trade regime is a proven instrument to boost living standards, given international trades potential to create jobs and provide affordable goods and services. But it is not within the scope of the World Trade Organisation (WTO) to deliver on climate.

At COP27, all participants must reflect on how the international agendas for climate, trade and development policy must now be in sync.

How is the trade community responding to climate change?

As the newly released World Trade Report 2022 emphasises, the WTO is ready to assist with roadmaps and a menu of policy choices to support the implementation of climate goals. Recent successes at the WTO on trade and the environment, for example on addressing harmful fishing subsidies (albeit after more than 20 years of negotiations), justify some optimism regarding the potential of new trade rules to support climate goals, such as tackling fossil fuel subsidies.

But when it comes to climate and trade policy at the multilateral level, we are still talking about potential, not actual policy.

The vacuum is increasingly becoming occupied by big unilateral moves, some of which could be contrary to WTO principles unless carefully constructed. The most visible current example is the US Inflation Reduction Act which is intended to drive 2030 economy-wide greenhouse gas emissions to 40% below 2005 levels. This is seriously ambitious climate policy, and much-needed given the outsized role of the US in historical and current emissions.

However, the Inflation Reduction Act has been criticised for providing huge subsidies and violating the WTO principle of non-discrimination. (An EU-US taskforce has been launched in response.) While there may be grounds for this critique, it is striking that the extensive public support provided to the fossil fuel industry in the US – to the tune of $7.6 billion a year before the pandemic – has received little attention by the trade community. Climate action is challenged; climate inaction must be too.

Progress on plurilateral climate change related discussions and climate clubs at the WTO needs to move faster. In many countries, the financial sector now requires climate-related risk disclosures, which has led to a focus on supply chains. But accounting for traded emissions across supply chains remains challenging. WTO members are still yet to even consider agreement on a common carbon accounting method.

Aligning climate, trade and development policy across Africa

In Africa, the challenges and opportunities are being confronted through the African Union’s Green Recovery Action Plan (GRAP) and the African Continental Free Trade Area (AfCFTA).

The GRAP was launched in 2021 and will run until 2027. Its ambition is to tackle the combined challenges of the COVID-19 recovery and climate change by focusing on critical areas of joint priority: renewable energy; nature-based solutions and biodiversity; resilient agriculture; green and resilient cities; and climate finance. Meanwhile, the AfCFTA aims to transform Africa’s production landscape through facilitating intra-regional trade.

The GRAP and AfCFTA will need greater alignment and ambition from African governments to pursue low-carbon development. For instance, linking the GRAP and the AfCFTA could:

  • Offer a pan-African vision and platform for accessing climate finance;
  • Support a carbon trading mechanism through the investment protocol;
  • Promote green technologies through the digital trade protocol.

About 44 out of the 55 countries on the continent have submitted updated nationally determined contributions (NDCs) with ambitious climate targets and economic development at their heart. However, trade and investment policies are also integral to securing climate-smart development across the continent and the AfCFTA offers a rare opportunity to update these as well.

There is strong commitment from African countries to respond to climate change effectively. But although the GRAP in particular signals their national and regional ambition, the Africa Group of Negotiators at COP27 continue to highlight that their members will need long-promised climate finance, technology transfer and capacity building to do so. For the period 2020-2030, the average annual climate funding needs for Africa are estimated at about $142 billion. However, annual climate flows to Africa currently stand at only $30 billion. This deficit must be plugged.

Moreover, given that climate finance and development finance are often focused on similar sectors like infrastructure and social protection, donors need to ensure that all aid is climate-compatible and all climate finance enhances prosperity. Climate-proofing Aid for Trade will be especially important, so that Africa can expand its productive capacity without creating new physical or transition risks.

African countries are making bold moves to align climate and trade policy, with the potential to move faster than multilateral forums like the WTO. International support for their efforts must be continued and scaled to secure prosperity across the continent in a climate-changed world. All eyes are on COP27 to see if it delivers.

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