Economic research and trade policy analysis
World Trade Report 2022
Climate change is having a profound impact on people’s lives across the world. Mitigating and adapting to climate change will require major economic investment and coordinated action to transition to a sustainable low-carbon economy. The World Trade Report 2022 explores the complex interlinkages between climate change international trade and climate and trade policies. Although international trade generates greenhouse gas emissions which contribute to climate-related natural disasters it can also play an essential role in helping countries reduce emissions by increasing the availability and affordability of environmental goods services and technologies. International trade can also play a key role in helping countries adapt to the impacts of climate change and build future resilience. The World Trade Report 2022 shows how international trade and trade rules can contribute to addressing climate change. Ensuring trade and climate change policies are mutually supportive requires global coordination and transparency about government measures. The WTO already plays an important role in helping countries tackle climate change by maintaining a predictable trading environment underpinned by WTO rules that allow for international trade in critical goods and services needed to cope with the consequences of climate change and to reduce emissions. Further international cooperation at the WTO could strengthen the mutual supportiveness of trade and climate change policies so that the world is better equipped to transition to a low-carbon economy.
The trade implications of a low-carbon economy
The global economy needs to effect wide-ranging and immediate changes to reduce its greenhouse gas emissions sufficiently to limit climate change. This chapter explores how the transition to a low-carbon economy could impact international trade patterns and outlines the role that trade trade policy and international cooperation can play in supporting a just low-carbon transition. Although a low-carbon transition entails short-term investment and adjustment costs it can also provide important economic benefits and opportunities. The WTO has an important role to play in increasing the ambition and viability of climate change mitigation actions.
Acknowledgements
The World Trade Report 2022 was prepared under the general responsibility and guidance of Anabel González and Jean-Marie Paugam WTO Deputy Directors-General and was coordinated by José-Antonio Monteiro and Ankai Xu.
Carbon pricing and international trade
Although different instruments can be used to mitigate climate change carbon pricing has attracted increasing attention. This chapter explores the role of carbon pricing in reducing greenhouse gas emissions and its implication on international trade and trade policies. Carbon pricing puts a price on carbon emissions which can motivate firms and individuals to make more climate-friendly investing and purchasing decisions. While the proliferation of carbon pricing schemes highlights the urgency to tackle climate change they may lead to an unnecessary complex patchwork of domestic and regional schemes. Greater international cooperation is essential to find common solutions to carbon pricing and the WTO remains an appropriate forum to contribute to these efforts.
Introduction
Tackling climate change requires a transformation of the global economy. While limiting consumption and changing lifestyles would help reducing greenhouse gas emissions to net zero will be impossible without technological and structural change on a global scale. This transformation will involve costs but also opportunities – not just to head off an environmental catastrophe but to reinvent the way the world generates energy manufactures products and grows food. Just as trade helped to drive economic progress in the past – by incentivizing innovation leveraging comparative advantages and expanding access to resources and technologies – trade can play a central role in driving progress towards a low-carbon global economy. But harnessing the potential of trade will demand new policies and more cooperation.
The contribution of trade in environmental goods and services
The transition to a low-carbon economy depends among other things on the development adoption and diffusion of environmental goods services and technologies. This chapter looks at the extent to which trade in environmental goods and services can contribute to the low-carbon transition. Although international trade in environmental goods is uneven across regions the sector is very dynamic. While the WTO agreements ensure that trade in environmental goods and services flows as smoothly predictably and freely as possible the WTO could make an even greater contribution to the development and deployment of environmental technologies by addressing relevant trade barriers and improving data quality on trade and trade policy of environmental goods and services.
Executive summary
Climate change represents a severe pervasive and potentially irreversible threat to people ecosystems public health infrastructure and the global economy. Left unabated it could undo much of the progress made over recent decades in development poverty reduction and prosperity creation. Developing countries – in particular small-island developing states and least-developed countries (LDCs) – are likely to suffer the most due to their greater exposure and vulnerability to climate risks and natural disasters and their more limited capacity to adapt to climate change. Leveraging trade to tackle climate change presents several development and growth opportunities and will require significant policy actions to advance a just transition towards a low-carbon inclusive and resilient future.
Disclaimer
The World Trade Report and its contents are the sole responsibility of the WTO Secretariat except for the opinion pieces written by the external contributors which are the sole responsibility of their respective authors. The Report does not reflect the opinions or views of members of the WTO. The authors of the Report also wish to exonerate those who have commented upon it from responsibility for any outstanding errors or omissions.
The decarbonization of international trade
The transition to a low-carbon economy will require the transformation of many economic activities including international trade. This chapter looks at the extent to which trade contributes to greenhouse gas emissions but also assesses its importance for the diffusion of the technology and know-how needed to make production transportation and consumption cleaner. Although carbon emissions associated with international trade have tended to decrease in recent years bold steps are needed to further reduce trade-related emissions. Greater international cooperation is needed to support efforts to decarbonize supply chains and modes of international transport.
The role of trade in adapting to climate change
While reducing greenhouse gas emissions is essential to limit the consequences of climate change climate change is already having a major impact on the environment people and as a result the global economy. This chapter explores the impacts of climate change on international trade and discusses the role that trade trade policy and international cooperation can play in supporting climate change adaptation strategies. Climate change increases trade costs and disrupts production and supply chains. However trade and trade policies in conjunction with relevant policies and international cooperation can help to alleviate some of the impacts of climate change including on food security by contributing to enhancing economic resilience.
Foreword by the WTO Director-General
Climate change is an existential threat to people’s lives and is dramatically reshaping economic activity and trade. This year alone from the Horn of Africa to China from Europe to the Americas we have seen increasing heat and prolonged drought damage crops and reduce electricity production while low water levels in major rivers have made it difficult to transport industrial and agricultural goods. Severe flooding left a third of Pakistan under water devastating key export crops and putting the country’s food and economic security at risk.
Conclusion
Climate change is having a damaging effect on people the environment and the economy globally. Major economic investment and ambitious policy actions will be required to steer the economy towards a sustainable low-carbon growth trajectory which is necessary to mitigate climate change and adapt to its disruptive and costly consequences. Thus both climate change and climate policies will have significant consequences for international trade and trade policies.
Trade finance in West Africa
A joint publication on “Trade Finance in West Africa” was launched by Director-General Ngozi Okonjo-Iweala and International Finance Corporation (IFC) Managing Director Makhtar Diop on 12 October in Washington DC. Using the results of a survey of banks in the four largest economies of the Economic Community of West African States (ECOWAS) — Côte d’Ivoire Ghana Nigeria and Senegal — the publication assesses the shortfall in trade finance in these countries. It also outlines ways of removing obstacles to credit facilities and of unleashing the trade potential of the region.
Foreword
Trade finance—credit facilities used by importers and exporters to transact business—is important for enabling global trade. These instruments bridge the gap between when the exporter wants to receive payment for producing and shipping goods and when the importer receives them. Although trade finance is routinely provided by banks to importers and exporters in advanced economies developing countries face chronic shortages.
Estimating Total Trade Finance Assets: Methodology
In order to estimate the total value of trade finance in a country we have considered two alternative methodologies. One has been developed by the African Development Bank for its continental trade finance study. The other was developed by us and uses the relationship between the assets of banks in the country based on central bank statistics and trade finance assets identified in the survey.
ECOWAS4 Trade and Global Value Chain Performance
This annex includes additional exhibits on the four countries’ change in export market shares their export penetration and global value chain participation. These illustrations complement evidence discussed in Chapter 1.