Written evidence submission from Adam Smith Institute (COP0007)

Adam Smith Institute Submission on COP26 and International Trade



How can international trade and investment contribute to realising the goals of COP26?

Leveraging the power of free trade:

1.     Liberalising trade enables more sustainable economic growth by encouraging efficient production and allowing transfer of knowledge.

  1. Abolish tariffs and quotas on all goods that the OECD designates as having environmental significance;
  2. Seek membership of Agreement on Climate Change, Trade and Sustainability (ACCTS);
  3. Encourage — but keep voluntary — carbon/eco-labelling for consumer goods; and
  4. Ensure ascendance to CPTPP does not undermine climate policy related goals by providing excessive protection for the fossil fuel industry.



2.     International trade and investment naturally drives towards good environmental stewardship — through the profit mechanism that rewards innovation that produces more using less resources and waste; property rights that rewards protection of valuable land; and wider prosperity that creates wealth and political pressures for protection.


3.     State-led, socialist economic models have consistently failed the environment. This is because nobody takes care of unowned resources, are less efficient and therefore more environmentally exploitive. This is clearly demonstrated by the Eastern bloc economies or modern day Venezuela.


4.     The best, in fact the only way to tackle the challenge presented by climate change, including the Government’s Net Zero by 2050 target, while maintaining modern prosperity is to embrace a market- led approach.


5.     As of this moment, The United Kingdom, like many countries, is struggling to reduce dependence on fossil fuel energy sources. The existing renewable options, solar and wind, are undermined by lack of storage capacity and grid inertia generation.


Harnessing markets to realise the goals of COP26:

6.     Market environmentalism combines ethical principles and a proven track record in tackling environmental challenges. It is a galvanising and optimistic alternative to the apocalyptic prophecies espoused by extremists among the modern environmental movement. There are plenty of people who care deeply about the environment; all of whom are let down by the excessively ideological perspective which repurposes environmentalism as a weapon against enterprise. 


7.     The notion that capitalism exploits and impoverishes workers whilst unilaterally extracting resources through international trade has become a common refrain, that environmental protection and free markets are inherently adversarial and incapable of coexisting. Adopting this as a first principle of environmental policy would do little to tackle actual environmental issues and misdirects our focus away from useful and practical solutions.


8.     Nature is best preserved through the incentives of private ownership, the internalisation of negative environmental impacts, and the priority of local approaches over power-hoarding centralisation at the political level. Global warming can be fought by empowering the creative and positive features of entrepreneurship and international trade. 


9.     The World Economic Forum is correct in its assessment that governments can create the preconditions for environmental and economic prosperity.196 But trillions in stimulus is not the answer. Instead, governments should liberalise trade to empower the sustainable actions of market actors. An international clean free trade agreement — including exempting tariffs for environmental goods, eliminating fossil fuel subsidies, and adopting eco-labelling of goods — will repeal the bureaucratic and monopolistic obstacles which presently constitute greater barriers to adopting renewables than cost. 


10. Through membership of a non-protectionist free trade pact, like the Agreement on Climate Change, Trade and Sustainability (ACCTS), the UK can embolden domestic enterprise to make market environmentalist adaptations, and prolong their business models beyond a sustainable recovery from the COVID-19 pandemic. 


International Clean Free Trade:

11. The Agreement on Climate Change, Trade and Sustainability (ACCTS) was announced in 2019 by the governments of New Zealand, Iceland, Fiji, Costa Rica, and Norway.198 This pact was launched at the UN headquarters in New York, and ratified at Madrid’s COP25.199,200 The ACCTS intends to remove tariffs on environmental goods, establish new commitments for environmental services, eliminate fossil fuel subsidies, and implement voluntary eco-labelling programmes for goods. These measures would ensure energy market competitiveness, and greater consumer transparency by informing market actors on the comparative environmental impacts of goods. ACCTS — like its predecessor proposals, such as the Declaration on Energy Choice & Competition — keep governments accountable to market competitive principles concerning the purchase and sale of reliable, renewable energy. By repealing direct and indirect fossil fuel subsidies, governments can empower entrepreneurs to better develop renewable alternatives, free of the financial limitations of other fuels benefiting from preferential treatment.


12. The ACCTS intends to act as an exemplary ‘pathfinder’ experiment and an internationally replicable ‘template for action’. The proposal could benefit from abiding by the Clean Open Market International Commitments strategy of not penalising by imposing (often preferentially and unilaterally enforced) penalties from international bodies for deviating from prescriptive regulations. Instead, having member states meet Paris Accord emission reduction targets by 2050, by using a market environmentalist framework for descriptive policy-making, would act to demonstrate the efficacy and profitability of market environmentalist approaches. ACCTS’s descriptive legislative approach would then be necessarily adapted and adopted by other nations wishing to remain economically competitive on a newly sustainable global stage.


13. These measures diverge from the protectionist activity of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), whose Investor-State Dispute Settlement provisions (ISDS) oblige member nations to purchase select goods from monopoly industries,else incur hefty financial penalties. Under the North American Free Trade Agreement’s (NAFTA) ISDS provisions, Canadian taxpayers have been made to foot a $314 million bill in lawsuits.


14. With CPTPP member nations approaching net-neutral emissions targets — including the UK, with the Conservative government at present vying for membership — fossil fuel industries protected by ISDS are in prime position to sue states forcing purchase of their products for renewables investments. These international fossil fuel corporations are already the leading and disproportionate users of ISDS provisions. An ISDS case was brought against the Obama administration by energy company TransCanada, demanding $15 billion in compensation for the obstruction of the aforementioned Keystone XL pipeline’s construction.


15. Britain should make membership of ACCTS a high priority along with current plans to join CPTPP. Commitment to market environmentalist principles will provide a more sustainable roadmap for a clean COVID-19 economic recovery. The UK should make a clear statement of intent to involve itself in the ongoing negotiations surrounding ACCTS’ terms.


Environmental Goods and Carbon Labelling:

16. What are the ‘Environmental Goods’ which would become tariff-exempt? As co-defined by the Organisation for Economic Co-operation and Development (OECD) and Eurostat, Environmental Goods are: “activities which produce goods and services to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems.” The OECD produced a list of said goods using a deductive category based classification method to define goods which warrant tariff exemption for their environmental significance. The list’s broadness is intentional: allowing incorporation of new sustainable technologies over time. A more restrictive specific nomination-based approach taken by the Asia-Pacific Economic Cooperation (APEC) forum led to selective exclusion of similar goods from tariff exemption. Both lists informed WTO negotiations on environmental goods; but the OECD list produced less operational issues. Again, pliable, descriptive, market environmentalist policymaking demonstrates its risk-mitigation benefits over a prescriptive, controlled-economy method. 



17. Market environmentalism provides practical, cost-effective solutions to environmental issues. Its simultaneous preservation of inviolable individual and property rights makes it a compelling counter-narrative to authoritarian environmentalist ideologies from both extremes of the political spectrum. The aforementioned policies grant more power to consumers and offer profitable incentives to market actors for investment, innovation, and sustainable action. It’s imperative that environmentalists not defer to institutional power or place faith in the altruism of political figures; instead, economists, engineers, and active participants in climate processes should create the preconditions for the market to generate wealth from redressing the pending climate crisis.


September 2021