Looking towards COP29: Aligning trade and climate action

Investment and trade as vehicles for climate action 

International investment and trade are key drivers of global growth and raising living standards around the world. However, the business-as-usual scenario in the global trading system is not conducive to meeting the Paris Agreement climate goals, with around 20–30% of global CO2 emissions associated with international trade. 

Global supply chains heavily rely on fossil fuels, whether in manufacturing processes, transportation, or logistics, adding significantly to emissions. Moreover, existing trade agreements often undermine climate objectives, lacking mechanisms that encourage or enforce low-carbon technologies (LCT).  

However, mitigation policies, including carbon pricing policies are on the rise, with 75 carbon taxes and emission trading schemes currently in effect worldwide, covering approximately 24 per cent of global emissions. 

Yet, reconfiguring climate and trade policies further can foster the diffusion of low-carbon technologies. In particular, the participation of Global South countries in the supply and value chains of LCTs must be supported, ensuring they can contribute to and benefit from global decarbonisation.  

The road to COP29 

This week, with less than three weeks remaining until COP29, and coinciding with the UN Biodiversity Conference (COP16) in Colombia, the 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) are being held in Washington, D.C. 

At a time when financing the green transition is at a top priority for country leaders, five international organisations released a landmark report on Wednesday (23 October) at the Annual Meetings, outlining pathways for coordinated approaches on climate action, carbon pricing, and the cross-border effects of climate change mitigation policies with a view to achieving global climate goals. 

Working Together for Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals was presented on the 23rd of October by the Joint Task Force on Climate Action, Carbon Pricing, and Policy Spillovers, convened by the World Trade Organisation (WTO) and joined by the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), United Nations Trade and Development (UNCTAD), and the World Bank. 

The report provides a common understanding of carbon pricing metrics to improve transparency on how countries are shifting incentives for decarbonisation. It examines the composition of climate change mitigation policies, emphasising the important role of carbon pricing as a cost-effective instrument that also raises revenues. 

It also outlines how international organisations can support the coordination of policies to foster positive and limit negative cross-border spillovers from climate change mitigation policies. Additionally, it analyses the advantages and disadvantages of carbon border adjustment policies, including their impact on developing countries. 

The report also makes clear that international organisations' future work can help fill important knowledge gaps. These include a need for more granular and better data on embedded carbon prices and embedded emissions, the design of border adjustment policies and their interoperability, and other approaches to enhance cooperation to increase ambition and ensure a just transition for all. 

WTO Director-General Ngozi Okonjo-Iweala said: "Trade-related climate policies are on the rise, with over 5,500 measures linked to climate objectives notified to the WTO from 2009-2022. Such policies lead to cross-border spillovers which can increase trade tensions and retaliatory trade actions. Future work by international organisations should focus on concrete ways to come to the coordination of more ambitious carbon pricing policies which help to close the climate action gap and address their cross-border spillovers. This may require a framework to ensure interoperability between carbon pricing and other climate mitigation policies." 

COP29 and the Climate Action Innovation Zone 

On November 14, the COP29 Presidency will host its thematic day on Finance, Investment and Trade, focusing on 'greening trade' through promoting environmental goods and low-carbon technologies.  

A high-level meeting on the Baku Initiative for Climate Finance, Investment and Trade (BICFIT) will take place, addressing the nexus of climate finance, investment and trade, with a platform to promote investment into green diversification, support policy development, and share expertise through dialogue. 

In parallel, the Climate Action Innovation Zone will host its Sustainable Innovation Forum on 13-14 November. The busy agenda includes Amy Merrill, Chief Executive Officer of the Integrity Council for the Voluntary Carbon Market (ICVCM); Olga Hancock, Head of Responsible Investments at Church Commissioners of England; Hannah Cool, Chief Operating Officer of Bankers for Net Zero; and Tina Reine, Chief Commercial Officer of Zefiro Methane Corp, who will taking a deep dive into the rapid development of the carbon market’s parameters and standards to better understand how it can drive companies’ net zero ambitions.    

To find out more and to register, visit https://events.climateaction.org/innovation-zone/whats-on/flagship-events/