The United Nations 2030 Agenda for Sustainable Development (the 2030 Agenda) including 17 Sustainable Development Goals (SDGs) and supporting targets and the Addis Ababa Action Agenda, will form the substantive core of the new global development agenda. International trade is a direct or cross-cutting means of implementation for achieving many of the specific SDGs and related targets.

The objective of this think piece is to help policymakers understand the key contributions that trade policy could make to the 2030 Agenda objectives around addressing climate change and improving access to clean energy for all, particularly as set out in SDGs 7 and 13. It covers six key policy challenges, namely reforming fossil fuel subsidies; creating room for subsidies to support scale-up of clean energy technologies; facilitating access, dissemination, and transfer of climate-friendly technologies; dealing with the political economy of local content requirements (LCRs); pricing carbon nationally while tackling international competitiveness and carbon leakage concerns, particularly through border carbon adjustments; and designing “carrots” and “sticks” for more ambitious action under climate clubs. The think piece recommends prioritising policy actions in the short term mainly in three areas: fossil fuel subsidies; clean energy subsidies; and access, dissemination, and transfer of climate-friendly technologies.

Fossil fuel subsidies are huge and environmentally and socially harmful. SDG Target 12.c calls for fossil fuel subsidy reform. The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement) has thus far failed to discipline fossil fuel subsidies owing to their political sensitivity, inadequate disclosure of these subsidies by members, coupled with challenges in demonstrating whether these subsidies are “actionable” (i.e. whether they confer “specific” benefits to an enterprise, industry, or region and have adverse effects on the interests of other WTO members). The key policy suggestions of the think piece towards addressing these concerns include: more comprehensive and transparent disclosure of fossil fuel subsidies under the SCM Agreement; clarifying their “actionable” status; and gradual phase-out and ultimate prohibition of these subsidies.

Virtually all countries that are promoting clean energy or producing clean energy products provide some kind of subsidies to this sector. SDG 7 calls, inter alia, for substantially increasing the share of renewable energy in the global energy mix, which is likely to require ongoing support from governments. However, clean energy subsidies have repeatedly been challenged under the WTO dispute settlement system. This think piece suggests removing some of the legal uncertainty around these subsidies by clarifying key concepts in the SCM Agreement in the context of clean energy subsidies as well as clarifying the applicability of the General Agreement on Tariffs and Trade (GATT) Article XX General Exceptions provisions to the SCM Agreement; agreeing on a time-limited and conditional “peace clause” preventing WTO disputes being taken against certain carefully selected categories of climate-related subsidies; and re-introduction of the category of “non-actionable subsidies” under Article 8 of the SCM Agreement to provide leeway to certain types of clean energy subsidies.

SDG Goal 17 includes three targets relating to technology and SDG Target 7.a calls for enhanced international cooperation to facilitate access to clean energy research and technology. Removing distortions in global markets for clean energy technologies could help improve access and their dissemination. In addition to tariff liberalisation in clean energy technologies, as is attempted under the plurilateral Environmental Goods Agreement (EGA), the role of intellectual property rights (IPRs) assumes significance for technology transfer. Under the EGA, the think piece recommends inclusion of adaptation-related goods; creating scope for updating the list of environmental goods; eventual multilateralisation of this plurilateral initiative; and a joint effort by the WTO and World Customs Organization to revise the Harmonized System (HS) classifications to better reflect climate-friendly goods. On IPRs, the think piece suggests establishment of an appropriate mechanism that could address, on a case-by-case basis, any intellectual property-related barriers confronting United Nations Framework Convention on Climate Change (UNFCCC) parties that are also WTO members. WTO members could also adopt a Declaration for climate-related mitigation and adaptation technologies re-affirming the flexibilities already available under the Trade-related Aspects of Intellectual Property Rights (TRIPS) Agreement. Finally, South-South cooperation is also suggested as an avenue worth exploring further, in particular for adaptation technologies.

Given the rampant use of LCRs by developing and developed countries alike in the clean energy space and the proliferation of WTO disputes on the issue over the recent past, addressing LCRs pertaining to clean energy is certainly worth exploring. However, LCRs are less of a priority for policy action, in view of the political economy issues around them. Similarly, policy options regarding border carbon adjustments are attached relatively less priority in the short term given the complexities around them such as political sensitivity, development implications, as well as WTO legality. As for climate clubs, sweeping policy actions to create policy space under WTO law to enable such clubs to apply discriminatory “carrots” and/or “sticks” do not seem to be realistic in the short term; governments could instead explore establishing clubs under regional trade agreements and prioritise the use of carrots rather than sticks!

This think piece is one of a series of papers developed by ICTSD that explore the contribution that trade and trade policy could make to key objectives of the 2030 Agenda for Sustainable Development adopted by members of the United Nations in September 2015. The series is designed to help policymakers, in particular, to think through the role of trade policy in the implementation of this ambitious global agenda.