Written evidence submission from Greener UK (COP0017)

Greener UK’s submission to the International Trade Committee Inquiry on COP26 and International Trade

 

  1. Greener UK is a coalition of 12 major environmental organisations,[1] with a combined public membership of over 8 million. We came together to ensure that environmental protections are maintained and enhanced during the Brexit process, particularly through ambitious domestic legislation. Now that we have left the EU, we are urging the UK and devolved governments to build on our high environmental standards and protections, including when negotiating trade agreements.

 

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

 

1.1. COP26 must see countries put forward ambitious 2030 emissions reductions targets that align with reaching net zero by the middle of the century, which is needed to ensure global temperatures do not increase above 1.5 degrees.[2]

 

1.2. The UK government has rightly committed to putting nature at the heart of its COP Presidency.[3] As COP26 hosts, the UK government must use its leadership role to put land use, agriculture, and nature-based solutions at the forefront of global plans to address emissions and tackle the climate crisis.

 

1.3. To limit global heating in line with the Paris Agreement, tackling climate change needs to be embedded across all areas of policy, including trade. The hosting of COP26 and negotiation of key trade agreements provide the perfect opportunity for the government to raise the bar, putting climate and nature considerations at the centre of trade policy.

 

1.4. Trade agreements could have wide ranging implications on the ability of a country to achieve the 2030 emissions reductions targets they put forward for COP26. Given the ability of trade deals to shape and direct economic opportunities, it is important that current and future trade agreements support rather than hinder progress towards achieving net zero. Historically, trade and climate policy have frequently been considered in isolation from one another leading to misalignment between economic and environmental objectives. Many bilateral and multilateral trade agreements now routinely include environment chapters[4] and references to climate goals and commitments although they are rarely enforceable.

 

1.5. Reforming investor protection measures: Provisions on investor state dispute settlement (ISDS) have concerning implications for environment and climate policy. ISDS enables foreign investors to challenge states where state action has, or potentially will, negatively impact the profitability of an investment. These provisions can also result in ‘regulatory chill’, where states are discouraged from introducing regulations which could harm the profits of investors even if these are in the interest of public welfare, including environmental protections. This occurs because of the risk of legal action by a foreign investor, on the basis that the regulation impedes the investor's ability to operate in the state.

 

1.6. Accelerating the phase-out of coal is a key goal that the COP26 Presidency has outlined as needed to secure global net zero by mid-century and keep 1.5 degrees within reach.[5] However, ISDS has been used by companies to challenge a broad range of measures taken to phase out fossil fuels. For example, coal mining company Westmoreland has launched an ISDS complaint against Canada for phasing out coal-fired power stations,[6] electricity generation company RWE sued the Dutch government for its plans to phase out coal[7] and the Italian government faces legal action from UK firm Rockhopper for banning offshore oil drilling.[8]

 

1.7. The UK government should use this opportunity to reform the global approach to investor protection measures and exclude them from international trade agreements as well as make ISDS exemptions an integral part of its domestic trade policy. This would include seeking exemption from ISDS provisions in the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, as New Zealand has done via side letters with five CPTPP member countries (Australia, Vietnam, Peru, Malaysia and Brunei).[9]

 

1.8. Fossil fuel subsidies and investment: In 2015, the fossil fuel industry received over $370 billion in subsidies, as compared to $120 billion for renewable energy.[10] While the UK government has taken a positive step by announcing an end of support for overseas fossil fuel projects through UK Export Finance,[11] it should also require transparency from UK-listed companies on overseas investment in fossil fuel extraction which could undermine trade partners attempts to decarbonise. The UK should use its presidency to advocate for an international commitment to end fossil fuel subsidies as soon as possible.

 

1.9. Preferential tariffs for low carbon goods and green procurement: Making environmental goods and services more affordable and accessible will play an important part in accelerating climate action. The UK government has shown leadership on this issue by liberalising 200 new environmental goods.[12] The UK government should lead discussions on a global trade agreement to remove tariffs on environmental goods and services to support an equitable expansion of clean energy and low carbon products. This should be accompanied with measures to remove non-tariff barriers on environmental goods and services and support technology transfer to ensure solutions can be adapted for local circumstances.[13]

 

1.10.         Preventing carbon leakage: The government must ensure that trade agreements do not lead to the outsourcing of emissions of energy intensive industries such as steel, aluminium and chemicals. By publishing its proposal for putting in place a Carbon Border Adjustment Mechanism (CBAM), the EU has sparked a debate around potential measures to prevent carbon leakage. The EU considers CBAMs as a potential solution for preventing heavy industry relocating to jurisdictions with weaker climate regulations as a result of the EU’s Emission Trading Scheme which places a price on emitting carbon. CBAMs have not been proposed for agricultural and food trade, with good reason, as more holistic measures are needed a narrow focus on carbon could lead to perverse incentives i.e. by rewarding countries that achieve carbon efficiency through highly industrialised systems with poor animal welfare, antimicrobial risk and localised nitrate pollution issues. Additionally, CBAMs need to be carefully designed in a way that is aligned with WTO trade regulations and does not disproportionately impact developing countries.[14]

 

1.11.         Supporting sustainable agriculture: Reforming agriculture is critical to averting the climate and nature crisis, as current agricultural systems produce 29% of greenhouse gas emissions and drive 70% of terrestrial and 50% of freshwater biodiversity loss globally.[15] Agricultural and food imports can come with high environmental footprints attached, and risk undermining the key goal of COP26 to curtail global deforestation. The approach that the government has taken to the UK-Australia free trade deal in liberalising all tariffs and quotas on agricultural trade, sets a dangerous precedent for future trade agreements. Allowing the import of food produced to lower environmental standards than those required from UK farmers, such as Australian beef that has led to deforestation and water pollution,[16] would add to the already extensive footprint from the UK’s consumption.[17]

 

1.12.         The UK has been leading the way on agricultural reform through developing a ‘public money for public goods’-based support system for farming, the Global Resource Initiative for sustainable production abroad and a commitment to a National Food Strategy White Paper addressing the whole food system. Pursuing zero tariff, zero quota deals with countries that have intensive agricultural systems risks undermining these efforts to reform agriculture domestically, requiring domestic farmers to compete with imports produced more cheaply to a lower environmental standard.

 

1.13.         To reduce the UK’s overseas environmental footprint, and to avoid undermining the process of transitioning to greener forms of agriculture in the UK, the government should follow the recommendations of several independent commissions to develop core environmental standards. In its recent report, the Trade and Agriculture Commission (TAC) recommended establishing national core standards for all food imported and produced in the UK.[18] The TAC also recommended that, in parallel to the development of national standards, the UK could be involved in creating a global framework on environmental standards in trade to support the delivery of more sustainable food and farming supply chains, following the proposal of Codex Planetarius by WWF. Core environmental standards have since been recommended in the National Food Strategy Part 2 and have been supported by a range of organisations from across different sectors, including a group of businesses that signed a statement advocating for the government to adopt core standards.[19] Unfortunately there has still been no government response to the final TAC report, six months after it was published in March. The government should make it an absolute priority to respond to the TAC report and progress its recommendations, as well as appoint the permanent statutory TAC so it can fulfil its scrutiny role, before it continues negotiating trade deals with major agricultural exporters such as Australia and New Zealand.

 

1.14.         The government has reiterated its commitment to maintain existing standards, which is welcome but not enough to meet current environmental challenges. At present, the only standards that apply to all food sold in the UK, regardless of origin, are food safety standards. These protect humans, animals, and plants from harm to health. As the TAC report states, “there is an opportunity to reform the UK’s current import policy to create an ambitious, forward-thinking and more holistic approach”. This should include expanding standards to include climate change, environment, and animal welfare considerations.

 

1.15.         These core environmental standards could take the form of import restrictions which would be equivalent to the mandatory regulations applicable to farmers in the UK. As long as import restrictions are applied equally and fairly to domestic and foreign producers, and designed in an appropriate way, they are consistent with WTO rules. An example from the United States, the Marine Mammal Protection Act, demonstrates how import restrictions aimed at protecting the environment (in the US’s case, seals, dolphins, and other marine mammals) can be designed in a WTO-compliant way.[20],[21]

1.16.         A similar idea is also being explored in the EU. Several countries are calling for measures that would extend rules on EU food production to agri-food imports, similarly to the core environmental standards proposal. A study exploring this possibility has been commissioned, as recently announced by the EU’s agriculture commissioner.[22]

 

  1. Are international trade and investment likely to feature in the high-level negotiations at COP26?

 

2.1. It is unlikely that international trade and investment will feature in high-level negotiations at COP26. COP26 will include formal negotiations on: carbon market mechanisms; funding for loss and damage; discussions over the delivery of the $100bn finance target for developing countries; nature-based solutions; and agreement on common timeframes for countries' Nationally Determined Contributions.[23] The UK Presidency is also seeking commitments from countries on the phase-out of coal; curtailing deforestation; speeding up the switch to electric vehicles; and encouraging investment in renewables.[24]

 

2.2. While trade is not an explicit topic at the formal negotiations at COP26, the WTO’s 12th Ministerial Conference, taking place at the end of November, should integrate the agreements reached at COP26 in its agenda and address how trade and environment interact in the multilateral trade space.

 

  1. What are the possible impacts of climate change on international trade and investment?

 

3.1   A rise in global temperatures of 2.6 degrees could result in the global economy shrinking up to 10% by 2050.[25] This would lead to disruptions in trading patterns across all sectors. As extreme weather events increase throughout the world, global trade should be prepared to face more frequent shocks.

 

 

  1. To what extent does the Government’s trade policy align with the objectives of COP26? This includes, but is not limited to, its actions at the WTO, its G7 presidency, and its bilateral and plurilateral trade agenda.

 

4.1   The government has set out its core objectives for success at the COP26 conference as securing global net zero by 2050 and keeping 1.5 degrees within reach, putting nature at the heart of action against climate change, adapting to protect and restore ecosystems and communities, mobilizing climate finance and working together to accelerate action on climate change. However, the government’s trade policy falls short of reflecting the urgency required to meet these objectives.

 

4.2   Absence of a domestic trade strategy: The government is rushing to advance multiple trade deals without having a clear trade policy or strategy in place. The lack of a coherent trade policy has caused a number of concerns around the potential implications of new UK FTAs on the government’s net zero commitment and the UK’s high environmental standards. This could be seen in the ‘agreement in principle’ with Australia, which includes sizeable tariff free quotas on products produced to lower standards than the UK and potentially undermining our transition to a more sustainable farming system.

 

4.3   Some of the UK’s major trade partners including the US, the EU, and New Zealand have published trade policies. This gives their negotiators a clear mandate, which strengthens their hand in the negotiations, as it shows that their red lines are based on domestic support. It also ensures government cohesion on critical policy issues, which cut through a range of areas. The government must clearly set out a trade strategy which should elaborate on how its approach to new trade agreements and the WTO join up with its climate commitments in order to avoid friction and maintain credibility on the international stage.[30]

 

4.4   Making climate mitigation an integral part of the UK’s FTAs: The UK government should prioritise negotiations and deep and preferential trading arrangements with countries keen to put climate change and implementation of the Paris Agreement at the centre of an FTA. This would also allow the UK to support potential trade partners to ratify and implement key provisions of the Paris Agreement. The recent Trade and Cooperation Agreement between the UK and EU provides a strong template for future FTAs as it includes climate change as an ‘essential element’. 'Materially defeating the object and purpose of the Paris Agreement’ is explicitly specified as constituting a serious and substantial failure to fulfil an essential element of the agreement, which would allow either party to suspend the agreement if the other seriously impeded action to meet Paris goals.[31]

 

4.5   Regulating to maintain environmental standards: Free trade agreements often aim to remove non-tariff barriers to trade through mechanisms such as regulatory cooperation and mutual recognition of standards without any meaningful commitments to non-regression. These provisions could encourage a ‘race to the bottom’ on standards to reduce the costs of production so that domestic products can compete with imports.

 

4.6   If the UK aims to be a leader on climate change, the government must be clear that it will regulate in the best interests of the climate and be active in promoting this approach via the WTO, G7 and its various mechanisms. Furthermore, UK negotiators should seek commitments to meaningful and enforceable non regression provisions from future negotiating partners, as well as including a review clause that would apply should parties weaken implementation of the Paris Agreement or other climate related multilateral environmental agreements.[32]

 

  1. What discussions, if any, are planned to develop a multilateral approach to carbon pricing systems (including border adjustment mechanisms), green subsidies and investment funds, the curbing of fossil fuel subsidies, a circular economy and sustainable supply chains?

 

5.1   Earlier this year, the UK government launched the Forest, Agriculture and Commodity Trade (FACT) Dialogue, which aims to bring together ‘key countries exploring agricultural products and countries exploring these products to discuss how to make this process greener and more sustainable’.[33] The first ministerial meeting saw 25 countries agree on principles for collaborative action and begin discussion on a roadmap for transitioning to sustainable supply chains and protecting forests while promoting trade and development.[34]

 

5.2   The current approach of the Department of International Trade puts at risk this flagship initiative. A zero tariff, zero quota deal with Australia increases the possibility of importing food from supply chains that have deforestation at their source. Australia has the highest deforestation rate in OECD countries, which is in large part due to forests being cut down for cattle.[35] Any form of trade deal or policy that does not seek to help minimise and ultimately end deforestation within food supply chains is not compatible with COP26, given the extreme emissions impacts and opportunity costs associated.

 

5.3   The deal soon to be signed with Australia sets the precedent for future trade deals, with the UK’s potential trading partners likely to demand equivalent treatment in negotiations. The negotiation of a trade deal with Brazil via Mercosur would be of significant concern as it could lead to agricultural products grown on deforested land being imported into the UK in larger quantities. By lowering tariffs on agricultural trade without putting in place core environmental standards, the UK is potentially setting a precedent that could undermine its efforts to foster deforestation-free supply chains via COP26 and beyond.

 

5.4   The UK government should seek to join discussions on the Agreement on Climate Change, Trade and Sustainability (ACCTS),[36] which aims to liberalise trade in environmental goods and services, eliminate fossil fuel subsidies and encourage eco-labelling. The UK government must also support proposals by New Zealand and Australia in the Trade and Environment Sustainability Structured Discussions (TESSD)[37] on eliminating fossil fuel subsidies and removing barriers on trade in environmental goods and services. As the host of COP26, the UK government’s involvement in these discussions would send a strong signal globally and help galvanise support for a strong ministerial statement on Trade and Environmental Sustainability at the WTO’s next conference in November.

 

  1. What engagement has there been between the COP26 Unit and the Department for International Trade on the Government’s agenda for its Presidency?

 

6.1   While the two departments could be engaging internally on the government’s agenda for its Presidency, civil society groups have not been involved or made aware of any such discussions. In order to better align trade and climate policy, the government must engage meaningfully with relevant stakeholders in a transparent manner. This could be in the form of a cross department stakeholder engagement forum between the COP26 Unit, DIT and key stakeholder groups engaging in COP.

September 2021


[1] https://greeneruk.org/

[2] UK Government and United Nations Climate Change What do we need to achieve at COP26?

[3] Written Ministerial Statement, COP26 Update, 18 March 2021

[4] Carolyn Deere Birkbeck, Greening International Trade: Pathways Forward, May 2021

[5] UK Government and United Nations Climate Change What do we need to achieve at COP26?

[6] Westmoreland Coal Company v Government of Canada, ICSID Case No. UNCT/20/3

[7] Sandra Coelen and Basya Klinger, Netherlands confronted with 1.4 billion EUR ICSID claim in first investor-state arbitration, 25 February 2021

[8] Rockhopper Exploration Plc, Rockhopper Italia S.p.A. and Rockhopper Mediterranean Ltd v Italian Republic ICSID Case No. ARB/17/14

[9] Greener UK, Briefing on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, June 2021

[10] Economic Intelligence Unit and International Chamber of Commerce, Climate Change and Trade Agreements: Friends of Foes?, 2019

[11] Press release, PM announces the UK will end support for fossil fuel sector overseas, 12 December 2020

[12] Emily Lydgate and Chloe Anthony, Trade Policy Observatory, Can the UK Government beWorld-Leading in both Trade and Climate Policy, September 2020

[13] Aldersgate Group, Aligning the UK’s Trade Policy with its Climate and Environment Goals, June 2020

[14] E3G, Navigating the politics of Border Carbon Adjustments, September 2020

[15] WWF, WWF briefing on the UK’s role in building environmental standards on trade and agriculture, March 2021

[16] WWF, WWF briefing on comparing the environmental impact of farming across countries for trade policy, August 2021 

[17] WWF and 3Keel, Thriving within our planetary means, June 2021

[18] Trade and Agriculture Commission, Final Report, 12 March 2021

[19] See Major businesses call for core environmental standards for food trade

[20] Megan Waters, US import protections show how the UK can set high, WTO compliant food trade standards, 8 March 2021

[21] Megan Waters, WWF Briefing – The US MMPA model for building Core Environmental Standards into Trade Policy, March 2021

[22] Janusz Wojciechowski on Twitter

[23] ECIU What is COP26, who will attend it and why does it matter?

[24] UK Government and United Nations Climate Change What do we need to achieve at COP26?

[25] UK Board of Trade, Green Trade: A Board of Trade Report, July 2021

[26] PwC, Climate change and resource scarcity megatrends, available at: https://www.pwc.co.uk/issues/megatrends/climate-change-and-resource-scarcity.html

[27] UNCTAD, Review of Maritime Transport, 2020

[28] UNCTAD, Climate Change, Green Recovery and Trade, 2021

[29] World Economic Forum, Nature Risk Rising: Why the crisis engulfing nature matters for business and the economy, January 2020

[30] Anna Sands, How can the UK be a credible trading nation without a trade policy, June 2021

[31] Greener UK, Initial environmental analysis of the EU-UK Trade and Cooperation Agreement, December 2020

[32] Greener UK, Putting climate change at the heart of trade policy, June 2020

[33] Press release, COP26 brings countries together to protect world’s forests, February 2021

[34] Press release, Joint statement on principles for collaboration under the Forest, Agriculture and Commodity Trade (FACT) Dialogue, 27 May 2021

[35] WWF, Risker Business: The UKs overseas land footprint, 2020 

[36] New Zealand Foreign Affairs and Trade, Agreement on Climate Change, Trade and Sustainability (ACCTS) negotiations, available at: https://www.mfat.govt.nz/en/trade/free-trade-agreements/trade-and-climate/agreement-on-climate-change-trade-and-sustainability-accts-negotiations/

[37] Press release, Members review draft MC12 declaration on trade and environmental sustainability, 19 July 2021