Global carbon pricing needed to avert trade friction, says WTO chief

Unlock the Editor’s Digest at no cost

Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.

World carbon pricing is required to stop “tough and problematic” disputes over environmental measures from disrupting commerce, the top of the World Commerce Group has stated.

Ngozi Okonjo-Iweala advised the Monetary Instances in an interview that the WTO was taking the lead in working for a global carbon pricing system with the IMF, OECD and UN. 

That effort is available in response to the EU’s carbon border adjustment mechanism, which got here into drive this yr and requires exporters to the commerce bloc to pay a levy linked to the EU carbon worth for the emissions of sure carbon-intensive merchandise together with metal, cement and fertiliser.

The measure, which comes into drive in 2026, is supposed to stage the taking part in discipline between EU producers, who need to pay for emissions below the bloc’s cap-and-trade system, and exporters in international locations with decrease or no carbon costs.

It’s anticipated to set off a slew of complaints on the WTO from buying and selling companions.

India has already hinted it might carry a WTO case, whereas different growing international locations have stated the measure would worth their items out of EU markets.

“Creating international locations see it, rightly or wrongly, as a protectionist mechanism,” the WTO director-general stated. “They’ve contributed little or no to emissions. Africa is 3 per cent of [current] world emissions.” 

The EU has defended the measure and emphasised that it has despatched officers all over the world to assist international locations together with China to develop their very own carbon markets.

In a doc outlining political priorities for the following five-year mandate of the European Fee, its president Ursula von der Leyen stated the bloc should “step up our inexperienced diplomacy and interact extra with non-EU international locations on exterior points of our insurance policies”.

Okonjo-Iweala stated the EU was proper to attempt to sort out local weather change however its method might fragment environment friendly commerce routes at the price of financial progress.

“We see [litigation] coming. We expect it is going to be fairly tough and problematic. So we’re attempting to keep away from that by saying why don’t we develop a world framework that’s interoperable? In order that we are able to restrict the commerce litigation frictions that will come right here.”

The Nigerian stated there have been 78 completely different carbon pricing and taxation mechanisms on the earth.

The intention of the working group was to discover a option to set completely different carbon costs in several areas. The EU would possibly pay $80 a tonne, and Africa $20. 

This is able to require a change to CBAM, which levies the distinction between the EU carbon worth and that paid by the supply of the imports to the bloc.

The proposed world system would additionally want safeguards in opposition to carbon arbitrage, the place heavy emitters merely transfer to areas with decrease costs, Okonjo-Iweala stated.

Okonjo-Iweala stated she needed commerce to assist scale back carbon emissions.  

“I’m actually personally so enthusiastic about it as a result of I believe there’s actually potential for commerce to do extra, for commerce to be a part of the reply. ”

When she began in 2021 “commerce was seen as a part of the issue” due to transport emissions and commodities exported from deforested land. “I actually needed to show that round.”

She stated she had inspired international locations signed as much as a global procurement settlement to prioritise inexperienced buying. There are additionally WTO talks over a world environmental items settlement that will drop tariffs on many gadgets reminiscent of photo voltaic panels. Nonetheless, the US particularly has been elevating tariffs to foster a home trade to compete with China.

Okonjo-Iweala stated international locations ought to reroute environmentally damaging subsidies in the direction of sustainable trade. There are $1.2tn of annual fossil gas subsidies, $600bn of trade-distorting agricultural subsidies, $300bn of water subsidies and $22bn of dangerous fisheries subsidies, she stated.

Okonjo-Iweala on Monday formally introduced her intention to hunt a second time period as director-general of the WTO.

The Nigerian’s first 4 yr mandate ends subsequent yr however African international locations had requested her to proceed.

There’s “broad-based assist” from members, a WTO spokesperson stated. She wants the approval of all to be confirmed.

If there aren’t any different candidates she can be again in workplace earlier than the US election. Former president and present Republican candidate Donald Trump blocked her appointment earlier than leaving workplace in 2020, permitting her to take the job.

Extra reporting by Alice Hancock in Brussels