What is COP26 and why is everyone so interested in it?

The 26th Conference of Parties, known as COP26, commenced on 31 October 2021, and will run until 12 November 2021. With the UK as the current COP President, it chose to host this year’s gathering in Glasgow. The COP is the largest and most important negotiation session held by the UNFCCC (United Nations Framework Convention on Climate Change) secretariat. [1] We explore why this particular COP gathering has been receiving so much attention. We also assess the potential outcomes of COP26 and what the this means for International Trade.

At the COP21 held in 2015, the Paris Accord was adopted by 196 countries [2]. The main aim of this agreement is to limit global warming to well below 2ocelcius, preferably 1.5ocelcius, compared to pre-industrial levels by the end of this century. In addition to this, several countries have committed to the ‘Race to Zero’ which is attaining net-zero carbon emissions by 2050 at the latest.

The conundrum of Economic Growth and Climate Change

GDP and population growth are seen as the biggest drivers of CO2 emissions [3]. Green House Gases (GHG’s) and other climate considerations are intricately intertwined with International Trade. Throughout the entire value chain, from manufacturing, production, shipping, distribution and selling there are many points where importing, exporting, and processing countries are party to harmful impacts on the environment. Everything from the energy we use to power our homes and businesses to the cars we drive, the food we eat and the clothing we wear all makes an impact on the environment [4]. Complex global production networks have also intensified the flows of production across the globe and increased emissions.

One of the key discussions in the COP26 negotiations is how to balance the role that developed nations have historically played in creating the current climate crisis with that of the need for developing nations to build their economies. Developing countries are arguing that it is unfair to start imposing restrictions on them now when developed countries have already built strong and robust economies with little to no restrictions and have contributed to the current climate crisis. This will lead to an uneven playing field.

Through UNFCCC’s work a number of streams have been identified that need to be invested into in order for developing nations to be able to equitably participate in meeting net-zero goals while at the same time build their economies and reduce poverty. [5] These include financing and building of technological capacity, finance and investment into governments, projects and communities as well as strengthening capacity and infrastructure throughout all levels of society.

Walking the Talk – Developed Nations pledge funds

Developed nations seem to be stepping up to the plate by committing investment to developing nations to help build these streams to assist them in reaching the Paris Accord requirements. These include packages of guarantees to the World Bank and the African Development Bank to provide £2.2bn for investments in climate related projects in India and across Africa. The UK’s development finance institution, CDC, will commit to deliver more than £3bn over the next three to five years to finance ‘green growth’ which includes scaling-up technology to help communities deal more efficiently with climate change. [6] In what is seen as a model for assisting developing countries, the UK, US, and France have committed an initial $8.5bn in funds to help South Africa transition from reliance on coal and to more realistically reach its 2030 and 2050 goals. The US President emphasised that high levels of funding will be needed to help developing nations transition away from fossil fuels. [7]

How Trade Policies are affected by Climate Change imperatives – what does it mean to you?

Trade Policies can work to remove several hurdles faced by developing nations in their journey to building greener and more sustainable economies. Removing barriers to trade in products, identifying non-tariff barriers to trade in environmental goods and aligning regulatory frameworks at all multilateral levels of trade, as well as mechanisms for monitoring effective implementation of commitments will all assist in developing nations reaching their climate ambitions. [8] Creating fair and equitable access to the carbon market, considering geographical locations of production and distribution of goods and the subsequent carbon taxes tallied will also go a long way to ensure parity in efforts to attain net-zero targets.

As negotiations between countries at COP26 continue, developed and developing countries alike will be looking to ensure that their interests are being looked after. But long after the promises and commitments verbalised at the conference, what is clear is that an understanding of Trade Policies and how ‘green requirements’ impact these policies are key to ensuring that countries continue to boost trade while adhering to climate change commitments.

As an initial guide, below are some suggestions to how countries can begin operationalising climate change imperatives:

  • Commit to and publish baseline conditions and targets. ESG and other Sustainable Development Goals (SDG’s) can help guide the baseline targets.
  • Set out a strategy to achieve targeted reductions in GHG emission and increase environmental and social responsibility. For example, using ISO standards is one way to measure the reduction of waste.
  • Map supply chains and screen the ESG aspects linked to employing those supply chains.

At a strategic level, the following is suggested:

  • Build coalitions and partnerships that work towards the liberalisation of trade in environmental goods. Initiatives such as these can link trade policy and environment and positively contribute to a sustainable eco-system. This can create a “win-win” situation by boosting global trade in green products and supporting green industry globally.
  • Commit to negotiating stronger environmental and sustainable development provisions in future trade agreements. The UK-Japan trade agreement, for example, recognises the important role of the environment in the country’s sustainable development.
  • Join the negotiations over the Agreement on Climate Change, Trade and Sustainability (ACCTS). According to the joint statement at the launch, the ACCTS agreement intends to remove tariffs on Environmental Goods (EGs) and make new commitments on Environmental Services (ESs).
  • Develop voluntary guidelines for eco-labelling programs and mechanisms.
  • Promote and raise awareness for businesses, on Articles 6.2 on carbon credit transfers and 6.4 of the Paris Climate Agreement on sustainable development mechanisms, regarding transfer of carbon credits between countries.

Let International Economics Consulting partner with you

At International Economics Consulting (IEC), our team of highly trained economists and consultants continue to advise our clients on trade policy and changes relating to this because of climate change requirements. We are currently advising a South-east Asian government on the potential gains and losses that may result from the signing of a Free Trade Agreement, particularly looking at the environmental aspect which includes GHG emissions and resource depletion. Using modelling frameworks, we are able to analyse how the increase in the production of textiles may be linked to greater use of chemicals with risks to the contamination of inland waterways. We were also able to analyse how the expansion of commercial crops lead to increased carbon dioxide, and less carbon sink and habitats for biological resources. Moreover, sector-specific outcomes will also have particular impacts and our team are able analyse these impacts to businesses and craft strategies with leadership that will ensure compliance to ‘green requirements’ while at the same time ensuring commercial prosperity.

Our team also recently completed work for UNESCAP on trade and sustainability, including a training course for policy makers, analysed the impact of trade and climate change on African SIDS, prepared a position paper for the UK APPG in trade and investment, and assessed for South-east Asian and African nations the opportunities and impacts of trade agreements on their economies.

Contact us on info@tradeeconomics.com to find out more about how our team can help you make sense of COP26 and other climate change impacts and requirements in your business.

Paul Baker is the founder and CEO of IEC. He is a consultant for various governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s TradeTech Working Group on AI, IOT, Blockchain and Digital Identities for trade, and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Committee on Trade.

 

References:

[1] About the Secretariat | UNFCCC

[2] Paris Agreement – Status of Ratification | UNFCCC

[3] WTO | Trade and environment

[4] “The Trade and Climate Change Nexus” Brenton, P. and Chemutai, V. (2021)

[5] Four ways the UK can bring climate and trade agendas together at COP26 | ODI: Think change

[6] Around 120 leaders gather at COP26 in Glasgow for ‘last, best chance’ to keep 1.5 alive – UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (ukcop26.org)

[7] Global Finance Ministers gather to discuss how public and private finance can lead the transition to a net zero, climate resilient world – UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (ukcop26.org)

[8] “The Trade and Climate Change Nexus” Brenton, P. and Chemutai, V. (2021)