Four Ways to Align National Trade Strategies with Climate Actions

Aligning national trade strategies with climate commitments fosters sustainable growth and resilience in developing economies. Integrated policy frameworks, multilateral cooperation, climate-resilient infrastructure, and capacity building can achieve this balance.

As climate change reshapes the global economy, aligning national trade strategies with climate action is essential. 

Developing countries in Asia and the Pacific urgently need to adapt their trade policies to meet climate goals, according to the Aid for Trade in Asia and the Pacific Report 2024. 

Despite significant progress, cross-border trade remains highly carbon-intensive, and traditional trade policies often neglect their environmental impact.

This challenge is particularly severe for developing countries, which rely on trade for growth but face unique hurdles in transitioning to a green economy. 

Here are four critical policy options to align trade strategies with climate action.

Develop Integrated Policy Frameworks. The challenge lies in accelerating the decarbonization of trade without compromising economic growth. Traditional trade policies have prioritized trade benefits, often overlooking environmental consequences, exacerbating climate change. Aligning trade and climate goals is crucial, especially for developing economies that must balance climate action with urgent developmental needs.

Countries must embed climate considerations directly into trade policies through integrated policy frameworks. These frameworks should align national trade policies with climate commitments such as Nationally Determined Contributions and National Adaptation Programs of Action.

To do this, they need to establish inter-ministerial committees that ensure cohesive policy development supported by policy development workshops and training programs. These committees can foster cross-sector collaboration, incorporating input from agriculture, energy, transport, R&D, and other key industries to create comprehensive policies that balance economic and environmental objectives. For example, Indonesia’s structured approach to embedding climate action within its policy frameworks is discussed in the World Bank’s Climate Change Development Report.

Countries should leverage data sharing and technology by developing interoperable systems for trade and climate data collection to facilitate evidence-based policymaking. Joint performance metrics between trade, environment, and other ministries including the development of embedded emission accounting systems can help measure the impact of integrated policymaking while ensuring compliance with international standards.

Strengthen Multilateral Cooperation on Climate and Trade. Trade policies can lead to environmental degradation when countries lower standards to attract investment, undermining global climate efforts. Inconsistent standards across borders weaken regulations, while stringent environmental laws adopted abroad can erode trade competitiveness in developing nations, widening the development gap. 

Strengthening multilateral cooperation is essential. Economies must harmonize environmental standards and participate actively in global climate initiatives like the Paris Agreement. Cooperation should offer support to help developing countries comply with regulations without hindering economic growth, while fostering green technology diffusion.

Countries should incorporate environmental standards into trade agreements to drive the adoption of greener technologies and practices across industries.

It is also vital that trade in environmental goods and services be liberalized to promote access to green adaptation and mitigation technologies through trade agreements to help countries transition toward sustainable trade practices.

We need to support developing countries adapt to green trade measures, such as the EU’s Carbon Border Adjustment Mechanism, which should be accompanied by adaptive strategies to mitigate any negative effects on trade and economic growth in developing countries.

Aligning national trade strategies with climate actions is an environmental and economic necessity.

Use Trade Policy to Promote Climate-Resilient Infrastructure. Climate change increasingly disrupts global trade by damaging infrastructure. Extreme weather events pose risks to trade routes and supply chains, particularly in developing economies with less resilient infrastructure. 

In addition, adopting climate-resilient technologies has a short-term cost that most developing countries find difficult to bear. Green technology innovation is concentrated in a small number of economies, with 93%–94% of global patents originating from just five economies (the People’s Republic of China, Japan, the United States, the Republic of Korea, and Germany).

Countries should integrate climate adaptation into trade policy by leveraging tools similar to those used for climate mitigation. This can be achieved by using trade agreements and incentives to encourage investments in climate-resilient infrastructure, such as ports and energy systems designed for extreme weather resilience.

It is crucial that we incentivize Investments in climate-resilient infrastructure through trade agreements, focusing on critical areas such as ports and energy systems.

We must also facilitate the transfer of green technologies to developing countries to help build resilient infrastructure, while acknowledging the significant role of trade in promoting innovation. For example, the Aid for Trade in Asia and the Pacific Report 2024 highlights that a 1% increase in (green goods) imports is associated with a 0.49% (0.35%) increase in green patent applications. Singapore’s Green Plan emphasizes sustainability and investment in climate-resilient infrastructure.

Build Capacity for Implementing Climate-Aligned Trade Policies. Many countries, especially in the developing world, lack the capacity to implement and enforce climate-aligned trade policies effectively. This gap can lead to weak enforcement and suboptimal outcomes.

Building capacity is crucial for enabling countries to implement and enforce climate-aligned trade policies. This involves enhancing policymakers’ skills through technical assistance, improving institutional frameworks, and developing robust monitoring systems.

For policymakers and trade negotiators to deeply understand climate issues and integrate them into trade negotiations and agreements, we need to fund capacity-building programs. For instance, the Asia Pacific Adaptation Network supports such efforts.

Development organizations should develop platforms to share climate-smart trade policies among developing countries. Fiji’s Ministry of Waterways and Environment, which includes climate change in its portfolio, illustrates how trade and climate objectives can be interlinked. 

We need to encourage the establishment of dedicated ministries or governmental bodies focusing on climate change that collaborate closely with trade ministries, as seen in Indonesia and Singapore.

Aligning national trade strategies with climate actions is both an environmental imperative and an economic necessity. Tailored approaches that consider the diverse contexts and challenges of different countries are crucial to ensuring that climate action supports global development.

Source: blogs.adb.org