UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT CLIMATE CHANGE, GREEN RECOVERY AND TRADE UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT CLIMATE CHANGE, GREEN RECOVERY AND TRADE Geneva, 2021 ii © 2021, United Nations This work is available through open access, by complying with the Creative Commons licence created for intergovernmental organizations, at http://creativecommons.org/licenses/by/3.0/igo/. The findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the United Nations or its officials or Member States. The designations employed and the presentation of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Photocopies and reproductions of excerpts are allowed with proper credits. This publication has not been formally edited. United Nations publication issued by the United Nations Conference on Trade and Development. UNCTAD/DITC/TED/2021/2 eISBN: 978-92-1-005630-4 iii Contents Note ........................................................................................................................................................iv Acknowledgements ..................................................................................................................................iv Acronyms and abbreviations ......................................................................................................................v 1. INTRODUCTION .................................................................................................. 1 2. PUTTING A PRICE ON CARBON ............................................................................ 5 3. PUTTING A CARBON PRICE ON IMPORTS ............................................................. 9 4. BEYOND CARBON PRICING: SUSTAINABILITY TRANSITIONS ................................. 13 5. GREEN RECOVERY: LOW CARBON VERSUS LOW CONTACT .................................. 16 6. CLIMATE CHANGES, SO DOES TRADE ................................................................. 19 7. MARKET ACCESS VERSUS MARKET CREATION ................................................... 23 8. CONCLUSIONS ................................................................................................. 26 References ............................................................................................................................................. 30 Notes ................................................................................................................................................... 34 iv CLIMATE CHANGE, Note Reference to dollar and $ indicate United States of America dollars, unless otherwise stated. Use of an en dash (–) between dates representing years, e.g., 2015–2018, signifies the full period involved, including the initial and final years. Decimals and percentages in this document do not necessarily add to totals because of rounding. Acknowledgements This paper was prepared by Alexey Vikhlyaev, Senior Economic Affairs Officer, Division on International Trade and Commodities. The author is grateful to the following for contributing valuable information and insights to the paper: Jakob Werksman, European Commission, Vitalis Vangelis, Ministry of Foreign Affairs and Trade, New Zealand, Bernard Hoekman, European University Institute, Tomasz Chruszczow, High-level Champion on Climate, Thomas Cottier, World Trade Institute, Joost Pauwelyn, Graduate Institute, Gary Horlick, William Kojo Agyemang-Bonsu, United Nations Framework Convention on Climate Change, Kusum Lata, United Nations Framework Convention on Climate Change, Andrei Marcu, European Roundtable on Climate Change and Sustainability Transitions, Grzegorz Peszko, World Bank, Peter Govindasamy, Ministry for Trade and Investment, Morgenie Pillay, Department of Trade and Industry, South Africa, Aaron Cosbey, International Institute for Sustainable Development. Desktop formatting was done by Rafe Dent. For further information on the activities of UNCTAD’s trade and environment, please consult the following website: https://unctad.org/topic/trade-and-environment. 16 April 2021 “This is the first time in the history of mankind that we are setting ourselves the task of intentionally, within a defined period of time, changing the economic development model that has been reigning for at least 150 years – since the industrial revolution”. Christiana Figueres “We only accept change when it is necessary, and we only see necessity in the crisis”. Jean Monnet GREEN RECOVERY AND TRADE v Acronyms and abbreviations AB32 Assembly Bill 32 ACTS Agreement on Climate, Trade and Sustainability ASCM Agreement on Subsidies and Countervailing Measures (WTO) BCA Border carbon adjustment BUR Biennial update reporting CBAM Carbon border adjustment mechanism CDM Clean development mechanism CETA Comprehensive Economic Trade Agreement CMA Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement CO2 Carbon dioxide COP Conference of the Parties CORSIA Carbon Offsetting and Reduction Scheme for International Aviation COVID-19 Coronavirus disease 2019 CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership EEDI Energy Efficiency Design Index ERTCST European Roundtable on Climate Change and Sustainability Transition ETS Emissions trading system FTA Free trade agreement G20 Group of Twenty G2G Government-to-government GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GHG Greenhouse gas IATA International Air Transport Association ICAO International Civil Aviation Organization ICT Information and Communication Technologies IEA International Energy Agency IIA Inception Impact Assessment ILO International Labour Organization IMO International Maritime Organization IPCC Intergovernmental Panel on Climate Change ISO International Standards Organization ITMO Internationally Transferred Mitigation Outcomes KAFTA Korea–Australia Free Trade Agreement LDC Least developed country MFN Most favoured nation NDC Nationally Determined Contribution NGO Non-Governmental Organization NTB Non-tariff barriers to trade RTA Regional trade agreement SCC Social costs of carbon SDM Sustainable Development Mechanism SEEMP Ship Energy Efficiency Management Plan SIDS Small Island Developing States UNCTAD United Nations Conference on Trade and Development UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change WTO World Trade Organization vi CLIMATE CHANGE, GREEN RECOVERY AND TRADE 1 1. INTRODUCTION of trade and environment conflicts, prompted by the rise of green industrial policy (Wu and Salzman, 2014). In 2008–2009, financial, socio-economic and Globalization reached its peak in 2012, and since then environmental problems converged into a triple crisis. global value chains (GVCs) were turning more local There were immediate problems with the banking than regional. The average length of supply chains was system, private and sovereign debt. There were also decreasing by 52 kilometres per year (Miroudot and medium-term problems with global markets, high Nordstrom, 2019). Concerns were mounting about unemployment and growing inequality. Finally, there the impact on GVCs of catastrophic events such as were long-term problems relating to climate change, a massive tsunami that hits Japan and flooding that biodiversity loss, air and chemical pollution, freshwater submerges seven of Thailand’s largest industrial zones water and land use. in 2011. On average, every three years a catastrophic event causes disruption lasting two to four weeks The triple crisis signaled the possibility of a systemic (McKinsey, 2020a). tipping point, opening the way to a new development paradigm. Governments spent around $3.3 trillion Since then, environmental risks have consistently on stimulus measures. A substantial part of this featured among the top-ranked global concerns as spending went into green packages, which boosted evidenced by the Global Risks Reports (WEF, 2020). investment in renewable energy, energy efficiency, Concealed in these concerns are actual or potential public transport, and electrical grids (Barbier, 2011). markets disruptions and concomitant socio-economic UNEP recommended an expenditure of 1 per cent changes. Unemployment or under-employment is the of global GDP as green stimulus (UN Environment, major underlying concern, along with novel trade-offs 2009). between the digital and green transformations as well as adaptation towards equitable social outcomes However, by 2012 this window of opportunity was amidst changing demographics. already closing, with most green packages coming to an end. New financial outlays were pre-empted by Nowhere are the risks more obvious than in climate austerity measures. There was a noticeable change in change. In the 2020 Global Risk Report (WEF, 2020), political discourse. The idea of a green recovery, i.e., climate-related issues dominate all the top-five long- fixing the economic engine and putting it on a new term risks to the economic system. Two potential track at the same time, became controversial and shocks to the economy include extreme weather started to wither. The public attention re-focused on events, known as tail events or black swans (Wagner the costs. Environmental activity shifted to local and and Weitzman, 2015),