Climate – Free Trade Policy Mismatch

bl09_free_trade_jp_2367461fThe Transatlantic Trade and Investment Partnership (TTIP) was high on the U.S.-EU agenda last week (here and here), reigniting nagging questions about the continued disconnect between international trade policies and climate change policies that has been problematic for decades. The Organization for Economic Co-operation and Development (OECD) has acknowledged that the misalignment allows international trade policies that hinder the transition to low-carbon economies.

Two factors contribute to this climate vs trade regime conundrum. Firstly, national boundaries specifically apply for global warming emissions, but are quite porous for international trade agreements. The UNFCCC and the new Paris Agreement provide for countries to determine their own efforts to reduce emissions. (The Kyoto Protocol’s specific emissions caps for Annex I Parties were part of the reason that system failed.) International free trade instruments, on the other hand, hold that purchasers should be able to buy from whomever they want and sellers should be able to sell to whomever they want, with little hindrance in crossing those national boundaries.

As a result, countries with large economies and growing imports (e.g., the U.S.) have driven increased global warming without acknowledgement or constraint, and outsized multinational corporate influence over trade deals has been unfettered, to the climate’s detriment. tppp-cc-cc-565x318Also part of the problem is the World Trade Organization (WTO), which does little to address fossil fuel subsidies that continue to incentivize extraction.

Secondly, trade deals have strong accountability provisions and consequences, whereas, the UNFCCC and its Kyoto Protocol do not. Even the Paris Agreement, in its final form, will have to rely on “naming and shaming” to counteract Party foot dragging on current and future mitigation goals.

On the other hand, countries can and do sue other countries through WTO dispute settlements under trade deals. For instance, the U.S. sued India over its domestic solar energy industry protections designed to accelerate its economic and energy sustainability.

Additionally, an arbitration process known as Investor-State Dispute Settlements (ISDS) common in investment agreements (another form of international “trade”) allows corporations to seek damages from governments for domestic policies that limit their activities. Trans-Canada sued the U.S. over Obama’s rejection of the Keystone XL pipeline. Plus, anti-fracking bans and other measures to limit extraction of fossil fuels are subject to such claims. tpp_shutterstock_590Multinational corporations have used the ISDS process and the threat of it with great success. (Elisabeth Jeffries explores this and more in a January 2016 feature in Nature Climate Change [subscription required].)

Granted, environmental protections within free trade and investment agreements have expanded over the years. The Trans Pacific Partnership (TPP), recently agreed to by 12 Pacific region countries, including the U.S., for the first time “embed[s] conservation commitments” into the main text of the agreement, ensuring they are subject to the agreement’s dispute resolution process. (The Senate has yet to ratify the TPP.) For the TTIP, the EU has proposed an alternative to the ISDS – an Investment Court System (ICS), curtainling grounds for corporate compensation, that some believe could introduce a more transparent and balanced arbitration process to trade agreements.

Environmentalists and climate change policy advocates are not swayed. ISDS trade deal shares 1.5In particular, the TPP is expected to undermine sovereignty and incentivize U.S. hydraulic fracking for natural gas exports. The TTIP is criticized for its failure to ensure environmental factors can moderate economic ones in the ICS, and for its broad definitions favoring investors over governments. Overall, according to prominent economist and scholar, Joseph Stiglitz, both instruments are expected to “undercut” the Paris Agreement, and “cement in place a system that treats the environment as distinct from – and subordinate to – international trade and investment.”

Aligning the global climate and international trade regimes is, apparently, unfinished business.