Greenhouse gas emissions which are the major contributors to climate change are on the increase in both industrialised and developing countries. This paper indicates key linkages between trade and climate change and reviews how their respective policies interact. Questions are posed as to how trade and climate change can be mutually supportive.
The paper notes that most sectors of the global economy are expected to be affected by climate change and this in effect will also have an impact on trade. Trade related areas such as agriculture and infrastructure are the most vulnerable. The report argues that expansion of international trade can affect the amount of emissions in three principal ways:
- the scale effect: this refers to the expansion of economic activity arising from trade opening, and its effect on greenhouse gas emissions.
- the composition effect: this describes the way that trade opening changes the structure of a country’s production in response to changes in relative prices, and the consequences of this on emission levels.
- the technique effect: this refers to improvements in the methods by which goods and services are produced, so that the emission intensity of output is reduced.
The authors note that the challenge now facing climate change negotiators is to agree on a multilateral response to climate change after the Kyoto Protocol’s first commitment period expires in 2012. A number of policy measures have been used to mitigate climate change, which are distinguished as either regulatory measures or economic incentives. Pricing mechanism, financial incentives and restricting the sale or prohibiting the import of certain products which are not energy-efficient have been used to reduce greenhouse gas emissions. All these measures have been carried out while taking into account factors such as the availability of viable alternatives, technical feasibility and cost-effectiveness.
The paper recommends that:
- policies and measures at the national level to create incentives for consumers and enterprises to demand and adopt climate-friendly products and technologies are required;
- there is need to identify ways within the private sector, such as foreign direct investment, licence or royalty agreements and different forms of cooperation arrangements, which can facilitate technology transfer;
- employment of climate friendly technologies should be further invested in to mitigate and adapt to climate change.
