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Welcome to Trade Secrets. The big COP28 climate change meeting is under way in Dubai, initially overshadowed by stories about the hosts allegedly using the event to buy influence and sell oil and gas. Seriously, if you’re going to greenwash, do it properly. Still, amid the PR facepalms was some modestly positive news about the launch of a “loss and damage fund” to compensate lower-income countries for the effects of climate change. Today’s main pieces address how the jockeying for political position around such initiatives holds back progress on climate action, and the implication for carbon border measures. Charted waters is on falling inflation in the eurozone.
Controlling the past and future narrative
Before cracking open crates of champagne for the victory party of the loss and damage fund, let’s first hydrate ourselves by drinking deep from the well of perspective. The numbers involved at the outset are pretty feeble, and the politics is very tricky. The rationale for spending money, the institution that gets to spend it, even the name the pot of money gets given: all are pulled different ways by competing narratives.
The US and particularly Congress is not a fan of multilateral funds it doesn’t get to control. It’s notable that one of the most impressive US aid efforts of recent decades, George W Bush’s President’s Emergency Plan For Aids Relief (Pepfar) to combat HIV in Africa, was an American-badged and American-run project.
The compromise is to have the loss and damage fund housed, at least for now, at the World Bank, the president of which the US traditionally supplies. Even so, Washington still doesn’t like the term “loss and damage”, an expression its climate envoy John Kerry notably did not use when the announcement was made, and nor has it given the fund much money. The term, redolent of tort law, implies compensation (some might say reparations) paid by polluters to their victims, suggesting an ongoing liability.
To be fair, that’s not an unreasonable way of looking at climate change. Current carbon levels reflect past emissions by countries that got rich through polluting. See this graphic from a report by the Indian research and advocacy organisation the Centre for Science and Environment, about the “global stocktake” of how the world is performing on climate change since the Paris Agreement of 2015. Crudely speaking, it shows which countries think we should focus on past versus future emissions. Even a sceptic (like me) of the concept of a united “Global South” of developing countries can’t deny the divide between rich nations and poorer ones.
But establishing the principle that climate change is essentially about the polluters of the past correcting their wrongs isn’t going to get consensus, or indeed control emissions from the newer industrialisers such as India and China. Hence the attempts by rich countries to insist the better-off middle-income nations also pay into these adjustment funds. As Ian Bremmer of GZERO Media points out, developing countries shouldering a lot of the burden of cutting emissions is unfair, but necessary.
To adapt Harry S Truman’s attributed saying that it’s amazing what you can accomplish if you don’t mind who gets the credit, it’s sadly striking how little happens if you can’t agree who takes the blame.
Of course, there’s always the idea of dancing neatly round this stand-off by attracting private finance, the principle behind the COP28 hosts’ proposed $30bn development fund. But vague promises of leveraging up relatively small amounts of official money into a big investment effort have frequently been made in other contexts and need to be treated with scepticism.
The carbon border tariff bind
At least in the area of aid and finance to help countries adapt and mitigate the effects of climate change, rich governments can redistribute to poor. With regard to trade, border measures that work directly on carbon content pretty much by definition have to focus on the product rather than the general state of the country from which it came.
As I wrote last week, in the absence of any serious negotiations over trade and climate change, the main initiative in this area is the EU’s carbon border adjustment mechanism (CBAM). Both in logic and in legality it can only focus on current emissions. If the aim is to prevent carbon leakage, it needs to be directed against imports that are being made right now. And if it’s going to survive legal challenges at the WTO, it’s got to be precisely focused on achieving a particular aim and must treat identical products the same way. There were media reports earlier this year that India was preparing some kind of national carbon pricing mechanism that took previous emissions into account, but it’s very hard to see how that’s either practical or legal, certainly in international trade terms.
The only real way indirectly to gesture towards historic emissions would be to give passes on the CBAM to poorer countries. But, as I also noted last week, the EU says that would defeat the object of the measure and also potentially leave it open to WTO challenge.
You can see the technocratic and legal argument for what the EU is doing. Then again, if you’re a middle-income former colony whose manufacturing industry was devastated in earlier centuries by competition from a European imperial power, you can also see how incredibly maddening it is for that power or similar countries to suddenly slap tariffs on your exports for doing what their producers did for centuries without getting taxed for it.
Inflation is falling across most of the advanced economies, including as shown here in the eurozone, suggesting that interest rates may have peaked.
The implications for trade are clear. So far we’ve seen a pretty normal cyclical downturn in goods trade to accompany the slowing of global growth. If the world economy turns around, trade will be very likely to turn with it and another alleged threat to globalisation will recede.
I did say there wasn’t a great chance of success, and the idea of getting the revision of the EU-Mercosur deal done before Javier Milei takes office in Argentina on December 10 has essentially disappeared.
Speaking of trade talks going badly, Brussels’ negotiations with India are also struggling to bridge the two sides’ disparate views, an outcome that could not have been predicted except by anyone with the slightest familiarity with the subject.
Inu Manak at the Council on Foreign Relations asks whether Washington’s reversal of its previous enthusiasm for far-reaching digital rules in trade deals could be reversed again.
Belgian prime minister Alexander de Croo, representing sceptics of EU industrial policy being run by and for the countries with the deepest pockets, says the EU should concentrate on improving the single market rather than doling out state subsidies to address climate change.
A paper for UK In A Changing Europe, a network of academics and researchers, says the British government’s recent white paper on development shows a constructive approach but is unlikely to restore the cuts in aid made since 2010.
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