Dispatch from Copenhagen: Why Trade Matters

This entry is cross-posted from Europe Insight.

With protestors staking out the climate talks and politicians continuing to point fingers at each other, one issue isn’t getting much play in Copenhagen—yet it could make or break a deal to tackle global warming. Simply put, trade is becoming a central sticking point at the Copenhagen talks.

That may not sound immediately relevant as negotiators look to bring carbon emissions under control. But trade (and trade barriers) are a key hurdle policymakers must cross if they want to hammer out a deal before the summit closes in 48 hours.

The implications for business are significant. Western countries and emerging countries still haven’t agreed on who should make binding commitments to cut carbon emissions, and how much aid the developing world should get to offset the impact of global warming. Equally important, governments haven’t decided how the mechanisms should work, and whether domestic governments will have the power to control the carbon funds allocated to them.

The connection with trade? An emerging economy could dole out carbon mitigation funds provided to it by foreign governments in a way that favored local companies over international rivals. Such favoritism could lead to trade disputes.

“Companies want to make sure there are no tariff or trade barriers incorporated into a [climate change] deal,” says Peter Lacy, sustainability group lead for Europe, Africa, and Latin America at consultancy Accenture (ACN). “If that happens, the money at stake moves from the billions into the trillions.”

Indeed, environmental targets are quickly becoming a tense trade issue between the U.S. and China. Both are pushing ‘built-on-our-turf’ clauses into their carbon reduction plans, which prioritize domestic firms (or, at least, foreign-own plants on national soil) over international rivals. The idea is to create green jobs…and no one wants to lose out on the multi-billion dollar global plans to tackle climate change.

Democratic Senator John Kerry, speaking at the summit on Dec. 16, said the carbon reduction legislation working its way through Congress would create U.S. jobs. But he warned U.S. politicians “fear that U.S. will take steps [to cut emissions] that be eclipsed by emissions from less developed countries.”

Still, Rhone Resch, chief executive of the Solar Energy Industries Association, a U.S. trade group, reckons green jobs are moving fluidly between countries. He points to the U.S. solar industry, which has lost jobs in older manufacturing plants (mostly to cheaper Chinese competitors), but has added just as many in new technologies. In Toledo, Ohio, he says, there are now 6,000 people employed in the solar industry vs. 3,000 in the state’s coal sector.

“What we need from the [climate change] treaty is a stable global price signal for carbon,” he says. “That would help us fund new technologies.”

Greater certainty on how much it would cost companies to pollute certainly would help execs make long-term investment decisions. But the business community also needs to know whether a deal from Copenhagen could lead to trade disputes. Over the next 48 hours, that question must be answered.

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