As the threat of dangerous levels of global warming becomes more severe, climate change is climbing to the top of the list of domestic and international policy priorities. To tackle the issue, policymakers are utilising every available strategy in their arsenal, including trade and industrial policy measures. Simultaneously, environmental policies and initiatives that do not directly employ trade-related measures are having significant impacts on production processes, consumer demand, and trade flows.

National approaches to regulating carbon emissions are diverging significantly, shaped by complex domestic factors. The ideal solution of globally coordinated policies that combine carbon pricing, non-discriminatory subsidies for green technologies, and transfers from high-income to lower-income countries, is looking increasingly unlikely to materialise. Instead, a patchwork of national policies is cropping up that creates a range of challenges and opportunities for foreign producers who must comply with the domestic regulations in export markets. The challenges loom large for firms in developing countries that may lack the data, capacities, and technologies to measure and verify the environmental impacts of their products. As a result of these interventions becoming more widespread, ambitious, and varied, the trade-environment space is a rapidly evolving one that demands close attention. This trade brief discusses some notable recent developments which are shaping the trade-climate landscape.

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