How trade policy can support the climate agenda

Economic analysis has produced ample insights on how international trade and climate policy interact (1). Trade presents both opportunities and obstacles, and invites the question of how domestic climate policies can be effective in a global economy integrated through international trade. Particularly problematic is the potential relocation of production to regions with low climate standards. Measures to level the playing field, such as border carbon adjustments (BCAs), may be justified for specific emissions-intensive and trade-exposed sectors but need to be well-targeted, carefully navigating tensions that can arise between the desire to respect global trade rules and the need to elaborate and implement effective national climate policies. The conformity of specific trade measures with international trade and climate change law is not entirely clear. Yet, clarity is needed to ensure that the industry actors affected will find the rules predictable and be able to adhere to them.