As the U.S. government advances its goals at home using a range of domestic economic tools, trade policy provides an avenue to expand decarbonization efforts globally. John Podesta, President Biden’s climate envoy, spoke at Columbia University earlier this year and acknowledged the fundamental nexus between trade and the environment, calling for the creation of a task force to look at how trade policies can contribute to solving urgent climate challenges. “The stakes couldn’t be higher,” Podesta said. “But I believe if we make the right choices, we can create and maintain millions of good-paying jobs in the clean energy economy of the future. We can mobilize billions in private investment in countries around the world. We can accelerate technological innovation and position nations to overcome the challenges of today and tomorrow. And we can do it while protecting our planet for ourselves and our children.”

Since 2020, the World Trade Organization (WTO) has also taken a more expansive view on the range of topics where trade could help address climate and environmental challenges. On July 4th, WTO Deputy Director General Paugam stated, ”…(W)e are at a crossroads in the multilateral system, with an opportunity to shape a global win-win approach for trade and the environment. We can combine green transition, green industrialization and trade cooperation. This is what “reglobalization” is about. And the time to act is now.”

The U.S.’s most ambitious environmental trade commitments are in the U.S.-Mexico Canada Agreement (USMCA), which allows countries to continue with domestic climate initiatives while encouraging cooperation on environmental goals and calling for a level playing field in these efforts. The work is ongoing, but separate and siloed from the other aspects of USMCA. Moving forward, there is an opportunity to incorporate climate as a core consideration in all aspects of future agreements, adding an additional priority to the existing goals of reducing barriers to U.S. exports, protecting U.S. interests competing abroad, and enhancing the rule of law.

Imagine if U.S. trade negotiators asked “Will this help (or hurt) climate change” for each issue in their negotiation and then used all aspects of trade, supply chain or economic security agreements to create positive (or negative) incentives to accelerate climatemitigation efforts. Topics such as subsidy rules, market access (tariffs), and non-tariff barriers could be recast to tackle climate concerns in new and more aggressive – and possibly more effective – ways. New mechanisms like carbon border taxes and other “domestic” policies with international implications could also be used to accelerate efforts to both reduce carbon and ensure a level playing field for countries with stringent rules. But such a focus may need to be balanced with other politically important priorities, such as development, economic growth, and employment.

Penelope Naas is the Lead, Allied Competitiveness Initiative, German Marshal Fund, and an Advisor to the Trade Experettes

Trade+&+Climate+Paper+

To read the full paper as published by the American Leadership Initiative, click here.

To read the full paper, click here.

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Introduction and summary

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Can the trade system change? Radical changes have tended to reflect major shifts in geopolitics or macroeconomics. The Bretton Woods system of trade rules was shaped by the United States, which reflected the nation’s new role as a superpower following World War II and an interest in avoiding the mistakes following World War I; namely, the protectionist tariffs that fomented economic depression. The General Agreement on Tariffs and Trade grew into the World Trade Organization after many rounds of liberalizing trade by reducing tariff and non-tariff barriers, with the hope that the gains of trade would spread to the developing world in the era after the Cold War.

Today, geopolitical realities and the goals in the Paris Agreement may call for a further institutional overhaul of the global trade system. The global push to achieve net-zero emissions demands unprecedented action, albeit at different speeds in different countries, given the Paris Agreement’s bottom-up architecture based on nationally determined contributions, and the United Nations Framework Convention on Climate Change principle of “common but differentiated responsibilities.” The goals of the agreement require policy choices that are not easily reconciled with the trading system that has existed since 1989.

Climate and Trade: More Policies, More Policy Priorities?

As countries expand climate action to meet the Paris Agreement, a willingness to accept a wide diversity of approaches to climate policy from trade partners would be beneficial. Experimentation with various policies in the real world is crucial for nations to discover the policies that are most effective, efficient, and equitable. Policy approaches also inevitably will differ between regions, given constraints related to local economies, politics, and cultures, along with differences in legal systems. For example, the United States, which is backed by the Federal Reserve and the strength of the US dollar, will offer generous subsidies, while the European Union, which has decades of experience incrementally integrating dozens of national markets, will regulate and price greenhouse gas emissions.

The international trade system (and the institutions associated with the Washington Consensus, such as the World Bank and the International Monetary Fund) needs to evolve and enable policies that reflect new political and geopolitical priorities, if the trade system is to support the goals in the Paris Agreement. For example, a rekindled international trade system needs to reflect the legitimate role for industrial policy, given that industrial policy, though long maligned, has returned with a vengeance to nations in the West. This return of industrial policy requires a rethinking of subsidies; the traditional impulse is to constrain subsidies, rather than encourage a design with positive spillovers, such as innovation or regional development.

Some industrial policies are considered attractive—or even essential—climate policies, like subsidies that support reductions to the cost of clean energy technologies or trigger investments in firms that emit little or no greenhouse gases. But industrial policy in the 2020s has a mercantilist bent to it, as well. Some governments face electorates that reject the value of open trade. Governments also may face geopolitical tensions that encourage increased resilience against global economic shifts and perturbations, or motivate the domestic manufacturing of goods that are considered important to national security and the national economy. Industrial policies in these nations seem to aim to protect domestic economic interests above all else.

Border adjustment mechanisms are another type of climate policy that is potentially controversial. These policies, which impose fees, tariffs, or other costs on importers of a good based on the emissions associated with the production of that good, can be a way to both mitigate carbon leakage and incentivize other nations to mitigate emissions in response to the policy.

A reformed international trade system ideally would recognize the political motivations behind new green industrial policies and trade policies, while still encouraging restraint, fairness, and the scope of any policy to stay in proportion to its purpose. A tax credit in the Inflation Reduction Act may be a fantastic incentive to produce clean hydrogen, but if the tax credit becomes the sole business case for clean hydrogen, few countries will be able to compete with firms in the United States. Border adjustment mechanisms may be legally legitimate to level the playing field between firms that operate in nations with more stringent climate policies and firms in nations with less stringent climate policies, but the costs of complying with border adjustment mechanisms may be disproportionate, especially for countries in the Global South or for smaller producers. These challenges are not cause for such policies to be avoided or abandoned, but policymakers may want to account for the impacts of these policies on trade partners or political partners, as well.

When countries, individually or collectively, weigh the merits of industrial policy and policies that address climate and trade, they may not want to merely consider whether a policy is justified, as if justification were a dichotomy. The reductions in cost for renewables, including reductions spurred by subsidies, have provided a rare glimmer of hope for the achievement of lofty emissions-reduction goals. However, cost reductions also have been the result of China’s manufacturing prowess, given that China has a comparative advantage in scaling up manufacturing from certain industries such as solar energy. Replicating subsidies for other low-carbon technologies would not necessarily yield the same results as have been achieved for solar. In addition, some technologies inherently are better suited to rapid reductions in cost; for example, the commodification of components that are critical to production helps lead to economies of scale. For other technologies, such as carbon capture, for which customization and systems integration are more important, costs may not necessarily decline at the same pace.

Subsidies and industrial policies long have been deployed with the purpose of protecting industry incumbents. However, in a political environment where domestic interests and industrial competitiveness take priority, policies that compensate and protect incumbents may risk crowding out strategies of industrial policy that focus on investments and impacts that would benefit the climate or other societal goals. The economist Dani Rodrik, who has been more favorably disposed toward industrial policies than many other economists and politicians since before the current renaissance of these policies, emphasizes that the key consideration for industrial policy should be to “let the losers go [rather than] picking winners.” This attitude may be particularly crucial for climate policy, given that a low-carbon economy likely will be built on new forms of energy and industrial production that may be best suited to regions that differ from the regions where some industries currently are clustered.

What Is the Role of Multilateral Institutions?

International institutions could focus on more germane technical considerations. “Interoperability,” which is shorthand for the ability of nations to design climate and trade policies that affect trade without creating barriers to trade in terms of administrative costs, has become an oft-used keyword. International trade institutions, including the World Trade Organization, could contribute solutions to challenges regarding interoperability.

In the past, the coexistence of many different free trade agreements actually has led to a reduction in trade, due to the so-called “spaghetti bowl” effect: the costs of complying with overlapping agreements are higher for countries that are not party to these agreements. Free trade agreements also allow for deeper integration or alignment between nations, but reaching agreement on rules (or a larger set of rules) with a larger group of countries can become more difficult than with smaller groups.

The risk of a “green spaghetti bowl” emerges in the context of climate policy. (We apologize for the mental image this phrase may conjure.) Firms and importers have to navigate myriad border adjustment mechanisms; rules for subsidies; requirements for how much of a good must be produced domestically; product standards based on emissions intensity; and regulations in the domain of environmental, social, and corporate governance. These factors all contribute to the transaction costs that companies and importers have to deal with. While multinational firms are well-versed in navigating multiple complex regimes of regulations, smaller companies may see transaction costs rise to the extent that those companies stop trading internationally.

A desire undoubtedly exists among nations for a forum (or fora) to discuss interoperability and, ideally and eventually, some form of alignment on the many climate polices that affect international trade. The international community should continue to consider what the most appropriate venues could be, if this dialogue really is a priority. One of these venues could be the World Trade Organization, but this choice would require willingness both from current political leaders, who have critiqued how the organization currently is functioning, and traditional supporters of the organization, who would need to accept that member nations of the organization have policy goals that go beyond free and open trade. The United Nations Framework Convention on Climate Change might be another option for a venue, following the first-ever “Trade Day” at the 28th Conference of the Parties. Other intergovernmental initiatives such as the Climate Club might offer the most promising venue, though these initiatives may be insufficiently inclusive and comprise countries that already are like-minded, thereby not addressing the trade relationships in which interoperability might be most critical.

Finally, a particularly important role may exist for the world’s middle powers, such as Canada and Indonesia, in the ongoing debate about climate and trade. These nations are at risk of being squeezed in a subsidy race or a tariff tit for tat between the largest economies—the United States, China, and the European Union—while often being aligned with one of them. Middle powers can encourage economic superpowers to consider the better angels of their nature, practice restraint, and be measured when crafting policies that impact trade. Policies that fulfill these criteria can help extend the gains of trade to future generations while the trade system continues to support sustainable growth across the globe.

To read the full blog post as it appears the Resources for the Future website, click here.

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Recognizing that firms face significant hurdles to achieving decarbonization, the United States and the European Union have launched negotiations for the Global Arrangement for Sustainable Steel and Aluminum (Global Arrangement or GASSA), the first trade agreement of its kind. It will enable the parties to work together toward reducing sources of global non-market excess capacity (NMEC) in steel and aluminum manufacturing and lowering the carbon intensity of traded products.

The approach is revolutionary. It brings together two of the largest, cleanest manufacturers and the most powerful consumer markets in the world to reform trade in energy-intensive goods.ii Prior Council research has demonstrated that successful resolution of the Global Arrangement can reduce global industrial emissions, reward carbon-efficient manufacturers and workers, and generate clear benefits for participating economies. Moreover, the Global Arrangement can provide a powerful template for future agreements between additional countries, covering additional commodities and addressing global manufacturing practices across a number of important sectors.

To meaningfully address the 9.15 gigatons of annual industrial CO2 emissions, we need a global marketplace capable of rewarding firms for manufacturing goods with fewer emissions than their competitors. As a carbon-efficient manufacturer of goods, the U.S. is well-positioned to lead the development of policies that leverage trade rules to cut emissions and reduce the power of non-market firms. And as the world’s largest economy, the U.S. can bring other countries to the table in partnerships that yield more emissions reductions and more benefits for the cleanest firms.

In this context, the Global Arrangement’s success is an important bellwether. This deal tests our ability to use novel trade approaches in the climate fight, begins with negotiations between two like-minded and large economies, and is specifically designed to welcome future participation by new countries over time. Progress has been slow-going, but the paradigm shift that success could bring warrants the parties redoubling their efforts to finalize a deal.

This paper builds from previously conducted research to assess the state of steel production and trade and the abundant benefits available to the U.S. and the EU if the negotiation is successful. A well-designed Global Arrangement can reward lower-carbon manufacturers with higher sales and profits, on-shore steel production, secure decarbonization investments, and lower carbon emissions.

Catrina Rorke serves as executive director of the Center for Climate and Trade and senior vice president, policy and research at the Climate Leadership Council.

Matthew Porterfield is the vice president, policy and research at the Climate Leadership Council. 

To read the full report published by the Climate Leadership Council, click here.

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These negotiations are playing out against the backdrop of American and European efforts to decarbonize their heavy industries to achieve net-zero climate targets by midcentury, as well as long-standing problems of excess capacity in global steel and aluminum markets. Steel and steel products have some of the highest embedded carbon content of all traded goods, and the iron and steel industry produces nearly one-third of global emissions from industry. Aluminum, meanwhile, is energy and carbon intensive and is consequential to global greenhouse gas emissions, albeit on a comparatively smaller scale.

Yet recent reporting reflects that GASSA negotiations have stalled on account of different U.S. and EU approaches to linking market access to the carbon intensity of traded goods, which may result in the deal being indefinitely shelved. This would be an immense missed opportunity. GASSA, if concluded in a way that links market access to carbon intensity, would mark a paradigm shift in the organization of cross-border commerce, one in which like-minded democracies use trade—and the institutions that facilitate and govern it—as a tool to address shared problems. Furthermore, by laying the groundwork for a transatlantic climate bloc, the deal would strengthen other U.S.-EU partnerships aimed at confronting some of the major global challenges of the 21st century—above all, climate change, but also the influence of authoritarian states in the international system and the need to recalibrate the global economy in a way that better serves the interests of workers and the planet.

This issue brief offers an overview of GASSA, explains why it matters, and examines challenges to its implementation. It assesses that a strong agreement would both constitute a major step forward in aligning trade with climate action and offer a productive mechanism for countering abuses of the global trading system by nonmarket economies while strengthening transatlantic relations. Finally, it recommends that if GASSA cannot move forward in a timely fashion, the United States should seek similar partnerships with other high-ambition steel- and aluminum-producing nations.

Background to the deal

In 2018, the Trump administration imposed tariffs of 25 percent on European steel products and 10 percent on European aluminum products under Section 232 of the Trade Expansion Act of 1962. The Trump administration justified the tariffs—which covered most U.S. trading partners—on national security grounds, provoking a sharp reaction in most European capitals, given that the United States and most European states are bonded together through the NATO alliance to ensure each other’s security. As a result of the tariffs, alongside a broader drop in demand relating to the COVID-19 pandemic, EU exports to the United States in steel and aluminum, worth about $7 billion, declined more than 50 percent between 2018 and 2020. Although the effects of the tariffs on the U.S. steel market are contested, some respected economists have concluded that they did not meaningfully affect domestic steel prices and coincided with an improved economic outlook for the U.S. steel industry.

As a “rebalancing,” or retaliatory, measure, the European Union imposed a range of duties on various U.S. products, including steel products but also motorcycles, bourbon, and other trade-exposed goods. Both the United States and the European Union initiated disputes at the World Trade Organization (WTO) over the other side’s tariffs. While steel tariffs addressed legitimate concerns the U.S. steel industry had over steel overproduction—concerns that European producers shared, ironically—they nonetheless were a major thorn in U.S.-EU relations, and the EU has pressed the new administration to reverse the tariffs since President Joe Biden came into office.

In October 2021, on the eve of the 26th U.N. Climate Change Conference in Glasgow, American officials announced they would exempt imports of European steel and aluminum from the Section 232 tariffs up to a certain volume through the end of 2023, beyond which the tariffs would remain in effect. In return, the European Union agreed to suspend its countervailing tariffs on a range of U.S. products and refrain from imposing additional tariffs that were set to go into effect on December 1, 2021. According to a joint statement released at the time of the announcement, this suspension would create space for the two sides to agree to negotiate “future arrangements” to address both “non-market excess capacity” and the “carbon intensity” of the steel and aluminum industries. In addition, both sides agreed to drop WTO disputes they had filed against one another concerning their reciprocal tariffs. And in a somewhat unusual move, they agreed to transfer those cases to arbitration panels, as permitted under WTO rules, based on the understanding that arbitration would only go forward if the arrangements contemplated in the deal were to fail.

In a separate, unilateral statement, the European Union asserted that it considers the residual tariffs on European steel and aluminum retained by the United States under the agreement to be “incompatible with World Trade Organization rules,” although there is no indication Brussels intends to challenge those tariffs before the WTO. Notably, although the European Union suspended its dispute relating to the Section 232 tariffs, other non-EU countries—Switzerland, Norway, China, and Turkey—pursued claims against them before a WTO adjudicative panel and obtained a finding that the tariffs were incompatible with WTO rules.

What GASSA would do

The “future arrangements” contemplated in the 2021 joint statement included, most significantly, measures that “restrict market access”—by imposing tariffs or other barriers to import—for economies that either contribute to global steel and aluminum oversupply or that do not meet certain emissions thresholds in their steel and aluminum production. In other words, this agreement could lead to the United States and the European Union coordinating efforts to impose costs on high-polluting steel and aluminum producers.

In addition, the two sides agreed to “refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity,” as well as ensure their domestic policies support these goals. Finally, they agreed to consult on government investment in decarbonization and “screen inward investments from non-market-oriented actors”—which, as discussed below, refers to nonmarket practices and actors, including Chinese steel producers. When the United States and the European Union came to agreement, they set a goal of concluding the negotiations in two years, by October 2024, and noted that the agreement could be expanded to include “like-minded economies.” This means that once the United States and the European Union reach an agreement, other allies could sign on, potentially making this the basis for a global agreement consisting of a large portion of the global economy.

Why GASSA matters

GASSA would be more narrowly focused than a conventional free trade agreement. But from an economic and climate perspective, the scope of the deal would nonetheless be substantial: Steel is one of the most used products in the world as well as one of the most widely traded commodities, both in finished products and as a component of other goods. There are few sectors of the global economy untouched by steel production, which is used in everything from cars, buildings, and appliances to wind turbines, nails, and screws. The annual value of global steel products has been estimated to be as high as $2.5 trillion, about one-quarter to one-third of which can be attributed to exported goods. Aluminum is likewise one of the most traded commodities in the world and a key component of many finished goods.

From the perspective of addressing climate change, the deal is even more consequential: The iron and steel industry accounts for about 11 percent of global CO2 emissions and nearly one-third of industrial emissions. Notably, the United States and European Union are the second- and third-largest import markets for steel—after China, which is both the largest importer and the largest exporter of steel—and are also major exporters. Aluminum, meanwhile, accounts for about 3 percent of global CO2 emissions.

American and European steel manufacturing is less carbon intensive than that of many other countries with major steel industries, particularly China and India, because of greater prevalence of low-carbon manufacturing methods, a greener electric grid, and greater efficiency in traditional blast-furnace production methods. Inflation Reduction Act and EU Green Deal Industrial Plan investments in steel decarbonization and related technologies such as green hydrogen mean that the carbon gap in steel and aluminum is poised to widen substantially in the coming decade. In contrast, the Chinese steel sector recently invested $100 billion in coal-fired steel production—the most carbon-intensive steel production method by a considerable margin.

By tying market access to sectoral manufacturing practices, GASSA has the power to shape production standards beyond the American and European markets. Specifically, by raising market barriers on imports of carbon-intensive steel and aluminum and creating a free-trade area for lower-carbon versions of those commodities, the deal creates incentives for other steel- and aluminum-exporting countries to pivot to greener production methods. The arrangement would also safeguard the livelihoods of American and European steelworkers by advantaging their lower-carbon steel vs. more-carbon-intensive steel produced in other regions. In this sense, GASSA could substantially reshape supply chains and significantly contribute to industrial decarbonization on a global scale. It would also be a boon to domestic industrial decarbonization efforts by rewarding domestic greenhouse gas emission improvements in the steel and aluminum sectors with access to a protected market.

Just as importantly, GASSA would mark a fundamental shift in understandings of how global trade should function that have persisted since the end of the Cold War. In particular, a strong GASSA arrangement would signal alignment between the world’s two largest free-market economies on two pressing issues: responding to the climate crisis and managing China’s role in the global economy. In addition, the deal offers a crucial opportunity for leading democracies to influence global trade rules and institutions with a view toward a more sustainable, fit-for-purpose global trade system. As an additional benefit, GASSA has the potential to strengthen transatlantic cooperation on a broad range of issues at a time when solidarity between democracies is more important than ever.

A long-overdue alignment of trade with climate action

Multilateral and plurilateral trade arrangements have, to date, done little to nothing to address the climate crisis. Arguably, they have contributed to it by lowering the barriers to carbon leakage—the shifting of production to regions with lower climate standards—through investor-state dispute resolution mechanisms, which favor corporate interests, and tariff reductions on high-emission products. No trade agreement involving major economies has sought to account for the carbon content of traded goods.

The European Union recently introduced a Carbon Border Adjustment Mechanism (CBAM), which imposes a fee on imported goods based on the carbon intensity of their production. Comparable legislation has been introduced by both Republican and Democratic legislators in the U.S. Congress. Both the EU CBAM and possible U.S. carbon tariffs are watershed developments in the sense that they reflect a shift toward internalizing negative externalities—that is, costs to society not reflected in the price of traded goods. Yet these measures are the product of a unilateral legislative process and have not been designed with a view toward compatibility with each other or with other economic and regulatory systems. As a result, they leave on the table the multiplying effects of aligning the combined market power of the two largest free-market economies, which together can act with far greater effect to influence global standards and production methods.

By contrast, GASSA may resemble a sector-specific version of what economists describe as a “climate club”—that is, a preferential trade arrangement between countries in which enhanced market access (or exclusion from market barriers) is linked to a common or harmonized set of emission reduction policies. A key feature of climate clubs is that countries inside the club will move toward freer trade between themselves. But countries that do not meet the club’s climate standards are subject to less favorable trade terms than countries within it. Here, again, China—whose steel has a carbon footprint that is nearly two times greater, on average, than U.S. steel and is widely exported to both the American and European markets—is the third party that stands to be most affected by the deal. But other countries with highly carbon-intensive steel industries, such as Russia and India, would also be affected absent significant measures to decarbonize their industries.

Notably, the disparity between U.S. and Chinese steel emission intensities differs by production method. Chinese steel produced by the traditional blast oxygen furnace (BOF) method—the most carbon-intensive method—produces about 50 percent more emissions than U.S. BOF steel. Meanwhile, Chinese steel produced using an electric arc furnace (EAF), a more recent manufacturing method that is less carbon intensive than BOF, is about three times more carbon intensive than U.S. EAF steel.

A new approach to managing the economic rise of China—and other authoritarian, nonmarket states

Although China is not mentioned by name in the joint statement released in 2021, it remains the elephant in the room. The joint statement’s repeated references to “non-market excess capacity” and the need to ensure “market-oriented conditions” clearly allude to Chinese steel production, which has surged from 15 percent to about half of global production since 2000. There are long-standing transatlantic concerns that the Chinese economic system of state capitalism has conferred unfair advantages to Chinese business and resulted in overproduction of key commodities—above all, steel—driving down global prices and harming domestic industry. Most notably, in 2018, the United States circulated a detailed memorandum to all WTO members concerning China’s “trade-disruptive economic model,” assessing that a variety of “non-market” practices—such as “massive, market-distorting subsidies,” foreign investment restrictions, and state-controlled financial institutions—had given Chinese manufacturing an unfair trade advantage to the detriment of market economies.

Although the European Union has been less vocal in challenging the Chinese economic model on a general level, it has repeatedly expressed frustration over Chinese steel overproduction and trade-distorting subsidies, most recently regarding subsidies to Chinese electric vehicles.

In this sense, GASSA would represent the first coordinated multilateral effort to address China’s integration into global markets without directly engaging Beijing or invoking WTO dispute resolution measures. It would also reflect a new approach to promoting Chinese climate ambition, in which direct engagement with Chinese authorities is supplemented by market-shaping policies that create economic and reputational incentives for Chinese manufacturers to decarbonize. Such an approach would reinforce unilateral measures to promote decarbonization of carbon-intensive sectors such as carbon tariffs, green procurement standards, and subsidies to clean industry.

China, of course, is not the only nonmarket state with a major role in the global economy. Russia, which the United States recently assessed to be a nonmarket economy, also produces considerable volumes of steel and aluminum, and steel production is expanding in a number of nondemocratic states in the Middle East and Southeast Asia, with a record of trade-distorting practices. As with China, GASSA would protect U.S. and EU industries from being undercut by steel and aluminum produced cheaply or in excessive quantities by these countries as a result of carbon-intensive manufacturing, exploitative labor conditions, or other unpriced externalities and social harms. In this sense, GASSA could be an important first step in reversing what U.S. Trade Representative Katherine Tai has described as a “race to the bottom” in the organization of the global economy, “where exploitation is rewarded and high standards are abandoned in order to compete and survive.”

A catalyst for remaking the global trade system

In recent years, the WTO and globalization itself have come under unprecedented pressure to remain relevant in an international environment defined by the U.S.-China geopolitical rivalry, supply chain disruptions, and the emergence of climate action as an urgent priority in the international agenda. As observed by current WTO Director-General Ngozi Okonjo-Iweala:

“A series of shocks in the space of 15 years—first the global financial crisis, then the COVID-19 pandemic, and now the war in Ukraine—have created an alternative narrative about globalization. Far from making countries economically stronger, this new line of thinking goes, globalization exposes them to excessive risks. Economic interdependence is no longer seen as a virtue; it is seen as a vice. The new mantra is that what countries need is not interdependence but independence, with integration limited at best to a small circle of friendly nations.”

Whether this accurately describes the position of the United States or another major economic power is up for debate, but there is little question that current U.S. trade policy is grounded in the assessment that economic integration cannot proceed on the neoliberal terms envisioned by the late 20th century architects of the WTO system.

On the one hand, GASSA can be seen as affirming the WTO’s continued relevance in managing trade relations between sovereign economies. The provisional lifting of steel and aluminum tariffs under the 2021 U.S.-EU agreement, with recourse to WTO arbitration should negotiations fail, could buttress the WTO system by using the WTO’s own procedures to resolve a dispute that would otherwise have languished under the organization’s currently inoperative dispute resolution mechanism. Even so, some analysts and senior European officials have expressed reservations that GASSA could, depending on its design, be incompatible with WTO rules. Although the WTO system has long tolerated plurilateral free trade agreements, in which participating countries reciprocally reduce trade barriers for one another, the same cannot be said for agreements to increase trade barriers on third-party countries; such arrangements could be read to run afoul of the WTO’s “most-favoured-nation” principle, which requires treating imports from all WTO members equally.

Yet such concerns are not reason to avoid moving forward with GASSA. The urgency of the climate crisis militates against an excessively cautious, self-limiting approach to the design of trade arrangements, and there is a case to be made that GASSA is a permitted trade measure under WTO rules. Ultimately, the trade system must be responsive to the broader policy context in which it operates and current public priorities—most notably the need for alignment with the global commitment to reduce greenhouse gas emissions. Given the outsize role the United States and European Union play in global trade, GASSA may prove to be a vehicle for reappraising WTO rules to better align with climate action.

In this respect, GASSA could have the surprising consequence of galvanizing a long-overdue conversation about overhaul of the global trade system. In particular, GASSA would add further ballast to an emerging trade reform agenda that recognizes that the WTO and the global trade system more broadly must move beyond their current focus on clearing barriers to trade—what U.S. Trade Representative Tai has called a system that encourages “low cost at any cost—and be regeared to promote specific kinds of economic activity that carry positive environmental and social benefits—for example, trade in low-carbon goods and goods that can support a green transition, such as inputs into EVs, photovoltaic solar panels, and wind turbines. If landed, GASSA would mark a major pivot toward what national security adviser Jake Sullivan has called the “new Washington consensus,” which rejects reflexive lowering of trade barriers and seeks alignment of trade policy and trade institutions with climate action, equitable economic growth, and resilient supply chains that avoid excessive dependence on any one country for strategically important goods. Sullivan has identified WTO reform as one element of this new approach to international economics.

A special economic relationship between democracies

GASSA negotiations began in earnest in November 2021, in the first year of the Biden administration. It is not surprising that the administration’s first major move in trade policy was with the European Union. U.S. trade officials have stated their desire to deepen economic ties with existing economic partners and allies and to use trade as a tool to strengthen global democracy.

GASSA would create a new set of economic relationships among the world’s two largest democratic economies, organized around a novel set of trade policy propositions. In other words, it could presage a long-term trend in the global trading system in which trade arrangements and the cross-border investment and supply chain cohere more closely with shared values among trading partners, rather than the narrow notions of economic efficiency that have created economic interdependence between the economies of democracies and authoritarian regimes such as China and Russia.

Of particular note, once established, GASSA could be broadened to one or more democracies in the Global South, such as Brazil, with requisite investment in lowering carbon intensity and (where needed) strengthening of core labor rights. In addition to the climate benefits, this would help address concerns that linking market access to climate ambition is a form of “green protectionism” designed to disadvantage developing countries.

A much-needed step forward in transatlantic relations

Despite a long history of security cooperation and shared democratic values, economic cooperation between the United States and the European Union has been a recurring source of tension and even conflict. During the Obama administration, negotiations over the Transatlantic Trade and Investment Partnership floundered and were eventually abandoned. And during the Trump administration, Brussels was blindsided with tariffs on national security grounds, which antagonized European leaders and prevented more constructive discussions over collaborating to address a range of economic challenges, including China’s unfair trade practices. More recently, provisions of the Inflation Reduction Act linking tax credits to domestic content incentives and providing direct subsidies for domestic production provoked anger and accusations of protectionism and trade discrimination from European officials, which in turn led the United States and European Union to begin negotiating a one-off agreement that would make European firms eligible for some of the disputed credits.

Given this history, GASSA represents a much-needed step forward in U.S.-EU economic relations, as it not only turns a page on past acrimony but also opens a pathway for U.S.-EU cooperation in other critical areas of the relationship, such as digital regulation, investment screening, and technology standards. Moreover, the agreement may serve as a template for trade clubs organized around standards other than climate—for example, labor standards—and facilitate coordination between Brussels and Washington in how they engage the Global South on economic issues. In short, GASSA should be viewed as a key building block in the construction of a durable U.S.-EU economic partnership, one that will prove vital in combating climate change, calibrating economic relations with China in a way that balances fair competition with the need to derisk key sectors, and ensuring that democracies are able to set the global rules of the road on technology and trade.

Conclusion

The particulars of any GASSA arrangement—provided it has tangible, market-shaping effects—are ultimately less important than the crucial precedent a deal would set in demonstrating that like-minded democracies can work constructively within the global trading system to condition market access on carbon intensity, all while managing the distorting practices of nonmarket economies. At a moment when climate change, the lingering aftershocks of the COVID-19 pandemic and Russia’s invasion of Ukraine, and a deepening U.S.-China rivalry have placed unprecedented strain on the post-Cold War consensus on globalization and regulation of cross-border trade, GASSA offers a potential path forward: a new approach to economic relations capable of meeting the challenges of the 21st century head on. However, for this new approach to succeed, leaders in both Washington and Brussels must be willing to set their differences aside and use their immense market power to guide the global economy toward a more sustainable, resilient future.

Given the urgency of the climate crisis, U.S. officials should also consider allowing the two-year tariff rate quota—which partially lifted the Trump-era Section 232 tariffs on European steel—to expire, if the European Union is unwilling to agree to a sufficiently ambitious global arrangement. This effort should include a firm implementation plan that sends a strong signal to industry that the future of steel and aluminum trade will be marked by clear carbon intensity-based tariffs.

In addition, U.S. officials should strongly consider pursuing a GASSA-like arrangement with other democratic trading partners with high levels of climate ambition—such as Canada, Norway, and Australia—while seeking to conclude negotiations with the European Union. As the world’s foremost economic power, currently led by an administration committed to climate leadership and democratic values, the United States is uniquely capable of providing proof of concept of a new model of trade policy that supports a just transition to a decarbonized global economy.

To read the full issue brief, click here.

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Concurrently, the United States is revamping its relationship with Africa, as demonstrated most saliently by the recently unveiled strategy document focusing on the continent, as well as commitments made during the U.S.-Africa Leaders Summit in December 2022. These commitments aim to facilitate two-way trade and investment, and, crucially, seek to reorient the relationship between the United States and Africa away from the historical aid donor-recipient paradigm.

There are significant areas of synergy between these twin objectives of developing new clean energy supply chains and reorienting the U.S. economic and strategic relationship with Africa. Many African countries are endowed with the natural resources that the United States needs to produce clean energy technologies, and in certain cases they boast some of the largest reserves of these minerals in the world. This combination of key mineral endowments in African countries and U.S. objectives to reorient supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship. Importantly, this new partnership can be markedly different from African countries’ historic relationships with foreign powers, in which these powers merely regarded Africa as a source from which to extract unprocessed raw materials. Many African countries have long made it a priority to ensure value addition for their natural resources, and honoring this intent will be key to realizing the second major U.S. objective: revamping its relationship with the continent.

Zainab Usman is a senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace in Washington, D.C. Her fields of expertise include institutions, economic policy, energy policy, and emerging economies in Africa.

To read the full paper as it was originally published by Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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In response, national governments are taking large-scale action to combat climate change through emissions reductions and efforts to shift to a low-carbon economy. New initiatives at the International Monetary Fund (IMF) and the World Bank are underway to incorporate climate considerations in their financing arrangements. There is increasing pressure among World Trade Organization (WTO) members to reform the trade regime to align with climate commitments, and the European Union (EU) and the Organisation for Economic Cooperation and Development (OECD) are undergoing similar efforts to align their investment treaty commitments with global climate goals. 

Nevertheless, existing policy and financing action at the national and international level is far from sufficient to limit global warming. Experts agree that substantial investment and subsequent economic growth for most of the world will be needed to meet climate goals, as well as the UN 2030 Sustainable Development Goals, with predictions pointing to at least $1 trillion per year needed in domestic financing from emerging markets and developing countries (EMDEs) by 2025. Moreover, domestic financing alone is still not sufficient, as researchers have estimated an additional $1 trillion per year needed in external finance by 2030 – from developed country pledges, development banks and private lenders and investors

The current calculations around climate finance demonstrate a pathway forward, a necessary (though not sufficient) condition for a successful global response to climate change. Where countries can mobilize the necessary amount of financing ($1 trillion per year), and it is accompanied by additional necessary policy shifts toward a low-carbon future, the possibility arises that countries could “decouple” their economic growth from increased emissions. In other words, countries may be able to shift the composition of their planned policies and investment for economic growth such that they meet the dual purpose of development and accomplishing a clean energy transition. 

The same countries for whom sustainable long-term growth will rely on this “decoupling” effect are also the most vulnerable to climate change impacts and the most exposed to economic impacts of climate policy in high-income countries. On the other hand, they also have the most room to grow in the new, low-carbon global economy. Developing countries are keen to not be left behind in the green industrial revolution and are already taking steps toward a low-carbon transition and a net zero economy. 

A major obstacle that many of these countries face, however, are the international trade and investment rules embodied in the WTO agreements, as well as hundreds of free trade agreements (FTAs) and thousands of international investment agreements (IIAs). Although intended to encourage and promote increased flows of trade and investment, which often drive economic growth, they also constrain policymakers in their use of policy tools to harness trade and investment for strategic growth. Specifically, these rules make it harder for countries to build up upstream and downstream industries through local content requirements, or to prioritize diffusion of essential climate technologies through changes to domestic intellectual property laws. 

In November 2022, the Boston University Global Development Policy Center hosted a workshop to develop a research agenda for evaluating the progress and addressing the pitfalls of ensuring the trade and investment regime is compatible with achieving global climate goals and development. Drawing from presentations and discussions among experts in trade and climate at the workshop, this policy brief reflects three major conclusions: 

1. The global green industrial revolution requires a new, inclusive framework for economic change, focused on building capacity sustainably for developing countries. 
2. To combat climate change, the world needs rapid, diverse and experimental climate action by all nations, regardless of development or income level, that aligns with principles of climate justice to protect against negative spillovers. 
3. A key component of the climate action required is a reformed trade and investment regime that removes obstacles to climate action and facilitates economic restructuring toward a low-carbon economy. 

To read the full summary as it was originally published by Boston University Global Development Policy Center, click here.

To read the full policy brief, click here.

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In using the removal of Section 232 ‘national security’ tariffs on steel and aluminium imports as a bargaining chip, the United States demands that the European Union engage in negotiations on “global steel and aluminium arrangements to restore market-oriented conditions and address carbon intensity”. The US demand has reportedly been inspired by a blueprint that would establish an international institutional arrangement – labelled a ‘climate club’ – which would externalise market-access restrictions afforded by US Section 232 tariffs to the customs borders of club members. While the declared objective is to incentivise non-members to adopt low-carbon steel (and aluminium) production methods the US blueprint suffers from various design flaws including inefficient incentives, WTO inconsistency and incompatibility with the EU Carbon Border Adjustment Mechanism.

The effectiveness of the proposed US scheme is severely compromised by the plethora of policy objectives it pursues, which go far beyond the goal of incentivising industrial decarbonisation in third countries, including secondary (ie protectionism) and tertiary (ie global power competition with China) objectives. The initial negotiation proposal submitted by the United States Trade Representative (USTR) to European Commission trade negotiators incorporates many if not all the problematic elements of this blueprint, setting the US on a collision course with the negotiation proposal put forward by the European Commission. This paper concludes that the adoption of the scheme proposed by USTR would result in a step backwards for international climate and trade cooperation, whereas not adopting the EU proposal would make for a missed opportunity. Given the sharply diverging negotiation positions and associated respective domestic constraints on both sides, however, policymakers should start to engage stakeholders now to manage expectations towards a low-ambition negotiation result, if any.

Introduction

On 31 October 2021, the European Union and the United States agreed on temporary measures to settle their dispute over US Section 232 ‘national security’ tariffs on EU steel and aluminium products. In addition to opening tariff rate quotas for historical EU export volumes, the joint EU-US statement mandates negotiations on a “global steel and aluminium arrangements to restore market oriented conditions and address carbon intensity”, with a deadline of 31 October 2023. The relevant paragraphs are an eclectic mix of transatlantic policy objectives in the areas of steel and aluminium decarbonisation, sectoral overcapacity, non-market practices and inbound investment screening:

“Compatible with international obligations and the multilateral rules, including potential rules to be jointly developed in the coming years, each participant in the arrangements would undertake the following actions: (i) restrict market access for non-participants that do not meet conditions of market orientation and that contribute to non-market excess capacity, through application of appropriate measures including trade defence instruments; (ii) restrict market access for non-participants that do not meet standards for low-carbon intensity; (iii) ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; (iv) refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; (v) consult on government investment in
decarbonization; and (vi) screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.

“To enhance their cooperation and facilitate negotiations on a global sustainable steel and aluminum arrangements, the United States and the EU agree to form a technical working group. Through the working group, the United States and the EU will, among other things, confer on methodologies for calculating steel and aluminum carbon-intensity and share relevant data”.

At the time of writing – 20 months after the formal launch of negotiations and four months prior to the deadline, negotiators have set up two technical working groups – one covering the carbon intensity element and one covering the overcapacity element of the negotiations. They have also exchanged negotiation positions in the form of concept notes in December 2022 and January 2023 respectively.

On 10 March 2023, European Commission President Ursula von der Leyen and US President Joe Biden declared, as part of a further joint statement (The White House, 2023), that they were “committed to achieving an ambitious outcome in the Global Arrangement on Sustainable Steel and Aluminum negotiations by October 2023. The arrangement will ensure the long-term viability of our industries, encourage low-carbon intensity steel and aluminum production and trade, and restore marketoriented conditions globally and bilaterally. Together, we will incentivize emission reductions in these carbon-intensive sectors and level the playing field for our workers. The arrangement will be open to all partners demonstrating commitment to countering non-market excess capacity and reducing carbonintensity in these sectors”.

But beyond this declaration of joint ambition, US and EU perspectives and their initial negotiation proposals diverge sharply in terms of both policy design features and the overall approach, objectives and vision of transatlantic and international climate and trade cooperation. This paper sets out the EU and US perspectives on the ongoing negotiations and evaluates US and EU initial negotiation proposals as the transatlantic talks slowly but surely approach the 31 October 2023, deadline. The October deadline could mark either a breakdown of negotiations and automatic reinstatement of US Section 232 tariffs on imports of steel and aluminium from the EU, or a transatlantic agreement on a ‘Global Steel and Aluminium Arrangement’. An agreement could follow either the US or the EU’s vision for climate and trade cooperation, with all of the imaginable scenarios having considerable economic and climate policy implications for the US, the EU and the rest of the world.

As a benchmark for evaluation, Falkner et al (2022) noted that a prospective transatlantic climate club must be assessed on the basis of whether it adds or distracts from the multilateral climate regime or diverts resources away from crucial national abatement efforts. Here, we assess both the US and EU proposals for the arrangement against both the multilateral and the national benchmark, among others.

David Kleimann (PhD) is a trade expert with 15 years of experience in law, policy, and institutions governing EU and international trade.

To read full paper, please click here.

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The resurgent popularity of green industrial policy is a double-edged sword. On one hand, the protectionist provisions in the Inflation Reduction Act (IRA) were critical to the passage of the most significant US investment in climate action ever. Without the IRA’s domestic sourcing and final assembly requirements, President Joe Biden’s pledge of reducing US emissions 50–52 percent by 2030 would be out of reach. On the other hand, the same protectionist provisions have deeply frustrated US trade partners and aggressively bend—if not altogether break—international trade rules under the World Trade Organization (WTO) regarding equal treatment of foreign and domestic suppliers.

The Biden administration is working toward assuaging concerns over the IRA, which caught close US allies by surprise. However, this friction may be only the opening salvo in a decade marked by green trade tensions. It would be naive to think that the intersection of trade and climate policies will lessen—and not accelerate—with time.

The world should embrace the IRA and other green industrial policies, which are substantial, durable actions to meet climate commitments under the Paris Agreement. Still, they come with risk. For their part, the United States and others should establish guardrails to preserve the international trade rules that have underpinned global prosperity since World War II.

Domestic politics, international rules

The US brand of climate action laced with industrial policy is not a one-off. The political incentives that shaped the IRA are not unique to the United States. For many more countries, crafting ambitious climate policy that doesn’t erode key domestic support requires a mix of subsidies, tariffs, and regulations that current trade rules would heavily discourage if not outright disallow. The IRA’s expected pull on global clean energy investment is already encouraging others to follow suit.

For example, the European response—the Green Deal Industrial Plan and the Net-Zero Industry Act (NZIA), the legislation designed to realize the plan—bear a remarkable similarity to the IRA. The NZIA would further loosen state aid rules, the EU regulations regarding allowable domestic subsidies, to cover more types of clean energy projects. The European Union previously relaxed state aid rules at the start of the COVID-19 pandemic and again after Russia invaded Ukraine. The Green Deal Industrial Plan will also feature various funding measures and prioritizes workforce training to prepare European workers for maximum employability in the energy transition.

Importantly, Europe will also provide its own subsidies for domestic manufacturing in the form of a proposed European Sovereignty Fund, which would finance industrial policy initiatives, and an Innovation Fund to finance innovative demonstration projects. The plan emphasizes ambitious domestic manufacturing targets for a broad swath of clean energy technologies, including wind turbines, solar photovoltaic panels, heat pumps, batteries, and electrolyzers.

The European plan reflects reasonable worries among EU countries that their domestic firms will relocate to the North American market to chase the IRA’s generous subsidies. These worries coincide with high energy prices—driven, in part, by Russia’s war in Ukraine—that threaten to shrink major European industrial firms, such as German chemicals giant BASF SE and steelmaker ArcelorMittal. The IRA’s massive pull toward the US market will mean billions in new clean energy investment but could also redirect billions away from the clean manufacturing agenda in Europe and elsewhere, including in emerging markets.

At the same time, a fight over carbon tariffs is looming on the horizon. In December of last year, the EU finalized its carbon border adjustment tariff mechanism (CBAM), which extends the EU carbon price to imported greenhouse-gas-intensive products. As proposed, it will eventually impose tariffs on a broad swath of countries that do not have a domestic carbon price, including the United States and most developing economies. The EU’s CBAM, although designed to comply with existing international trade rules, has already provoked negative responses among policymakers around the world. US proposals to impose tariffs on the carbon embedded in imports, including the Biden administration’s Global Arrangement on Sustainable Steel and Aluminum (GASSA), are sure to elicit fury from the developing world as well, given the lack of comparable fees on domestic producers in the United States. These countries’ call for increased climate financing, including for loss and damage as a result of climate change—which gained momentum at COP27—only further compounds the ire. Developing economies, unable to compete with subsidy packages of their own, may instead limit imports of clean energy technologies and impose export controls on raw materials, and especially on critical minerals, for the political and economic leverage they provide, in an effort to move up the value chain.

The controversies over green subsidies and carbon tariffs could portend even more intractable conflicts at the intersection of climate, trade, and industrial policy throughout the decade. IMF chief Kristalina Georgieva has already cautioned against this trend, urging that green subsidies “be carefully designed to avoid wasteful spending or trade tensions, and to make sure that technology is shared with the developing world.”

If the momentum toward protectionism continues, the United States, the European Union, and others could drift into walled markets in which low-cost clean technologies cannot easily diffuse across borders, making it harder to decarbonize globally. This will be exacerbated by the limited capacity for emerging market economies to compete in a subsidy arms race. A worst-case scenario might involve a deluge of tit-for-tat cases at the WTO and retaliatory tariffs that fragment the global clean technologies market and decelerate climate action.

Noah Kaufman is a senior research scholar with the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, where Sagatom Saha is an adjunct research scholar and Christopher Bataille an adjunct research fellow 

To read the full article, click here

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In many ways, 2022 was a bad year for U.S. agricultural trade. Russia’s invasion of Ukraine cut off exports of wheat, sunflower, and other products from both countries. Mexico proposed banning imports of GMO corn from the United States. And the Office of the U.S. Trade Representative and the U.S. Department of Agriculture (USDA) were both left trying to operate without anyone in charge of agricultural trade until late December when the Senate finally confirmed two highly qualified nominees. Although total agricultural exports did rise in 2022 to record levels, so did imports, which nearly exceeded exports. USDA projects that imports will fully overtake exports in 2023, which has only happened twice before in the past 50 years. These trends shape the costs of farm inputs and outputs, including food, fiber, livestock feed, and biofuels, and affect where and how agricultural production occurs. That, in turn, not only affects farmers’ bottom line and consumers’ pocketbooks, but the climate as well.

Every country and region produces agricultural goods with a different carbon footprint—that is, the quantity of greenhouse gas emissions generated per pound, bushel, or other unit of agricultural production. This is due to factors like fertilizer use, irrigation, and other farming practices; domestic policy support for agricultural innovation and production; and environmental conditions such as climate and soil quality. If trade policies shift production from a country with a high carbon footprint to one where production is more efficient, total global emissions could decrease, and vice versa. In fact, concentrating global crop production in optimal locations with high yields could decrease its carbon and biodiversity footprint by 71% and 87%, respectively.

Yet trade has not been a major focus of U.S. policy debates about how to decarbonize agriculture or otherwise improve environmental sustainability. Policy proposals have generally focused on other areas such as how to increase domestic adoption of no-till farming and other practices, limit agriculture’s land use footprint, and sustainably manage livestock operations. Only recently has Congress considered agricultural trade’s potential role in decarbonization. The 2021 FOREST Act, for instance, would limit U.S. imports of beef, soy, and other commodities originating from illegally deforested land. We show that agricultural trade and trade policy can play an even larger potential role in cutting agricultural global carbon footprint.

By analyzing data from the Food and Agriculture Organization of the United Nations (FAO) on five of the world’s top agricultural exports—maize (corn), wheat, beef, pork, and chicken—we find that the United States produces several key commodities with a lower carbon footprint than other major exporters (defined as the countries that accounted for 80% of global export quantity for each product from 2015-2019). However, many countries with higher carbon footprints export more than countries with lower emissions. In many cases, exports are also growing most quickly in high-emissions countries. For example, while the United States produces beef and chicken with a smaller carbon footprint than Brazil, exports are growing at a much faster rate in Brazil than in the United States.

These findings suggest that policy makers should consider policies that concentrate production in countries with the lowest rates of agriculturally-driven deforestation and other land-use change, which is a large contributor to agriculture’s carbon footprint. In the United States, for example, Congress could pass policies, such as the FOREST Act, that require imports to be deforestation-free or to meet other minimum standards. The executive branch can act too, for instance by developing trade agreements that increase exports of goods the United States produces with a relatively low footprint.

What goods does the United States produce with the lowest relative carbon footprint?

For most agricultural goods examined, the carbon footprint per unit of production in the United States is below the average of other top exporting countries. For example, maize (corn) production in other top exporting countries is, on average, more than two and half times more emissions-intensive than in the United States. Although the other countries do better when it comes to emissions from input use (synthetic nitrogen fertilizer, organic fertilizer, fuel use, and crop protection), they generate eight and a half times more emissions from land-use change. This is in part because yields in the other countries are lower than in the United States—about 1/3 lower—meaning that more land must be converted from forest, grassland, and other native vegetation to farmland. It is also partially due to less strict land use restrictions in some other countries, including Brazil, and to the high carbon content of forestland converted to maize in some other countries, such as in Argentina.

For beef and chicken production, emissions from production and land use per kilogram (kg) of meat produced are substantially lower in the United States than in the other top exporting countries. On average, the carbon footprint of beef or chicken in other top exporting countries is more than two and three times higher, respectively. One key reason, as with maize production, is that production in the United States is generally more efficient than in other countries, raising animals to slaughter weight quickly so that less feed and thus less pasture, cropland, and land conversion is required to produce each kg of meat. The picture is different, however, for pork production. The United States, despite negligible land-use change emissions, produces pork with slightly (4.5%) higher emissions than the other top exporting countries.

International competitiveness and carbon footprints are not aligned

Although the United States has a relatively low carbon footprint for many agricultural exports, other countries with higher emissions often export more. If production and exports of agricultural products were concentrated in the countries with the smallest carbon footprints, total global emissions could be minimized. But export quantities and emissions intensities are not always aligned.

When it comes to the production of beef, chicken, and pork, the largest exporters from 2015-2019—Brazil (beef), Brazil (chicken), and the United States (pork)—don’t have the lowest carbon footprints. In fact, of the top exporting countries, Brazil’s beef production has the second highest emissions intensity when emissions from deforestation and other types of land-use change are accounted for. The emissions intensity of beef production in Brazil is over 50% higher than in Australia and almost two and half times greater than in the United States, the second and third largest exporters, respectively.

Brazil is also the largest exporter of chicken, despite having an emissions intensity that is almost 80% higher than chicken production in the United States, the second largest exporter. Ignoring land-use change emissions, chicken production in Brazil is relatively efficient and low-emitting. However, emissions from land-use change involved in producing soy and other feed for chicken far exceed those in the United States.

Of the top seven pork-exporting countries, which account for over 80% of global pork exports, the United States is the largest exporter and the fourth most emissions-intensive producer. For every kilogram of pork protein produced, the United States emits nearly 30% (or 12 kilograms carbon dioxide-equivalent) more than Germany, the second largest exporter, and over 82% (~23 kilograms carbon dioxide-equivalent) more than Canada, the third largest exporting country. This is partially due to high levels of methane emissions from the lagoons and pits predominantly used to store manure in the United States, as well as differences across countries in the crops used for feed.

Russia and the United States are the top two exporters of wheat but also have the highest rates of emissions from production among major exporters and some of the highest when including land-use change. Synthetic fertilizer use is largely responsible for the United States’ high carbon footprint; it is the source of over a third of U.S. wheat emissions, but only accounts for about 10% of Russia’s.

The picture is less clear for maize since just five countries—the United States, Brazil, Argentina, Ukraine, and France—made up over 80% of global exports from 2015–2019, but emissions data from FAO-LEAP is unavailable for Brazil and land-use change data is unavailable for France. Nevertheless, the United States, which is the world’s top maize exporter, has a substantially lower carbon footprint than Argentina and Ukraine. Despite having the most emissions from inputs, particularly synthetic fertilizers, emissions from land-use change are relatively low in the United States. This is partially due to the high yields that fertilizers and other inputs and factors enable; U.S. maize yields in 2021 were more than twice as high as Brazil’s and about 50% higher than Argentina’s.

However, land-use change emissions for corn and other products in the United States are also generally low because the primary methods used by FAO and others to calculate emissions from land use change only consider recent land use-change. For instance, while Argentina has cleared land for corn and other crops recently, most U.S. farmland was cleared decades ago if not longer. Further research into the carbon footprint of agriculture and trade’s potential to reduce it must address this methodological shortcoming, for instance by estimating the marginal impact of new agricultural production.

The average emissions intensity of global agricultural trade is on track to increase

Unfortunately, export data from 2000 to 2019 reveals that, for many agricultural products, exports from countries with high emissions intensities are increasing more quickly than exports from countries with low emissions intensities. For example, compared to the United States, exports from Brazil have increased almost three times as quickly for beef, nearly three times as fast for chicken, and more than 22 times more quickly for maize. Likewise, growth in pork exports from the United States have outpaced exports from Germany and Canada.

To be clear, exports aren’t becoming more emission-intensive for all products. U.S. wheat exports fell from 2000 to 2019, while exports grew relatively quickly in countries with lower emissions intensities such as Russia, Canada, France, and Ukraine. Although Russia’s invasion of Ukraine dramatically affected agricultural production and trade, its 2022 wheat exports were estimated to be near record-high levels while U.S. exports have continued their long-term downward trend.

Nevertheless, the growth in exports from countries with relatively high carbon footprints could lead to a global rise in emissions. If this growth continues, the average carbon footprint of maize, pork, and beef exports in 2040 would be 18%, 3%, and 10% higher, respectively, than if current export patterns remained constant. The average emissions per unit of wheat and chicken, on the other hand, would decrease by around 11% and 7%. Total emissions embodied in these exports would lead to an increase in emissions of about 63 million tonnes CO2-equivalent. This is greater than all agricultural emissions from major farm states like Texas, Iowa or California.

Next steps: Policy and research to reduce the emissions from agricultural exports

Ultimately, location matters. Concentrating production and export of agricultural goods in countries with relatively low emissions intensities could reduce global agricultural emissions. But currently, the largest exporters are rarely the most climate-efficient exporters. And recent export trends don’t provide much reason for hope that international trade will correct course without several types of interventions.

First, trade officials, advocates, and other experts should raise awareness about the climate mitigation potential that lies in agricultural trade policy.

Second, researchers should examine several questions about the environmental impacts of agricultural trade that are key to informing policy. These include:

1. What are the impacts of increasing export of relatively low-carbon products on importing countries’ food systems? Increasing exports can affect the course of agricultural development in importing countries in a variety of ways including by undercutting domestic production.

2. What is the marginal climate impact of increasing exports? Our analysis relies on the estimates of the average carbon footprint of production in different countries. However, it is possible that in any given country, the next unit of production would be substantially more or less emissions-intensive than the average e.g. if new production involves deforestation or other land-use change.

3. How can subnational differences in emissions be leveraged? For instance, if one region of a country produces beef with a lower footprint than other regions, are there ways to concentrate future export growth in that region?

4. What are the non-climate tradeoffs of increasing exports? While reducing GHG emissions is critical, other types of environmental impacts such as nutrient pollution and resource use such as water use must be considered too.

Third, policy makers should consider different trade policies to shift agricultural production and exports from high emissions to low emissions countries. One option is to incorporate agricultural products into a renewed WTO Environmental Goods Agreement that aims to reduce tariffs for environmentally beneficial products. Countries should also examine how reducing trade barriers through bilateral or multilateral agreements could lower emissions. For instance, China applies a greater tariff on U.S. beef than on beef from Australia and several other countries with more emissions-intensive beef than the United States. Negotiating reductions on the tariffs on U.S. beef could therefore reduce the carbon footprint of Chinese beef imports. It could, however, also spur increased beef consumption, negating some of the climate benefits. These calculations, therefore, warrant careful study.

Likewise, the United States and other major exports should examine how trade promotion programs can be used to expand international demand for exports that replace higher-carbon products. For example, promotion of U.S. beef could reduce global agricultural products if it displaces other countries’ imports of higher-carbon beef. Providing additional support to companies and industries seeking to export goods produced using climate-smart practices could further enhance the climate benefits. Currently, U.S. Department of Agriculture trade programs, such as the Market Access Program (MAP) and Foreign Market Development Program (FMD), do not take into account the carbon footprint, or other environmental impacts, of products.

Finally, governments should continue aiming to reduce the carbon footprint of production within countries using a wide variety of policy instruments. For example, public investment in agricultural research is critical to developing technologies and practices that cut emissions and boost yields, which is important for reducing land use change. Reducing trade barriers for productivity-enhancing and emissions-reducing technologies can also help producers across the world adopt more climate-friendly practices. Likewise, investments from high-income countries in international research and other agricultural development efforts in lower-income countries can enhance their productivity and environmental footprint.

Ultimately, reducing the agricultural sector’s greenhouse gas emissions is a pressing challenge, and, given the interconnectedness of our food system, it demands global solutions that can account for international trade. To achieve global agricultural emissions reductions, policymakers should consider a wide range of trade policy options and researchers should aim to provide them with the data, analysis, and tools needed to make more informed decisions.

To read the full report, please click here.

Dan Blaustein-Rejto is the Director of Food & Agriculture at the Breakthrough Institute. His work examines how public policy can support environmentally and socially beneficial agricultural innovations such as methane-reducing cattle feeds and alternative proteins. Dan has led multi-stakeholder projects to identify technical options to decarbonize agriculture, assess federal policy gaps and opportunities, and build coalitions to advance climate-smart agriculture.

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