Attending COP29 — Climate Trade Protectionism
Adam D. Orford, Assistant Professor of Law at the University of Georgia School of Law, will be attending the 29th Conference of Parties to the United Nations Framework Convention on Climate Change as one of the American Bar Association’s observer delegation and will be sharing his thoughts on the experience here. The views expressed in this post are solely his and do not necessarily reflect the views or positions of the ABA or UGA.
Greetings from Baku! COP29 is underway, and I am working on another longer piece related to carbon credit trading. But while that is in progress, new issues are developing at the COP. In this brief post, I am taking the opportunity to introduce the brewing argument over trade protectionism that has threatened to derail the COP agenda before it has begun.
For more information on COP29, see my earlier posts in this series introducing COP29, discussing “1.5-aligned” NDCs, and exploring climate finance.
The BASIC Agenda Proposal
On November 6, China, on behalf of the “BASIC” countries (Brazil, South Africa, India, and China) submitted a proposal to amend the COP29 agenda to include a discussion of emerging laws related to international trade that the proposal calls out for posing protectionist trade barriers to the detriment of developing nations. These measures have never been part of the UNFCCC discussions and adding the agenda item would be a major expansion of the COP and the UNFCCC process more broadly.
The proposal, titled “Concerns with climate-change related unilateral restrictive trade measures, and identifying the ways to promote international cooperation in line with the First [Global Stocktake] Outcome,” includes the following interesting statements:
- “Unilateral trade-restrictive measures adopted by developed country Parties under the guise of climate objectives represent a systemic concern with disproportionate adverse effects on developing country Parties.” This remarkable framing essentially accuses developed nations of using climate ambition as a pretext for unlawful trade barriers, to the detriment of developing nations.
- “Such measures increase the cost of worldwide climate action, hinder the efforts of developing countries to advance their climate commitments and ambition… and contradict the principles and provisions of the UNFCCC.” The basic argument here is that protectionist trade restrictions are harmful to developing countries because they raise the price of goods produced in those countries, and thus limit demand for those goods. This is especially important where economic development in developing nations is recognized as an important value under the UNFCCC.
- The BASIC countries “call[] on all partners to strive for cooperative solutions and partnerships for stimulating the production and trade access for sustainable goods and services in line with existing legal provisions.” The BASIC countries’ concerns are framed as applying to “sustainable goods and services,” a term which is not defined, but which would be likely to include any technologies manufactured in developing countries and consumed in developed countries which would reduce greenhouse gas emissions.
- “Parties should … collectively oppose any measures to restrict trade and investment and setting up new green trade barriers, such as unilateral carbon border adjustment measures [CBAM] and due diligence requirements, with the pretext of addressing climate change.” The specifics of these initiatives are discussed further below, but it is notable that in addition to the CBAM, the BASIC parties also call out “due diligence” laws, which have received much less attention.
- Finally, the letter points towards a number of provisions in international law that, it claims, are violated or implicated by emerging national climate-focused trade restrictions. These international law provisions include numerous parts of the UNFCCC agreements, all building on UNFCCC Article 3.5, which states in full: “The Parties should cooperate to promote a supportive and open international economic system that would lead to sustainable economic growth and development in all Parties, particularly developing country Parties, thus enabling them better to address the problems of climate change. Measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.”
The most recent provisional agenda for COP29, released on November 8, acknowledges receipt of this request and has forwarded it to the full plenary for discussion prior to adopting the agenda. As has been reported, this agenda proposal is likely to set up a fight that could last days, seriously delaying other matters of import at COP29. The proposal is strongly opposed by the European Union, and likely by the United States, both of which have adopted new protectionist laws related to climate and trade over the last several years.
The Underlying Issue: Emerging Climate Trade Protection Laws
In the last several years, trade has become one of the cutting edges of climate law development. In part, this is because many legal frameworks already exist to promote mitigation actions, but trade-related emissions have largely remained unaddressed; in part it is because many of the most important mitigation activities involve the replacement of existing carbon-intensive technologies, including automobiles and home appliances, with low-carbon versions; and in part it is because of concern that the manufacturing sector in many exporting countries is still not deeply decarbonized, meaning that the production of these goods still involves a great deal of greenhouse gas production as well. There is, therefore, an honest interest in deeply evaluating supply chains of manufacturing and services industries to promote worldwide deep decarbonization, especially in consumer nations that hope to reduce their emissions but fear “leakage” via consumption of goods manufactured abroad in more carbon-intensive economies.
A useful concept in this discussion is that of “embedded” or “embodied” emissions in trade goods, which refers to the amount of carbon released in the activities necessary to produce the goods. A widget manufactured using electricity produced from solar panels has much lower embedded emissions than when the electricity is produced with coal. Two further issues complicate the global situation: first, that many major goods-exporting countries, including particularly China, are classified as developing nations and thus have not faced the most stringent decarbonization responsibilities under the UNFCCC; and second, because decarbonizing the energy used to produce goods costs money, and thus tends to increase the price of produced goods. Thus, decarbonizing the energy systems of goods-exporting developing countries has long been understood to represent a difficult but necessary step toward global climate change response.
However, the matter is further complicated by interest in many industrialized nations in re-developing their own domestic industrial sectors. As a counter to the loss of manufacturing jobs abroad due to free trade rules, many developed countries have recently moved away from strict free trade approaches, at least when it is to their benefit. The political upsides of domestic manufacturing — high-paying middle class jobs, essentially — often make proposals such as tariffs and other protectionist measures deeply appealing in national politics, even where the result of such measures would be price increases and inflation. Concerns over this political fact form the basis for the BASIC agenda demand.
Several recent legal developments in the United States and the European Union are particularly notable as this discussion unfolds:
- In the U.S., the Inflation Reduction Act included numerous mechanisms designed to promote and protect domestic manufacturing by creating higher tax benefits for goods manufactured at home. The EU has contemplated, but has not yet filed, a trade complaint at the WTO due to these measures. The EU and many other countries have also responded by developing corresponding green trade protection and promotion measures.
- The U.S. has also imposed various tariffs, particularly against Chinese-manufactured clean technologies like solar panels and electric vehicles. Although these tariffs are typically justified on other grounds, combined with supports for competing domestic industries they are clearly seen by China as part of a larger process of cleantech and climate trade protectionism.
- The European Union has moved forward with its Carbon Border Adjustment Mechanism (CBAM), which is designed to add tariffs to imported goods that include higher embedded carbon levels than similar goods manufactured in the EU.
- The EU is also moving forward with its Corporate Sustainability Due Diligence Directive (CSDDD), which with respect to climate change requires large companies to develop and implement climate transition plans that result in the decarbonization of their supply chains on timelines consistent with UNFCCC warming goals. The CSDDD is much broader than this, howeve, and also requires review of supply chains for humanitarian purposes.
This brief overview has barely scratched the surface of this complex and developing legal field, but these are the major items of interest. Most U.S. climate law experts (this one included) are not also experts in international trade law, and there will be a steep learning curve for everyone involved in both climate law and international trade law as these two disciplines intersect in the coming years. These tensions have been brewing for years, and although it is not ideal to force the issue right at the beginning of COP29, one potential upside is that these issues will, finally, become of broader interest to the climate law community.
Possible Outcomes at the COP
It is difficult to say what the outcome of the BASIC agenda proposal will be. Purely speculating, one possible good outcome would be to follow prior efforts at previous conferences of parties and reach an agreement to begin discussions on trade over the next several years. Typically, these types of agreements contemplate the conduct of multi-year ”work programmes” that result in further discussions and recommendations. A “Baku work programme on climate-related trade restrictions” would be a notable and potentially positive outcome.
It is not at all clear that such an outcome will occur, however. The EU, particularly, is opposed to expanding the climate treaty talks to encompass trade, and has taken the position that such discussions must be conducted entirely at the World Trade Organization. Given the fact that the UNFCCC does discuss sustainable development and trade, however, it is difficult to justify totally ignoring the topic under the UNFCCC. On the other hand, formally incorporating international trade matters will complicate an already extremely complex treaty process.
What is certain is that there is unlikely to be any major breakthrough on these issues at COP29. Simply putting the item on the agenda and developing a work programme will likely be the most that can be accomplished, and what remains to be seen is how long the rest of the COP will be delayed as the parties argue over the agenda proposal. Until they reach an agreement, international trade and climate law development will remain separate processes — possibly to the detriment of both. If they do reach an agreement, future COPs may well include a new, and extremely important, new negotiating topic.
Edit: The Outcome
The BASIC agenda request was not adopted. Instead, COP29 President Mukhtar Babyev “announced presidential consultations on climate change-related, trade-restrictive unilateral measures, with the outcome expected to be declared at the closing ceremony.” A “presidential consultation” in this context is a discussion with the office of the COP29 presidency to discuss how to approach these issues within the UNFCCC framework. There will, therefore, likely be further developments on this issue only at the end of COP29.