Trade for Climate Change Mitigation
By Sharon Atieno
While trade generates emissions from production and transport, it has tremendous potential to mitigate the negative environmental impacts as displayed at the World Trade Organization (WTO)’s Public Forum.
Steel Production is estimated to produce between 7.2% to 11% of global carbon emissions, depending on various data sources. With trade, sector players have shown its potential to reduce these emissions.
Speaking during a session on Promoting a Level Playing field for Steel decarbonization, Director-General Dr. Ngozi Okonjo-Iweala noted that the steel industry needs the right trade policy environment to support its decarbonization efforts, stressing the importance of an environment which should enable investments in breakthrough technologies, ensure availability of critical inputs, and increase the demand and cost competitiveness of green steel.
While a range of policy instruments will be needed to speed up decarbonization, including price and non-price measures, incentives, and standards, the Dr. Okonjo-Iweala noted that the growing fragmentation of trade policies is making it harder for the steel sector to decarbonize, creating uncertainties for producers and hampering the cross-border movement of green technologies and inputs.
She said: “The WTO can play an important role as a forum for international cooperation between private and public stakeholders to better align and coordinate trade policy for a level playing field.”
Xiao Guodong, Chief Representative for Carbon Neutrality of China Baowu Steel Group, the world’s largest steelmaker, said that decarbonization marks a revolution for the steel industry. Mutual recognition of standards, including through the WTO, is important to allow steelmakers to efficiently meet downstream consumer demands.
With regards to the decarbonization transition, he said that the situation of developing countries should be considered in terms of energy endowment, and access to technologies and inputs.
Additionally, there is need for a price on carbon emissions to encourage manufacturers to reduce their emissions, Ola Hansén, Public Affairs Director at H2 Green Steel said, adding that the European Union’s carbon border adjustment mechanism (CBAM) creates a market for green materials.
CBAM, which will be implemented in 2026, is a charge that aims to encourage EU importers from all third countries except those in the European Trading System (ETS) to decarbonize their production processes in cement, iron and steel, aluminium, fertilisers, and electricity sectors.
Hansén also noted that creating demand for near-zero steel is crucial, highlighting that the market for their green hydrogen-based steel production, which emits 95% less greenhouse gases as compared to traditional steel production, is driven by demand from consumers, such as automotive, wide goods and construction companies who have set voluntary commitments.
Hansen noted that their customers have set science-based targets which forces them to look at the whole value chain and set carbon offset targets that are in line with the Paris Agreement goals.
Besides carbon pricing, he urged policymakers to create good mechanisms to create a mandatory demand, which can be long-term. This creates investor certainty that there will be a market for decarbonized materials in the future.
Erika Chan, Head of Sustainability at United States Steel, noted that the path to net zero requires significant investment, not just in projects and infrastructure but also in the workforce. However, the global steel market environment is an inhibiting factor to the profitability of such investments.
Chan observed that trade policy and other markets with subsidization that maintains or even increases global overcapacity for steel production possess a significant threat to achieving the net zero goal.
“The failure of governments to reach a comprehensive global enforceable solution to help eliminate this global overcapacity is a major challenge,” she said.
The direct carbon emissions linked to international trade in goods and services, specifically through international freight and passenger transport, make up approximately 10% of global carbon emissions, according to a 2022 report by the Organisation for Economic Co-operation and Development (OECD).
Speaking during a session on the Route to Transport Decarbonization, Bertrand Piccard, Initiator and Chairman, Solar Impulse Foundation said that a decarbonized transport system has to be efficient, clean (not polluting) and modernized, adding that a different approach has to be applied across each mode of transport, there is no one size fits all.
According to Cecilia Malmstrom, Peterson Institute for International Economics (PIIE), pricing carbon remains the most efficient way of reaching net zero. However, there is a need for an international entity to monitor the implementation of carbon pricing to ensure it does not result in trade tensions, ideally, WTO.
Tarek Sultan, Chief Executive Officer (CEO) Agility, said green technologies are crucial in decarbonizing the transportation and logistics industry. Their existence in the sector will be shaped by the standards and politics affecting those standards.
In shipping, there are opportunities for reducing carbon intensity in steel and new forms of fuels while in aviation there is a need for the introduction of biofuels into the supply chains. The proliferation of electric vehicles in the transportation sector also calls for gearing up of infrastructure, he said.
Gianluca Ambrosetti, Synhelion, said renewable and sustainable fuels can play a key role in decarbonizing society. “We rely a lot on fossil fuels not only because they are the status quo but also because they have intrinsic properties that make them unsubstitutable in several applications,” Ambrosetti said, adding that the solution to tackle this dependence is to produce renewable fuels at scale but it will rely on carbon circularity.
According to the United Nations Commission on Trade and Development (UNCTAD), green technologies such as artificial intelligence, the Internet of Things and electric vehicles are growing rapidly and could create a market of over $9.5 trillion by 2030. Despite this, developing countries are losing out.
Speaking during a session on Forging Trade for a Sustainable Future, Børge Brende, President of the World Economic Forum, said it was important that governments refrain from imposing unnecessary measures that hinder trade in green goods and technologies.
“For example, solar panels, wind turbines, we need the market to flow in the interest of mitigating CO2 emissions (but) today there are a lot of barriers,” Mr Brende said. “There is a lot of red tape, but there’s also a lot of tariffs on these new technologies which make it more expensive for those that want to roll it out. So here I think trade can be an agent for change when it comes to the climate.”
Keisal Peters, Saint Vincent and the Grenadines’ Minister of Foreign Affairs and Foreign Trade, noted that climate change was an existential issue for island states.
“We have been making that extra push as it relates to renewable energy,” she said. “But there’s a cost, and for countries like Saint Vincent and the Grenadines, with a small economy, it’s very difficult for us, which leads to the question of financing and how we are able to acquire this new type of energy.”
“I’m very happy that the WTO has had this Public Forum because it gives us the opportunity to have focused discussions on these issues. We have to look at ways in which developing countries like Saint Vincent and the Grenadines can benefit from this type of technology.”
In a video message from Irish Taoiseach Leo Varadkar, who said the WTO is ideally placed to discuss how trade can be a force for good in the fight against climate change.
“Without open trade, we will not secure our ambitions for developing the green economy in areas such as offshore wind, energy, climate, tech and sustainable food,” the Irish Prime Minister said, adding that these ambitions require a vast array of low or no carbon goods and services supported by global value chains and open international markets.