Climate Change - What's Trade got to do with it?

Climate Change - What's Trade got to do with it?
Used under creative commons license from Oxfam

In December, the world’s leaders will meet for two separate important global meetings. The global climate talks in Paris aim to chart a course for reducing greenhouse gas (GHG) emissions. The World Trade Organization ministerial in Kenya will advance global trade rules. Unfortunately, the two meetings will take place without acknowledging the inescapable connections between free trade rules and climate change.

Globalization – largely promoted through free trade agreements – has brought about more expansive and complex supply chains.1 Liberalized trade agreements, extending more rights to transnational corporations, have been linked to increased GHG emissions attributable to industrialization and the global transportation of goods and services.2 Though globalization has contributed to economic growth in some countries, there has been extensive documentation of how it has also brought increased fossil fuel consumption and environmental degradation.3,4,5

Many concerned with globalization’s effect on the environment advocate for more emphasis on localized systems. These localized systems emit fewer GHGs due to smaller supply chain networks. Nate Hagens, of the Post Carbon Institute, stated in a July 10, 2014 lecture, “A lower consumption, more local and regional future is not only needed [for reducing carbon emissions] but probably more desirable [for creating community].”

Unfortunately, there are many examples of countries and companies using provisions in free trade agreements to dismantle innovative efforts to re-localize economic activities. In September 2010, Japan and the EU successfully challenged Ontario’s use of a feed-in tariff program (FIT program) for development of its renewable energy sector. The complaint filed through the WTO challenges “buy-local” provisions within the FIT program citing “less favorable treatment to imported equipment” and that it grants “protection to Ontario production.”

Recently, the US brought about a similar WTO case against domestic content requirements under India’s Jawaharlal Nehru National Solar Mission (“NSM”) for solar cells and solar modules. Both the Ontario and India programs incentivize local procurement, the type of localization that abates the full effect of carbon emissions attributable to supply chain transportation. In addition, the programs being challenged aid in strengthening these countries domestic renewable energy industries, an industry that directly competes with and emits less carbon than the fossil fuel industry. The Sierra Club points out, “one of the main arguments of Japan and the EU, which launched the WTO case against Canada’s FIT program, is that without the buy-local provisions, Ontario’s market would not be able to sustain any domestic renewable electricity generators.” It is apparent, in these examples, that free trade not only reduces nations’ ability to create more localized systems, but also inhibits growth in renewable energy sectors.

Early in the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) the U.S posed an overt attack on these so-called "localization barriers" to trade. A leaked document from December 2013 proposed that the US and EU work together to pressure other countries to remove those barriers, including programs meant to stimulate and protect domestic industry in other countries. While that specific proposal seems to have disappeared from subsequent negotiating texts, the underlying push to dismantle more localized systems remains.

In an almost comical display of hypocrisy the U.S. safeguards its own energy-providing natural resources through the Energy Policy and Conservation Act (EPCA) which suggests the U.S. knows just how useful localization measures are for protecting public interest and industrial sectors. The EU has voiced its opposition to the EPCA on many occasions, most recently in a negotiating document on the Energy and Raw Materials chapter of TTIP leaked by the Washington Post. Ilana Solomon of the Sierra Club stated that dismantling the EPCA would establish “unfettered access to U.S. fracked gas and oil.” This is yet another example of how free trade promotes increased fossil fuel extraction and contributes to climate change.

Furthermore, free trade’s negative impact on climate can also be seen in how negotiations have influenced climate policy. The EU committed to reducing transportation emissions by 6% at the 2009 climate meeting in Copenhagen.6 To achieve this reduction the EU proposed the categorization and promotion of fuels based on GHG emissions through the Fuel Quality Directive (FQD).7 However, the FQD has been effectively scrapped due to concerns by Canada and the US “that tar sands may be unfairly discriminated against under the directive.” Euroactiv also states that North American opposition to mandatory fuel standards stems from the ongoing trade negotiations of TTIP. Additionally, an EU official told Euroactiv that the pressure to scrap the FQD came from “the US and the fossil fuels industry.” Pressure from governments and industry undermines climate policies aimed at reducing GHG emissions, and that pressure seems to indicate trade’s true directive.

Fool Me Once....

A report released in May titled “Standing Up For The Environment: Trade For A Greener World,” claims “protecting the environment is a top priority,”8 for the Obama Administration. Interestingly, this document written by the USTR and State Department ignores climate change. Presidents have claimed that trade agreements will raise environmental standards before, and the public has already been duped by this false promise. Negotiators of NAFTA understood that “[l]ow standards directly translate into lower production costs and hence a more potentially lucrative investment environment.”9 Therefore, specific provisions barring lowering environmental standards to attract investment were included  within NAFTA intended to maintain and increase environmental standards.

1.)    Article 1114 – “deems inappropriate any attempt by a NAFTA party to lower its ‘environmental standards in order to attract or retain foreign investment.’”10

2.)    Article 714 – “recommends that the three countries ‘pursue equivalence of their respective sanitary and phytosanitary standards.’”11,12

3.)    And mentioned in the Preamble to NAFTA – “The [NAFTA governments], resolve to … UNDERTAKE each of the preceding [among which is the goal to ensure a predictable commercial framework for investment that would create increased investment opportunities] in a manner consistent with environmental protection and conservation [and] STRENGTHEN the development and enforcement of environmental laws and regulations.”13

NAFTA proponents believed that, taken together, articles 1114 and 714 would only result in higher environmental standards, a process described as “upward harmonization”.14 These environmentally responsible sounding NAFTA provisions raise the question: How is NAFTA used so often in litigation challenging environmental regulations, either resulting in the repeal of laws and/or large government payouts to corporations? (e.g. Ethyl Corporation v. Canada15, Metaclad v. United Mexican States16, S.D. Myers v. Government of Canada17, Sun Belt Water Inc. v. Government of Canada18, Waste Management, Inc. v. United Mexican States19) The answer to this question is found within NAFTA’s Investment Chapter article 1110 on expropriation and compensation,20,21,22 and articles 1115 to 1138 which set out the rules for negotiation and arbitration, also known as Investor State Dispute Settlement (ISDS) provisions.23 Under these provisions, companies can sue governments over regulations and laws that undermine their expected profits. Halil Hasic, of Southwestern University School of Law, points out that because both articles 1114 and 714 lack an “enforcement mechanism”24 and use language that “indicates that compliance is voluntary,”25 neither clause can effectively safeguard environmental standards from being challenged by ISDS.

Because the negotiating texts of the TPP and TTIP are secret, we can only surmise what might be included from leaked documents and what officials have publicly revealed. Last year Wikileaks posted a version of the TPP’s Environment Chapter. Analysis of the leaked text by Professor Jane Kelsey reveal concerns, similar to NAFTA, of enforceable language and ISDS. The Obama administrations’ insistence on keeping ISDS as-is within TPP and TTIP texts directly contradicts the claim that these secret trade agreements could enhance environmental regulations in any meaningful way.

As corporate transnationalism is expanded and codified by these free trade agreements, future attempts at environmental legislation aimed at mitigating climate change and its devastating effects may be subject to litigation. We were fooled once into thinking NAFTA would raise environmental standards. Let’s not be fooled twice into thinking the TPP and TTIP address our environmental concerns, as the shame will fall directly to us.


1. Mason, M., 1997. A look behind trend data in industrialization. Global Environmental Change 7.2, 113-127.
2. Chappel L., 2007. Transport and climate change: a review. Journal of Transport Geography 15.5, 354-367.
3. Ehrenfield, D., 2005. The environmental limits to globalization. Conservation Biology 19.2, 318-326.
4. Tisdell, C. 2001. Commentary: globalization and sustainability: environmental Kuznets curve and the WTO. Ecological Economics 39, 185-196.
5. Boghesi, S., Vercelli, A., 2003. Sustainable globalization. Ecological Economics 44, 77-89.
6. Patrick Tsai, “Tar Sands How Trade Rules Surrender Sovereignty and Extend Corporate Rights,” Institute for Agriculture and Trade Policy August 2014. 8.
7. Pembina Institute, Reducing greenhouse gas emissions through transportation fuel policy The European Union’s proposed fuel-quality directive and implications for Canadian oilsands producers (The Pembina Institute, 2012. 1.
8. Office of the USTR and US Department of State. Standing Up For the Environment: Trade for a Greener World. May 2015. 1.
9. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 139.
10. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 138.
11. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 139.
12. “Although on its face the Article appears to be concerned with the narrow subject of ‘sanitary and phytosanitary measures,’ its scope is wide-reaching. ‘Sanitary and phytosanitary measures’ are defined in NAFTA as standards that ‘protect human or animal life or health in [a country’s] territory from risks arising from the presence of additive, contaminant, toxin, or disease-causing organisms in food, beverage, or feedstuff.’ Under this broad definition, almost any environmental regulation can be said to relate to ‘sanitary and phytosanitary measures.’ Almost any environmental enactment by a NAFTA party thus can be argued to affect the contents of ‘food, beverage, or feedstuff.’” - Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 145.
13. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 139.
14. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 146.
15. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 147.
16. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 149.
17. David A. Gantz. Potential Conflicts Between Investor Rights and Environmental Regulation Under NAFTA’s Chapter 11. The George Washington International Law Review Vol. 33 651 2000-2001. 666.
18. Joseph Cumming, “NAFTA Chapter XI and Canada’s Environmental Sovereignty: Investment Flows, Article 1110 and Alberta’s Water Act,” University of Toronto Faculty Law Review 65 107 (2007) 117.
19. , David A. Gantz. Potential Conflicts Between Investor Rights and Environmental Regulation Under NAFTA’s Chapter 11. The George Washington International Law Review Vol. 33 651 2000-2001. 669.
20. Halil Hasic. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 pg 139.
21. Joseph Cumming, “NAFTA Chapter XI and Canada’s Environmental Sovereignty: Investment Flows, Article 1110 and Alberta’s Water Act,” University of Toronto Faculty Law Review 65 107 (2007) pg 117.
22. Jason L. Gudofsky, “Shedding Light on Article 1110 of the North American Free Trade Agreement (NAFTA) Concerning Expropriations: An Environmental Case Study,” Northwestern Journal of International Law & Business 21 243 2000-2001 pg 258.
23. Jason L. Gudofsky, “Shedding Light on Article 1110 of the North American Free Trade Agreement (NAFTA) Concerning Expropriations: An Environmental Case Study,” Northwestern Journal of International Law & Business 21 243 2000-2001 pg 248.
24. Hasic, Halil. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 pg 154.
25. Hasic, Halil. Article 110 of NAFTA: Investment Barriers to “Upward Harmonization” of Environmental Standards. Southwestern Journal of Law and Trade in the Americas Vol. 12 137 2005-2006 pg 154