The ongoing COP29 in Baku has highlighted significant disagreements among nations regarding global decarbonization. Disputes over fossil fuels, financial responsibilities of wealthier nations, and geopolitical tensions raise concerns about the conference’s potential failure.
However, a more significant factor is emerging: the intertwined nature of climate and trade policies. A pre-conference dispute over carbon-targeting tariffs foreshadows future challenges. With President-elect Trump’s anticipated disruption, trade policy’s influence on climate discussions will likely grow.
Many in the international climate policy community avoid addressing this contentious issue to prevent hindering progress elsewhere. This is shortsighted; the climate-trade relationship is crucial for future climate action. Pamela Coke-Hamilton, head of the International Trade Centre, emphasizes the need for open discussion and rules governing trade’s climate impact, stating that ignoring it won’t solve the problem.
For the first few decades, trade policy played a minor role in international climate discussions. While scholars suggested carbon-based import penalties as an emissions reduction tool, policymakers favored cooperative approaches.
However, differing climate policies increased the importance of linking emissions and trade. Countries like those in the European Union, heavily investing in emissions reduction, faced challenges as some trading partners lagged. Following the first Trump administration, the EU initiated a carbon fee on imports; other regions, such as the UK, Australia, and Canada, are exploring similar policies.
Exporting nations are unhappy. Before COP29, major emerging economies threatened delays unless trade issues were addressed, citing increased costs of global climate action and hindered efforts of developing nations to meet climate commitments. While carbon tariffs do raise costs for developing economies, the precise impact remains uncertain. The issue was ultimately postponed, but it will likely resurface, especially with Brazil hosting next year’s talks.
A key post-COP29 question involves the U.S. stance. While lacking a national carbon price, the U.S. has various environmental regulations resulting in higher production costs for some goods. This creates opportunities for penalizing higher-emission imports. Both Democrats and Republicans have proposed carbon border fees, and the Biden administration formed a working group to study this. Intriguingly, Trump’s reported trade policy appointee, Bob Lighthizer, supports such an approach.
Supporters see potential for progress. Senator Sheldon Whitehouse highlights a Capitol Hill working group studying the issue.
Skepticism remains about a future Trump administration adopting this. While Trump favors trade restrictions, he hasn’t specifically mentioned carbon tariffs, instead focusing on broad import tariffs and potentially higher rates for China. His pro-tariff stance might not overcome his climate change skepticism.
The effectiveness of linking climate and trade in reducing emissions depends on policy implementation. Well-designed policies can create a level playing field, ensuring all companies bear emissions costs, while poorly designed policies could disrupt trade without achieving emissions reductions. A major concern is the U.S. imposing carbon tariffs without a domestic carbon price, potentially benefiting some U.S. firms.
Despite uncertainty under a second Trump administration, the discussion highlights the energy transition’s economic impact and trade’s unexpectedly significant role.