Prolonged Trade Tensions Hamper Efforts to Reach Global Net Zero Goals

International trade is a key element of addressing climate change. Photo: Julius Silver
International trade is a key element of addressing climate change. Photo: Julius Silver

By Cyn-Young Park (朴信永)

The countries responsible for 88% of global emissions, including large emitters in Asia, have pledged net-zero emissions by 2050, yet current efforts are insufficient. Integrating trade policies with climate initiatives could break the gridlock and bring us closer to this crucial goal.

A growing number of countries are pledging to achieve net-zero emissions by 2050. More than 140 countries, covering about 88% of global emissions and including the biggest emitters – the People’s Republic of China, India, the European Union and the United States – have now signed up.

Their net zero targets are translated into climate action plans, or Nationally Determined Contributions (NDCs), to reduce emissions and slow the pace of global warming. However, the current NDCs are not enough to achieve the climate goal under the Paris Agreement to bring global temperature rise to under 1.5 degrees Celsius above the preindustrial average.

Trade policies need to become more integrated within NDCs to address the shortfall. Unfortunately, the nexus between trade policy and climate actions continues to be overlooked in formulating NDCs. Economic rationales for improving the interface between trade policy and climate actions are compelling.

For example, green trade can offer many solutions to climate change by expediting transitions to renewable energy, promoting technology transfer, and encouraging investment in green sectors and low-carbon technologies among others. Leveraging green trade and investment is also key to successfully facilitating energy transitions and NDC implementation in developing countries which face difficulties in gaining access to finance and technologies.

Policy frameworks under NDCs—which help create new trade and investment opportunities in renewable energy for example—can support just transitions in developing countries and increase their NDC ambitions.

 Geoeconomic fragmentation is a growing threat to the transition to clean energy and a net zero economy. Conflicting national interests in the name of energy security have led many countries to undertake unilateral actions and restrict trade in materials critical for energy transition. And as firms compete in the global race to secure supplies of critical minerals for new business opportunities, governments lend their support to domestic firms and promote domestic energy transitions through additional protectionist measures. 

With many governments leaning towards protectionism, businesses and investors retreat further from overseas activities. Protectionist policies could persist despite their adverse consequences on the reliability of global supply chains and national long-term energy security, if a lack of collective global actions continues to fuel trade and supply chain uncertainties.

Given the complex workings of deeply interconnected global value chains, protectionist measures such as export bans, tariffs and subsidies create uncertainty which will discourage investments. They can also distort business incentives, create supply chain bottlenecks, and disrupt the flow of essential inputs which could be detrimental to the successful transition to clean energy technologies more broadly.

Trade policies need to become more integrated within NDCs to address the shortfall the current NDCs represent in delivering on the global climate goal.

It would be more sensible to implement proactive policies such as investments in infrastructure and human capital development, and reforms to improve the overall business environment while preserving open trade and investment regimes.

As global energy transitions gather pace,  developing reliable, diversified, and responsible supply chains for critical mineral and clean energy manufacturing is becoming strategically important in Asia and the Pacific. The region boasts rich natural resources, well-established manufacturing and industrial bases for clean energy technologies, as well as a high quality and skilled workforce. 

To unlock massive economic potential from global energy transitions, the region’s policy makers must collectively reduce business uncertainties; help manage environmental, social, and governance risks; and support reforms to address supply-side constraints. Governments can also encourage private and foreign investors by de-risking investments, leveraging government funding and tax incentives, and forging strategic partnerships to reduce policy uncertainty and political instability.

A united front on green trade and investment can exert significant influence on national climate pledges. For example, trade agreements with strong environmental provisions can help increase ambitions of NDCs and efficiency of their implementation by aligning private sector incentives with climate goals and creating am environment conducive to green trade and investment.

More importantly, coherent policies and coordinated actions across countries will help strengthen their NDC targets and accelerate their implementation. The current trade tensions and geoeconomic fragmentation harms our chances of unlocking these opportunities and reaching the global climate goals in time to avert the climate crisis.

 The collective ambition to achieve net-zero emissions by 2050 underscores the urgent need to leverage trade policies for climate actions. Trade policy reforms focusing on transparent trade rules and regulations can reduce market uncertainties that hamper investment in green opportunities, create confidence and trust by increasing market access for private and foreign investors, and facilitate cross-border investment and technical transfers.