Countries are increasingly advancing proposals to address climate concerns within new and existing trade agreements. Most modern trade agreements, and governing bodies like the World Trade Organization, were negotiated with little or no acknowledgement of the climate crisis. While the 2015 Paris Climate Agreement is based on voluntary pledges, trade agreements include legally binding enforcement tools that are now being considered in the climate context.
In March, the European Commission set new rules on the use of imported palm oil for biodiesel in order to slow associated deforestation and climate change. The European Union is the world’s second biggest importer of palm oil. The new rules are connected to the EU’s renewable energy goals and include a certification system for imported palm oil, primarily from Malaysia and Indonesia. The Council of Palm Oil Producing Countries, whose members produce about 90 percent of global supply, announced they will jointly challenge the rules through bilateral consultations and at the WTO. While calling the new rules an important milestone, the European group Transport and Environment pointed out that loopholes remain for soy-based biodiesel, another major contributor to deforestation around the world.
The EU has been grappling with the tension between its efforts to both expand trade and implement its Paris climate commitments. In 2018, the European Commission passed a non-binding resolution to only engage in trade talks with countries that are part of the Paris Climate Agreement. But the EC has wavered in its tentative talks with the Trump administration—which is in the process of pulling the U.S. out of the Paris Agreement. European NGOs, including IATP Europe, opposed the EU decision to continue negotiations with the U.S., charging that it would undermine global climate commitments. In deals with Japan and Mexico, the EU has referenced the Paris deal. The issue has become more heated as the EU negotiates with the South American bloc of countries called Mercosur. These tensions have escalated with Brazil’s new President Jair Bolsonaro, who is backing away from climate commitments and forest protection. More recently, French officials have raised questions, as the EU begins trade negotiations with Australia, about whether Australia’s GHG emissions targets are strong enough to meet their Paris climate goals. The EU is pushing for a clause in any Australia-EU free trade agreement that includes full implementation of the Paris Agreement.
The Trump administration’s first trade deal takes several steps back from international commitments on climate change. In addition to failing to even mention climate change in the text, the renegotiated North American Free Trade Agreement (dubbed U.S.-Mexico-Canada Trade Agreement) commits to honor just three of seven Multilateral Environmental Agreements included in previous trade agreements. It also maintains extraordinary protections for U.S. investors in Mexican oil, gas, energy, transportation and infrastructure sectors, allowing those companies to sue the Mexican government for compensation over environmental or other public interest rules that undermine their profits.
Even in this context, Congress is finding new ways to approach climate and trade. Representative Bill Pascrell (D-NJ), chair of the House Ways and Means subcommittee on trade, has requested that the Commerce Department conduct a Section 232 investigation into the national security threat posed by climate change. Pascrell and Reps. Jimmy Gomez (D-CA) and Judy Chu (D-CA) sent a letter to the Commerce Department calling climate change “an existential emergency.” The letter stated, “Clearly, carbon dioxide emissions are exacerbated by international trade and imports to the United States. This carbon pollution threatens agricultural markets and infrastructure, among other sectors of our economy, which Commerce should investigate with the urgency and gravity that this emergency warrants.”
If the Department determines that climate change poses a national security issue, the President could then impose tariffs or quotas on imports to address the risk. Specifically, Pascrell asked for an investigation of imports of carbon emissions, which may ultimately be challenging to implement. Emissions related to the production of a good traded are different than trade rules governing the products themselves. As some commentators have pointed out, while the Trump administration is unlikely to take a climate-related investigation seriously, Democratic Party presidential candidates are making climate change a campaign issue. And, though it may be tough to pass climate legislation, a Section 232 ruling could give the President some power in climate matters—including in negotiations with other countries. Such enforcement would have major implications for agricultural trade, which is coming under increasing scrutiny for driving deforestation around the world. Commerce has 270 days to submit a report to the President with recommendations.
Countries have been considering carbon tariffs as an enforcement tool for domestic climate policy. The goal is to prevent incentivizing the off-shoring of emissions by multinational companies hoping to sidestep domestic climate policy. Recent research shows that tariff cuts associated with free trade deals involving the G-20 countries make it difficult to meet global climate targets when considering emissions embedded in imports. But developing countries are skeptical of how carbon tariffs might be used to restrict their exports, particularly when those same trade agreements impede clean energy technology transfer and other investments that could help them transition to lower emissions.
The latest efforts to consider climate change within trade rules are just beginning—and they will have major implications for agriculture markets. As climate-related events escalate, and the political pressure to dramatically reduce emissions rises, governments will have to usher in a new era of trade rules to protect the planet.