UNCTAD study shows trade’s untapped potential in climate action

Trade policies can help countries catalyze progress towards their climate goals but remain underused in practice. Stronger global cooperation is necessary to change course.

An UNCTAD study released at COP28 examines how 60 developing countries have integrated trade into their national pledges under the Paris Agreement, known as Nationally Determined Contributions (NDCs).

The study, whose launch coincided with the summit’s inaugural “Trade Day” on 4 December, maps out how trade is systematically used in these national climate plans.

“The mapping exercise shows trade policies’ untapped potential in climate action,” said Miho Shirotori, head of UNCTAD’s international trade division.

“Trade could play a much bigger role in cutting emissions and preserving resources by facilitating access to low-carbon technologies and environmentally preferable goods and services.”

680 trade-related measures

The study identified 680 trade-related measures within the examined NDCs.

In general, the study shows that most of them focus on increasing renewable energy, enhancing energy efficiency and promoting green value chains.

While direct trade policies like tariffs and technical regulations are less prominent, UNCTAD emphasizes their significance.

For example, UNCTAD estimates reveal significant market barriers for renewable energy systems and components. On average, tariffs on these products are about double those applied to fossil fuels in both developed and developing countries.
 

A detailed breakdown

Here are the report’s key findings.

• Renewable energy and energy efficiency: These are the most common measures, adopted by over 50 countries in the study. They often lead to increased imports of renewable energy equipment like solar panels and wind turbines.
• Green value chain development: Aiming to reduce greenhouse gas emissions and enhance sustainability in value chains, these account for 31% of all measures in Africa, 35% in Asia and 38% in Latin America and the Caribbean.
• Technical regulations: Including minimum energy performance standards and labeling requirements, these are the most frequently used measures to ensure, for example, that imported products meet specific carbon emission and efficiency standards. UNCTAD has identified over 2,360 climate change-related non-tariff measures (NTMs) regulating 26.4% of world trade, equivalent to $6.5 trillion.
• Green industrial development: These measures aim to develop low-carbon green value chains and economic diversification. About 20% overlap with green value chain development efforts.
• Market-based measures: These include carbon credit schemes and subsidies, and more than half identified in the study are related to REDD+ (Reducing emissions from deforestation and forest degradation). Measures linked to REDD+ were identified in 53% of NDCs from Latin American and Caribbean countries and 35% from African nations.
• Other trade-related measures: These include references to subsidies, tax credits, public procurement and tariffs (35 measures). They focus mainly on incentivizing eco-friendly practices like electrical mobility and energy efficiency.

A call for better coordination

While many trade-related measures are present in the NDCs, trade is rarely explicitly cited as a policy tool for carbon reduction targets. This suggests limited involvement of trade ministries in NDC preparation.

The study therefore calls for improved coordination and greater involvement of trade stakeholders and ministries in the NDC elaboration and validation processes.

“Trade is an umbrella that can be a force multiplier that will lead to decarbonization,” Aik Hoe Lim, director of the World Trade Organization’s trade and environment division, said during a COP28 Trade House event during which the UNCTAD study was presented.

"Trade policy tools can help countries increase low-carbon goods uptake by reforming import tariffs, rethinking government procurment and promoting trade facilitation," Mr. Lim added.

The study also highlights the importance of bolstering international cooperation to ensure that technical and other trade regulations don’t unnecessarily restrict developing countries’ market access, especially to low-carbon technologies.

“Trade is part of the solution to both climate change and the Sustainable Development Goals,” said Chantal Line Carpentier, head of UNCTAD’s trade, environment, climate change and sustainable development branch.

“But we need to make trade work for us,” she concluded.