Cooperation or Competition?: Climate and Trade at COP28 - Center ... - Columbia | SIPA Center on Global Energy Policy

Cooperation or Competition?: Climate and Trade at COP28 - Center on Global Energy Policy at Columbia University SIPA | CGEP %

Recent climate progress arguably owes more to industrial competition than to the 2022 United Nations Climate Change Conference (COP27) climate summit. The US has spent more than $200 billion on the manufacture and deployment of clean energy technologies, a step-change increase from only one year ago.

Against this backdrop, trade will inevitably hang over COP28, though it will not feature in official negotiations. The United Arab Emirates (UAE), this year’s host, has acknowledged the urgency of this issue by including, for the first time ever, trade as one of its themed days, and representatives from the World Trade Organization (WTO) will be in attendance at the conference. The WTO is unlikely to depart Dubai empty-handed, so observers may expect an announcement from the organization aimed at reducing tensions around CBAMs—perhaps around aligning accounting methodologies.

While expectations for the outcomes of climate and trade discussions in Dubai remain low due to the issue’s newcomer status at global climate talks, here the authors discuss areas where some progress could be made.

A Climate Club for Trade

COP28 could kick off weightier climate-trade work. Last year, the G7 under Germany’s presidency stated its intention to form a so-called climate club, a group of countries between which trade barriers are lowered in recognition of mutual progress on climate. suggested,

What Success Could Look Like

A successful COP28 could launch a club to tackle the following topics:

- Aligning on allowable subsidies. The US and other developed countries could agree to limit domestic sourcing provisions for green subsidies to clean technologies that require public support to commercialize. They could also pledge concessional financing and technology assistance to developing countries in the same sectors that they support internally with green subsidies. In turn, developing countries could pledge not to limit imports of clean energy. All parties would have to agree to refrain from pursuing cases at the WTO against one another.

- Harmonizing approaches to border carbon adjustment. Creating consensus around carbon accounting, though seemingly arcane, carries geopolitical importance. Uncoordinated approaches could lead to different prices for the same products, compelling countries to tussle over tariffs. The EU and other CBAM countries could also incentivize developing countries to crack down on carbon leakage by offering concessional financing to help them comply and lower emissions. Such a measure would help the EU CBAM, in particular, avoid regressive impacts on poorer countries and provide global benefit, since most emissions come from the developing world.

- Coordinating sustainable supply chains. Developed countries can pledge to help developing countries move up the value chain in emerging clean energy technology supply chains by catalyzing investment in mineral refining

- Advancing WTO reform. While some believe that the WTO is ill-equipped to balance the climate benefits of green industrial policies with their potentially negative consequences on global trade, XXI, which deal with exceptions to the trade rules. Discussions would have to recognize the need to balance public subsidies to jumpstart green industries—which may not emerge without government support—with the goal of agreeing to lower tariffs on environmental goods to make the energy transition more affordable globally.

COP28 Will Set the Tone

It remains unclear how the intersection of climate and trade will feature in COP28’s formal negotiations as well as official agenda and, when it does, discussions may hold more peril than promise. But success on any of these fronts—likely requiring months, if not years, of negotiations—would decrease trade risks and increase climate opportunity. The G7 would need to welcome emerging markets and developing economies (EMDEs) into the fold to achieve meaningful outcomes. Lowering tariffs on environmental goods, transferring technologies that the IRA makes affordable, and redistributing CBAM revenues to industrial decarbonization efforts in EMDEs could all help accelerate the energy transition in the Global South without encouraging trade fragmentation. For all of this, COP28 could be the starting point.

Notes

https://rhg.com/wp-content/uploads/2023/09/The-Clean-Investment-Monitor….

https://www.bloomberg.com/news/articles/2023-03-23/goldman-sees-biden-s….

https://www.reuters.com/business/environment/eu-launches-first-phase-wo….

https://www.reuters.com/business/environment/g7-establishes-climate-clu….

https://foreignpolicy.com/2023/10/02/biden-ira-climate-global/.

https://www.energypolicy.columbia.edu/qa-how-critical-minerals-fit-into….

https://www.nytimes.com/2023/01/25/business/economy/climate-change-glob….