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Net Zero requires action on trade for businesses, Study finds

WTO, UNFCCC urge decarbonisation across supply chains

For businesses to reach their emission targets, the global trading system needs to adapt, and businesses are calling for the change.

These are the main findings of the Delivering a Climate Trade Agenda: Industry Insights Report, released today (Monday), by the World Economic Forum (WEF), in collaboration with Clifford Chance, a global law firm with significant depth and range of resources across five continents.

The six-month study is based on research and interviews with global companies, across sectors including transport, energy, manufacturing, and consumer goods.

The objective of the study was to identify necessary changes to the current global trade system and how to better incentivize and accelerate decarbonisation.

Key actions

The report also outlines eight key actions that, if taken by governments and businesses, could make global trade a better enabler of climate action to support businesses to decarbonize and grow sustainably. These include:

  • Tariff reductions on key goods;
  • Addressing non-tariff distortions in parallel;
  • Phasing out fossil fuel subsidies;
  • Building coherence around carbon-based trade policies;
  • Supporting trade in digital and climate-related services;
  • Encouraging climate-smart agriculture;
  • Aligning trade agreements with climate commitments; and,
  • Facilitating green investment.

Head of International Trade and Investment, Sean Doherty, said: “Traditionally, trade and climate policy-making has happened in separate silos. The urgency of the climate crisis calls for us to break down these silos through public-private cooperation in order to accelerate emissions reductions while achieving prosperity for all. The good news for policy makers is businesses are ready and willing to support this change.”

Similarly, Partner at Clifford Chance, Jessica Gladstone, said: “International trade will play a key role in achieving a just transition to a low-carbon sustainable global economy. Businesses stand ready to lead in this transition, but governments can support by ensuring the right legislative and regulatory structures are in place. Our report explores global and domestic policy actions that can create climate-friendly trade that is fair, transparent, and has technology and innovation at its core.”

WTO, UNFCCC ready to assist

The report also includes a jointly-authored foreword by the World Trade Organization (WTO) Director General, Ngozi Okonjo-Iweala, and the United Nations Framework Convention on Climate Change (UNFCCC), Executive Secretary, Patricia Espinosa, welcomed the insights from business.

Trade policymakers can also encourage a speedy transition to carbon neutrality throughout the supply chains of internationally traded goods, stimulate investment in key sectors of the climate economy, reduce environmentally harmful subsidies, promote international standards, improve regulatory coherence and foster innovation.

According to them, the actions suggested in the report, including incentives to business “would send a useful signal to regional and global markets, and help countries to move quickly to apply technology alternatives. But this is only one of many other pathways by which businesses and trade cooperation can support the objectives of the Paris Agreement.

“Trade policymakers can also encourage a speedy transition to carbon neutrality throughout the supply chains of internationally traded goods, stimulate investment in key sectors of the climate economy, reduce environmentally harmful subsidies, promote international standards, improve regulatory coherence and foster innovation.”

They drew attention to the latest Intergovernmental Panel on Climate Change (IPCC) report, which called for immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5 degrees Celsius or even 2 degrees Celsius.

“Only with deep and rapid cuts in emissions of greenhouse gases can we stabilize rising temperatures. Bringing this about will require significant changes by governments, businesses and civil society to transition to clean and sustainable economies across the board in a just way – affecting all sectors from energy generation, transport, manufacturing and services to agriculture,” they added.

They noted that a key factor in the way forward will be to ensure that the green transition is also just and inclusive, especially where the needs and capabilities of developing countries are concerned, while reassuring that the UNFCCC and WTO “stand ready to help governments and businesses engage in an open and informed dialogue that can ensure trade and climate policies go hand in hand.”

Businesses are therefore encouraged to take steps to encourage alignment of trade rules with climate action. To this end, WEF also launched a two-year work programme, titled: Climate Trade Zero, to support public and private exchange on these issues as part of building a more sustainable trading system.

The Forum added that many companies also recognized that the transition is taking place at different speeds and levels of intensity across countries and sectors.

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