What does trade mean for the Paris Agreement?

17 November 2016
ITC News
Speech delivered by Anders Aeroe, Director, Division of Enterprises and Institutions - ITC

Good Afternoon, by way of introduction, ITC is the joint technical assistance agency of the UNCTAD and WTO based in Geneva Switerland. ITC provides Aid for Trade capacity building to SMEs, Trade Support and Investment Institutions and policy makers to enable countries compete more effectively.

I would like to speak about how trade and climate policy are mutually supportive. More specifically the perspective of SMEs and how can trade support the implementation of the Paris Agreement.

The first issue to consider is how the Paris Agreement will have an impact on SMEs exporting from developing countries. A global transition to a low carbon economy will result in growth in low carbon industries and services whilst reducing employment in fossil fuel intensive industries. Managing a “Just Transition” will be a major challenge given the current high levels of employment, inequality and poverty levels. However, the transition has to be made to address the climate crisis we face.

There is understandable concern about the social and business costs of this transition.
New climate policy initiatives will have both positive and negative impacts on developing countries. Trade related measures like trade tariffs and border carbon adjustments may lead to impacts on economic growth, employment and the environment. Of particular relevance to ITC’s clients, namely SMEs, new market requirements relating to climate are already emerging. Carbon standards and reporting requirements impose compliance costs on SMEs. For example, major buyers require their suppliers to collect information on carbon emissions in production and processing and even demonstrate investments made in reducing emissions.

Retailers have gone a step further and developed carbon standards to inform consumers on the carbon footprint of a product. Companies that ITC has worked with in the agricultural sector in Africa complain that this is a new non-tariff barrier to their export, without financial benefit for them. Indeed it is larger companies that are better positioned to absorb the fixed cost of reporting. ITC’s tool Standards Map increases the transparency of standards in trade, thus reducing the transaction costs for SMEs.

Climate policies however have a positive side for business too. They create opportunities for businesses that are able to innovate in the low carbon economy. White goods have for many years been labelled according to their energy efficiency rating – these initiatives drive efficiencies and innovation. New opportunities are emerging for exporters in the climate economy, for example supplying components for renewable energy technology and public transport systems. In the natural resource sectors, SMEs are adding value by targeting niche ethical consumer segments. Certified product markets for example sustainably sourced timber can reach 50% market penetration in some developed countries markets.

Building a business environment that is conducive to innovation and competition should be a strategic priority for countries that want to keep ahead of the game and compete in the climate economy. The youth, who are a strategic focus on ITC’s programming, will need education and training programmes to enable their entry in the relatively higher skill requirements of the climate labour market.

I have raised the issue of how climate policies will impact trade and ITC’s clients, namely SMEs. I would now like to flip the question and ask how can trade and the hundred of thousands of SMEs around the world support climate objectives.

Trade is part of the solution not the problem. The recent discussions around CETA and TTP have placed the spotlight on how people feel trade has generated inequalities and lacks transparency. In the multilateral community, we certainly need to have conversations around the impact of globilization as recent political events have demonstrated. However, this should not distract us from the message that trade has an important role to play in helping us to achieve our climate goals and to implement the Paris Agreement.

Trade has four positive impacts on mitigation that my colleagues will have alluded to as well:

1. Trade enables companies to achieve economies of scale reducing production costs of climate mitigation technologies.
2. Trade enables countries to deploy climate technologies quickly around the world;
3. Trade stimulates investment in renewable energy and public transport systems, information technology and other key sectors of the low carbon economy, and;
4. Trade fosters competitive markets that encourage individuals and SMEs to innovate and produce climate solutions at low cost

Trade is also important for building resilience to climate change. For example, climate change is severely impacting on access to food for rural communities across the developing world. Trade enables regions and countries that have excess food to trade with those in food deficit. Raising trade barriers exacerbates food insecurity. Trade generates foreign exchange that enable countries to invest in its ports, roads, rail and energy infrastructure that builds resilience to climate change.

Trade is part of the solution to implement the Paris Agreement. The political winds are changing and there is the danger that trade is seen to be part of the problem. Local consumers instinctively “buy local” despite higher costs for them. ITC analysis shows that it is better for the climate and the wallet to import some foods. For example, we know that lamb imported from New Zealand has a lower carbon footprint than that produced in colder climates in the north. But we should also think about “fair miles”, not “food miles”. A farmer producing vegetables in fields of Morocco has a personal carbon footprint 1/40th the size of a consumer in northern Europe. Why shouldn’t that farmer benefit from the trade? Wages in the export agricultural business are a fast track to reducing poverty. Reducing poverty increases resilience to climate change impacts.

The Paris Agreement has committed UNFCCC Parties to reduce their greenhouse gas emissions. Nationally Determined Contributions from Parties are broad and wide ranging, impacting on many different areas of the economy. Given the wide scope of the NDCs across all sectors, trade is already entwined in how countries will deliver on the Paris Agreement. ITC stands ready alongside other trade and development agencies to support UNFCCC Parties in using the tool box that trade policy provides to support Agenda 2030 and the effective implementation of the Paris Agreement