Making the international trading system work for climate change : assessing the options

Das, Kasturi and van Asselt, Harro and Dröge, Susanne and Mehling, Michael (2019) Making the international trading system work for climate change : assessing the options. Environmental Law Reporter, 49 (6). pp. 10553-10580. ISSN 1085-2166

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Abstract

The adoption of the Paris Agreement in December 2015, its rapid entry into force in November 2016 following ratification by a critical mass of countries, and subsequent adoption of a detailed rulebook for its implementation in December 2018 in Katowice – ushered in a new era of international cooperation on climate change. If the 2°C goal is to be achieved, massive improvements in energy efficiency, a substantial scale-up in renewable energy production, and enhanced access to clean energy technologies will be required. This calls for unprecedented efforts across all areas of socioeconomic activity, and thus also depends on support from other international regimes. The issues of policy and regime coherence assume particular importance vis-à-vis the international trading system, given that trade has an important role to play towards achievement of the Paris goals – both directly and indirectly. The significant surge in WTO disputes pertaining to climate change and clean energy over the past several years is indicative of the tensions that are brewing at the interface between national climate policies and measures, on the one hand, and international legal regimes pertaining to trade, on the other. With the increasing importance of national measures following the adoption of the Paris Agreement, synergies and conflicts can be expected to change over time. Leaving the fate of climate-related actions to the WTO dispute settlement system is an option that is associated with risks and uncertainty, and could lead to a chilling effect on investment in the sector. That explains the importance of exploring the various ways in which trade policies and frameworks can create a more favourable environment for advancing the objectives of the Paris Agreement and their implementation. Based on an extensive literature review and a series of interviews with policymakers, trade law experts, and other stakeholders, and our own analysis, we have identified a set of options for improved alignment of the trade and climate regimes. These include general options addressing the link between trade and climate change, as well as options specifically related to border carbon adjustments (BCAs) and fossil fuel subsidies. Each of the proposed policy options is analysed with a focus on their political feasibility in the short term. In addition, where possible, we examine factors that may increase the utility and desirability of options, including their potential for reducing legal uncertainty. Based on this analysis, the article concludes with a set of recommendations for future policy reform.

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