Trade and Climate Change: Economic Imperative or Green Imperialism?

Trade and climate policies have become increasingly entwined as countries grapple with the challenge of integrating economic interests with the management of climate change.

What are the economic effects of trade and climate change policies, and how can different viewpoints between developed and developing countries be reconciled?

Key Points
• The big growth story of the next two to three decades will be low-carbon technologies
• The climate change debate cannot allow for the introduction of protectionist trade barriers
• A respect for green-friendly technological innovations in developing countries may shift the terms of debate on intellectual property

Synopsis
The process of carbon mitigation can either improve the lives of everyone or bring global economic trade to a grinding halt. Business leaders recognize both the urgency of the problem and the opportunities. For example, both pension fund managers in New York overseeing trillions of dollars and China's next Five-Year Plan place low-carbon and energy-efficient technologies at the top of their list of priorities.

The alternative energy sector – comprised of hydropower, solar, wind, biomass and ocean energy, among others – is a US$ 125 billion industry. By 2050, that figure might rise to US$ 1 trillion. Investors will seize upon opportunities in this sector if policy is properly set, there is the right balance of incentive structures and protectionist trade barriers are mitigated. A clear, strong agreement at the UNFCCC meeting in Copenhagen is fundamental to unleashing private sector forces, although expectations for a legally binding treaty have recently been downgraded, with some now saying that an agreement may take another few years. Discussions in the lead-up to the climate change conference reveal that developed economies fear losing their standard of living, while developing countries are afraid their growth process will be stymied.

However, India recognizes that achieving growth rates of 8-9% will be impossible unless they shift to renewable energy. India's national action plan calls for the installation of 20,000 megawatts of solar power in the next 10-12 years at a cost of billions of dollars. This plan has not been imposed by the outside, but decided on by the government because “it is good for India”. Improving the lives of hundreds of millions of people, climate change and development are interlinked.

Panellists from the private sector voiced concern that climate change negotiations can dominate trade. The reality is that costs associated with adopting green technologies are far less (1-2%) than the tariffs that trade lobbies are requesting (around 20%). A narrow view of costs, self interest and an artificial competition between growth and responsibility can slow progress.

Failure to put a price on greenhouse gases results in subsidizing pollution. At the same time, if customers demand products that are green, then businesses will rise to meet that demand.

Instead of blaming each other, countries must collaborate, especially in developing energy-saving technology, renewable energy and alternative fuels.

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