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Is Lowering Trade Barriers Incompatible with Mitigation Strategies to Address Climate Change?

September 13, 2014

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September 13, 2014 – Countries seem to be getting together to develop free trade zones and global trade agreements. This trade liberalization over the last few decades is considered to be a “good thing” overall. World trade has increased to levels 32 times greater than in 1950. In parallel while international trade has risen so has atmospheric carbon with CO2 concentrations rising from 310 parts per million (ppm) to today’s 396 ppm. Is there a correlation? Do carbon emissions rise when international trade increases?

In an article appearing in today’s Globe and Mail, Naomi Klein writes that in her study of globalization and international trade laws in the early 2000s she noted that “green programs….were increasingly being challenged under international trade agreements, particularly the World Trade Organization‘s (WTO) rules.” What Klein refers to in this comment is just a small part of why free trade regulation can directly conflict with the best intentions of a government to create policy to address climate change. Ontario, created favorable conditions for a solar panel manufacturer to set up shop in the province. At the same time the government instituted local content requirements for meeting government requests for renewable energy contracts. When Chinese and Japanese companies challenged the government’s policies under WTO rules the international body declared local buy provisions illegal. Trade trumped the governments climate change mitigation strategy.

The World Bank has also looked at the issue of trade and climate change. In a paper, “Trade and Climate Change: An Analytical Review of Key Issues,” Harun Onder, of the World Bank’s Poverty Reduction and Economic Management Network, writes that “trade measures carry a significant risk of triggering waves of protectionist policies” around the issue of climate change mitigation strategies and that this seems to be the basis for challenges by those attempting to enter into a foreign country ostensibly under free trade terms. But Klein argues, “how absurd…for the WTO to interfere….to let trade trump the planet itself.”

She points out that under NAFTA, the North American Free Trade Agreement, a U.S. oil company, Lone Pine, has challenged the government of Quebec, because the province implemented a moratorium on fracking. Lone Pine is suing the province for $230 million because it has been denied “fair and equitable treatment” under WTO rules. Whether you are for or against fracking based on understanding its potential risks (methane release at the well head, aquifer contamination) or benefits (freedom from foreign fossil fuel imports) the right of a province to implement environmental regulation should not be subject to such frivolous suits.

Joseph Stiglitz, the Nobel Prize-winning economist is quoted by Klein as stating, “Should you let a group of foolish lawyers, who put together something before they understood the issues, interfere with saving the planet?”

Let’s go back to the questions I asked in the first paragraph. There is a correlation between trade liberalization and growth and increased atmospheric carbon. But it is not so much the trade as it is the increased global economic output that is the cause. We humans have more than doubled our population between 1950 and today. We have recovered from the shock of a World War and the decolonization of much of the planet in the post-War period with the resulting rapid expansion of national economies. Demand for goods and services has naturally grown and therefore global trade has risen as well.

Do carbon emissions go up as well? Trade requires transportation and fossil fuels are the primary fuel of our transportation infrastructure. This alone is a net contributor to increased carbon emissions. Increased manufacturing capacity, growing urbanization, all have led to a massive need for new energy capacity and an additional contributor to increased carbon emissions. So there is no doubt that trade plays a negative role in our current fight to reduce our global carbon footprint.

Can it be different? To date global efforts have failed utterly to reduce carbon. Where we have the WTO to provide a means to govern and enforce trade rules, we have no comparable organization or rule book for carbon. And yet Onder, in his paper states, “global climate is a public good.” So one would think that the WTO would come up with a new set of rules to address climate change mitigation and trade. Or at least the WTO should get agreement among all its members that climate change mitigation policies that meet agreed to standards should trump any free trade challenges.

It will be interesting to see how world leaders meeting in New York on September 23rd handle this issue. And when the nations of the world meet in Paris in 2015 to hammer out a worldwide climate change agreement, that they can drive the “foolish lawyers” from the room and set out a new rule book for both mitigation as well as carbon reduction.