Climate change policies and international trade

This report examines the potential impacts of international climate change agreements on international trade and trade flows, and on the options, or lack of options, to take legal action, for example within the framework of the World Trade Organization (WTO), to mitigate unwanted side-effects of such international agreements. In particular, the study addresses the following three questions: (1) what are the impacts of existing and potential climate change agreements on the external trade positions of participating countries, non-participating countries and energy exporting countries?; (2) how do specific economic instruments of climate change policy (joint implementation, tradable emission permits, or charges) affect international trade and how do they relate to the Kyoto protocol? (3) which trade measures (trade restricting or trade enhancing) could be implemented in relation to international climate change agreements to mitigate or compensate for unwanted side-effects? By providing an overview of the legal and policy aspects of the climate change regime, this report seeks to shed an analytical light on the key issues that international negotiators are to address. Legal aspects between climate change policies and trade policies are examined in the context of three scenarios: 'full ratification', 'partial ratification', and 'non-ratification, but national measures'. Each of these scenarios give rise to potential trade conflicts. The report examines Computable General Equilibrium (CGE) models that are used for the economic evaluation of climate change policies and uses one such model: the Global Trade Analysis Project (GTAP) 'E' model for its own analysis. The report assesses consequences of different policy scenarios for international trade, economic welfare and for the global environment. It also looks at specific industry impacts and discusses ways to mitigate unwanted side-effects. refs