The Climate Cost of Free Trade

How TPP and trade agreements undermine the Paris climate agreement

By Ben Lilliston   
Published September 6, 2016

TradeTPPClimateClimate ChangeFree trade agreements

On Earth Day 2016, the U.S. joined 175 countries in signing the United Nations Paris climate agreement setting a path forward to reduce global greenhouse gas emissions.1 A few months earlier, the U.S., along with 11 other countries, signed the Trans Pacific Partnership (TPP) trade and investment deal.2 Remarkably, neither agreement acknowledged the other. The Paris agreement was silent on trade, and the TPP ignored the climate. As countries take action to protect the climate, conflicts between trade rules and climate goals will escalate. The intentional separation of these two global priorities is becoming increasingly untenable.

In this paper we’ll look at real world examples of how trade rules already conflict with climate goals, and dig into the TPP more deeply to project how the proposed deal creates barriers for countries trying to meet their Paris climate pledges. Along the way, we will review a variety of trade reform proposals designed to address our dysfunctional and climate-damaging trade regime.

At the heart of the Paris climate agreement are national-level plans, called Intended Nationally Determined Contributions (INDCs), to reduce greenhouse gas (GHG) emissions.3 Though these INDCs are voluntary, they are considered a critical first step for an agreement designed to progressively ratchet up national commitments to collectively limit a global temperature rise to 1.5 degrees Celsius above pre-industrial age levels. Within each INDC are goals, policies and strategies to reduce GHG emissions and adapt to climate change in various sectors.

The goals for trade agreements including the TPP are much different, and often conflict with climate objectives. Trade agreements are first and foremost about expanding trade, often in highly extractive, energy-intensive sectors. They are also about protecting the rights of corporations and financial firms, undermining and lowering regulations intended for the public good, dictating government spending, and strengthening intellectual property rights. In other words, trade agreements set broad-reaching rules for the economy and government policy that often adversely affect the climate.

In almost every respect, the TPP and other trade deals like it are in deep climate denial. For example, climate concerns are completely absent in the 1994 North American Free Trade Agreement (considered the template for future free trade deals),4 as they were in the formation of the World Trade Organization (WTO) in 1995.5 We are now dealing with the consequences of that neglect.

The era of modern trade deals has had a profound impact on the global economy. The value of world trade has more than quintupled, from $8.7 trillion in 1990 to more than $46 trillion in 2014, according to the World Bank.6 World export volume has grown 32-fold between 1950 and 2010, according to World Trade Organization data.7 Global trade has skyrocketed in fossil-fuel intensive sectors like agriculture, forestry, and the energy sector itself.

Research assessing the precise and expansive impacts of free trade agreements on greenhouse gas emissions and climate change is beginning. An international team of researchers estimate that more than a quarter of global carbon emissions in 2008 were related to internationally traded goods and services.8 That same research found that emissions from the production of goods exported from countries with no GHG reduction commitments (aka non-Annex B countries) to countries which did (aka Annex B countries) increased by more than 130 percent from 1990-2008. They concluded that: “international trade is a significant factor in explaining the change in emissions in many countries, from both a production and consumption perspective. We suggest that countries monitor emission transfers via international trade, in addition to territorial emissions, to ensure progress toward stabilization of global greenhouse gas emissions.”9

Aside from associated emissions, this expanded era of globalization may also have implications for dealing with the effects of climate change. As supply chains have become global, new research indicates that they’ve become more vulnerable to disruption from extreme weather events, and that increased global trade could increase climate-related financial losses.10

As countries implement their national climate plans, we can expect an increase in formal legal challenges under trade agreements, which will have serious climate change and energy policy ramifications. We have already seen corporations and governments use trade and investment rules to challenge the U.S. decision to reject the highly-controversial TransCanada Corporation’s Keystone XL pipeline; and we have also seen trade rules used to challenge India’s popular domestic solar program.

Beyond influencing energy policy explicitly, existing free trade deals further entrench an export-oriented, industrial model of agriculture that is itself a significant contributor to climate change. Yet policies to support climate-resilient farming systems, such as allowing grain reserves to protect farmers from market volatility or incentives for long-term investments in adaptation strategies like agroecological practices, are often discouraged by the WTO and free trade deals like the TPP.

Conflicts between climate goals and trade rules will multiply should TPP go into effect. The massive, 5,000-page, 12-nation deal between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam is the largest free trade agreement ever negotiated – setting rules for 40 percent of the world’s Gross Domestic Product. The TPP is designed to be a “living agreement” where new members can be added over time (South Korea, Indonesia and Thailand are already voicing interest) and with provisions for a gamut of ongoing committees to continually revise rules. The deal takes on particular significance because it is viewed by the U.S. Trade Representative as precedent setting for future regional and multilateral trade agreements.11

Finally, issues of equity plague both trade and climate policy. A growing body of evidence indicates expanding income inequality in the free trade era. Economists from Tufts University project further increases in income inequality as a result of TPP.12 Equity issues have long been part of the climate change debate as well. These challenges center around who’s responsible for climate change; who will experience the harm it causes; who will pay the price for it; and even who will benefit from it. Equity permeates international discussions at the UNFCCC, national and even regional climate policies—such as the California carbon market. Confronting inequity must be at the center of reconciling trade and climate policy arenas.

The good news is that the TPP is falling under increased scrutiny and criticism from a wide range of perspectives – including those focused on climate change. The TPP is now a hot button issue in the U.S. Presidential race with Republican and Democrat candidates stating their opposition to it. TPP backers, primarily multinational corporations and financial firms, are launching an aggressive lobbying campaign to quietly pass the trade deal during the lame duck session after the November elections.

While the rejection of the TPP is an important first step, much more is needed to bring existing trade rules into line with the Paris climate agreement. Fortunately, there is no lack of innovative thinking about how to reform existing trade rules to respond to the climate crisis—ideas that complement reform proposals from civil society groups over the last three decades. Many proposed reforms focus on limiting the far-reaching scope of modern trade agreements -- those that have sprouted tentacles reaching everything from intellectual property rules, to weakening health and environmental rules, to creating special corporate courts that benefit multinational firms. Other proposed reforms focus on the trade dispute process, as well as how to provide the flexibility necessary to protect domestic food and energy production. These proposals launch us toward more fundamental and urgent trade policy reforms vital to our ability to limit global temperature rise to 1.5 degrees C as agreed to under the Paris climate agreement.

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Read the executive summary.