Trade rules are designed to support ever greater levels of international trade, and have been ineffective at promoting cleaner and green supply chains. At their worst, international trade rules are actively, undermining efforts to combat the climate crisis.
Overview
Global efforts to combat climate change are undermined by trade and investment rules which prioritise economic liberalisation over environmental sustainability. Since the adoption of the Paris Agreement in 2015, which set a framework for countries to cut emissions and limit global warming to 1.5°C, trade policies have largely failed to align with these climate goals.
Trade rules are relevant to the climate crisis in two ways:
- Trade itself can lead to increased greenhouse gas emissions, through the production and transport of goods
- Rules contained within trade agreements can restrict governments’ ability to take the necessary measures to reduce emissions.
The Climate Change Committee described the pace of climate action in the UK as “worryingly slow,” and in May 2024, the High Court found the UK’s climate plan failed to meet legal standards. Despite a commitment to show leadership on green trade, the UK Government hasn’t clarified which policies will drive this agenda forward.
Concerns & risks
Trade rules that undermine climate action include:
- Secret corporate courts: Secret corporate courts or Investor-State Dispute Settlement (ISDS) allow fossil fuel companies to sue governments for policies that reduce their profits. ISDS has been identified by UN bodies and multiple governments as a block to urgent climate action.
- Barriers to green energy subsidies: World Trade Organisation rules have been used to challenge subsidies for renewable energy projects, while fossil fuel subsidies remain largely untouched.
- Intellectual Property (IP) restrictions: The Paris Agreement calls for the transfer of green technologies to developing countries, but strict IP protections, such as those under the WTO’s TRIPS Agreement, make climate-friendly solutions prohibitively expensive for many nations.
- Fossil fuel protections: Many trade agreements prohibit restrictions on fossil fuel exports and imports, locking countries into continued reliance on high-carbon energy.
TJM’s position & recommendations
Trade and investment rules must be fundamentally restructured to align with global climate goals.
This requires placing climate action at the core of trade policy, with binding commitments to reduce emissions and support sustainable development. Failure to act now risks exacerbating the climate crisis and undermining international efforts to achieve a just, low-carbon future.
Governments which are serious about aligning trade policy and climate action should:
- Redesign trade agreements: Integrate enforceable climate commitments into trade deals, ensuring they promote renewable energy and emission reductions.
- Remove ISDS from trade agreements: Remove corporations’ ability to sue governments over legitimate climate policies.
- Encourage technology sharing: Ease IP restrictions and promote low-cost access to green technologies for developing countries.
- Phase out fossil fuel protections: Remove provisions that incentivise fossil fuel trade and infrastructure expansion.
Prioritise transparency and accountability: Ensure trade negotiations involve public and parliamentary scrutiny, with clear environmental impact assessments.
