Combined with a green international free trade deal, we could capture the growing ambition of like-minded countries in other continents to rebuild the global economy in a greener, cleaner, and more resilient way, and give developing countries an additional incentive to grow more sustainably.
Europe is where the world looks to for climate leadership: France demonstrated a masterclass in diplomacy through the 2015 Paris Agreement in which countries agreed to pursue efforts to limit global warming to 1.5 degrees; the UK is leading an alliance of countries committed to phasing out coal and presiding over the UN Climate Summit (COP26) in partnership with Italy; and last year, Germany unveiled its $60bn climate package and is now presiding over the EU Council as it begins the entire bloc’s journey toward net zero emissions by 2050. Though the UK has left the EU, climate change remains a shared priority. Together, the UK and the EU can use their economic clout to further the climate agenda through trade. By linking market access to climate mitigation and adaptation policies, they can create a powerful economic incentive for other countries to reduce their emissions.
Promoting clean free trade by providing incentives, rather than solely using tax penalties such as carbon border adjustment taxes, offers three big advantages which heavy regulation and reliance on government spending does not provide. First, clean free trade makes clean products cheaper for consumers to buy, in turn accelerating their uptake. Secondly, it creates additional incentives for businesses to develop low-carbon solutions because they can access exports markets more easily as well as import components at a lower cost. Finally, trade offers an additional route to strengthening and institutionalising global climate action, the majority of which is currently done under the United Nations Framework Convention on Climate Change.
Perhaps the greatest challenge governments face in achieving net zero is to do so in a way which maintains public support. The science behind climate change and the need to address it is accepted by the majority of Europeans, and they want governments to act - evidenced by the surge in support for green parties in the most recent elections. But the greens, whatever the country, tend to ally themselves to left-wing economics and so don’t have genuinely workable economic policies. Rather than unprecedented and clumsy state intervention, overly burdensome regulation, and a naive faith in the competence of government machines, European nations should utilise smarter, market-based policies .
As other contributors to this journal have argued, a carbon price is an efficient, market-based mechanism for driving climate action. Of course, it does increase the costs of production for businesses, which is why the EU and UK should combine it with a carbon border adjustment tax in return for market access to avoid European firms being undercut by less clean producers overseas. It’s already consulting on such a mechanism by 2023, and President-elect Biden has committed to one too. . Making polluters pay their fair share and then either redistributing a carbon dividend to citizens or reinvesting that revenue into the green transition is an effective way to maintain public favourability for net zero - avoiding a repeat of the Gilets Jaunes protests in France.
Reducing European emissions, however, is just one step. European, British, and indeed American emissions are declining and so becoming less significant with each passing year. To promote a global low-carbon economy, the UK and the EU should champion the new Agreement on Climate Change, Trade and Sustainability for low-carbon goods and services at the World Trade Organisation. Free trade has obvious economic benefits, but it could also be a route to delivering the temperature goals set out in the Paris Agreement.
The UK has already unilaterally cut its most favoured nation tariffs on over 100 low-carbon products in the areas of renewable energy, energy efficiency and the circular economy. Last year, a group of five countries, led by New Zealand, Iceland, and Norway, restarted talks on a free trade deal for environmental goods following an unsuccessful attempt at the WTO in 2016. These talks aim to remove tariffs on green goods, eliminate fossil fuels subsidies to allow renewables to operate on a level playing field, and to develop voluntary guidelines for eco-labelling programmes and mechanisms. The UK and the EU could throw their support behind these talks and move to include environmental services.
Europe is home to some of the best in the business when it comes to low-carbon companies and technologies. Germany and Denmark are home to Siemens and Orsted, France is a leading nuclear power, and London is the premier hub for green finance. Meanwhile, more nascent clean technologies such as electric vehicles in Italy, solar power and green hydrogen in Spain, and geothermal energy in Iceland could provide a route for other European countries to become key players in the global green economy. A multilateral deal, which incorporates like-minded countries such as Japan, Canada, South Korea, and New Zealand, would see VAT and tariffs for low-carbon goods slashed - turbocharging the global green economy.
Making these goods and services cheaper will be vital to tackling climate change as we head further into the twenty-first century, when the developing world will make up the majority of emissions - particularly countries such as India and Nigeria. Paris Agreement-aligned free trade could be the muscle that international climate action needs, acting as both a carrot and a stick to encourage countries to decarbonise while also providing cheaper access to clean technologies.
A carbon price paired with a carbon border adjustment tax will help Europe reduce its carbon emissions in the most efficient and just way, and may encourage others to cut their own in return for market access. Combined with a green international free trade deal, we could capture the growing ambition of like-minded countries in other continents to rebuild the global economy in a greener, cleaner, and more resilient way, and give developing countries an additional incentive to grow more sustainably.
