Thread by @MLiebreich

My latest for @BloombergNEF: Climate action - It's The Trade, Stupid. Why free trade and fixing the WTO are more important than carbon border adjustments.
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Although dealing with carbon leakage is certainly an important question, it is not the most important question. What is critical is to unleash trade to play its full role in support of climate action.
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How can trade accelerate the uptake of clean technologies? How can it help poorer countries leapfrog to low-carbon solutions? How can it help decarbonize corporate supply chains? These questions will decide the speed, fairness and success of the global net-zero transition.

CBAMs are a bug fix, not a killer app. The current focus on CBAMs risks raising tensions that could derail climate diplomacy and trade liberalization, at a time when those are needed more than ever.
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Don't get me wrong, we do need carbon border adjustments. Pushing fossil fuels out of industrial heat, chemicals and manufacturing might require a €350/TCO2 carbon price today, and perhaps €100 long term. Those prices without a CBAM would consign domestic producers to oblivion.

Designing a CBAM looks like a simple technocratic question – how to stop Manufacturer A, based in a country with no carbon price, from gaining an unfair advantage over Manufacturer B in a country with a carbon price. In fact, it's fraught with political & technical complexity.

CBAMs are so complex it's easy to miss the wood for the trees: they face a powerful coalition of opponents among fossil fuel producers, exporters of energy-intensive manufactured goods, developing world nations, importers and consumers of fossil fuels and carbon-intensive goods.

John Kerry, President Joe Biden’s climate envoy, appears to understand the challenges. His stated preference is to wait until after the COP26 climate conference in Glasgow before engaging in any discussion about border adjustments.
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Undeterred, the EU is charging ahead. Leaked drafts would be highly controversial: silent on free allocations which would become a subsidy for EU producers, no mention of final products like cars, no waivers for lesser-developed nations, all proceeds to go to the EU budget. Yuk.

Hard to see developing countries interpreting the EU draft proposals as anything other than protectionism. China's President Xi told French President Macron that “tackling climate change should … not become an excuse for geopolitics, attacking other countries, or trade barriers”

The big risk is that the focus on CBAMs throws gasoline on international trade tensions, just when the US and the EU are already making protectionist noises about green industries and jobs, against a backdrop of tensions over China's growing authoritarianism and assertiveness.

Fans of “degrowth” may think a trade war would help us hit the Paris targets; it wouldn't: it might knock a few % off the economy but it would knock a much bigger hole in its ability to deliver innovations needed for net zero and in developing countries' ability to afford them.

The ability of countries to participate fully in the transition to net zero is conditional on them becoming wealthier. Look at China, now rich enough to pledge to cap and then eliminate emissions. The global economy will not reach net zero unless G77 countries follow suit.

Do the UN and the NGOs around it get trade? You have to scroll down to point 68 of the post-amble of the SDGs to find this: “International trade is an engine for inclusive economic growth and poverty reduction and contributes to the promotion of sustainable development.”

For the developing world to reach net zero within a few decades of mid-century, at a decent standard of living, investment of around $2 trillion per annum will be needed: Where could such funding possibly come from? TLDR: Trade is key!
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Since 2006, Aid for Trade has channeled $450 billion into building developing countries’ trade capacity and infrastructure. Full implementation of the WTO’s 2013 Trade Facilitation Agreement could spur an additional $1tn of trade, with the largest gains in the poorest countries.

Nowhere is trade more important for climate action than when it comes to low-carbon goods and services. After the Doha Round collapsed, I played a bit part in jump-starting the WTO negotiations over an Environmental Goods Agreement. I wrote about it here:
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Last year, 5 countries led by NZ and Norway began negotiations on ACCTS (Agreement on Climate Change Trade and Sustainability) . Leaders of the great powers should either to join that effort or restart fresh EGA negotiations - and please add services like insurance to the mix.

The WTO does not need the sort of root and branch reform that some – generally with only a passing acquaintance with trade – are demanding. What it does need is an urgent and systematic review of the intersection between trade law and the environment.
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Back to carbon border adjustments. Since we're definitely going to be needing them, I finish with nine Principles For A Good CBAM: multilateral, light touch, limited, rules-based, legal, market-friendly, meritocratic, simple and inclusive. OK?
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In summary, we should be looking at trade, not as threat to western countries’ ability to forge ahead unilaterally on climate action, but as playing a vital role in meeting the triple challenges of human wellbeing, global inequality and climate change.
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As Richard Cobden, the Victorian Apostle of Free Trade, might have said, the people of the world “must be brought into mutual dependence by the supply of each other’s net-zero technologies. It is God’s own method of producing climate action and no other plan is worth a farthing.”

Please read the whole piece, and RT this thread if you like it. Or even if you don't, but you think we just need more discussion about trade, climate and the environment. Selah!
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