With international trade accounting for 25% of global emissions, decarbonization is a critical goal G7 members must address. The CMCC Foundation and CMCC-RFF European Institute on Economics and the Environment joined a coalition of institutions and experts on trade and climate policy to launch the Consortium for Climate-Aligned Trade (CCAT). The seven CCAT’s recommendations that lay out guidance for how G7 members can spur faster and more comprehensive global decarbonization by working together to develop climate-aligned trade policies.

The Consortium for Climate–Aligned Trade (CCAT), an informal coalition of researchers from a dozen leading think tanks in the G7 community, on April 7, 2023 launched its initial recommendations to G7 leaders to align trade policies with their climate and economic goals. At a time when G7 members are pursuing new industrial and trade policies to decarbonize their economies, these recommendations identify actions that will spur faster and more comprehensive global decarbonization through collaboration.

“The world needs a policy framework for harnessing the power of trade policy to accelerate climate action, while at the same time making sure that climate policy does not harm the economy, workers or communities,” said Nigel Purvis, CEO of Climate Advisers and CCAT coordinator. “We believe that G7 leaders should commit to developing a policy framework for climate–aligned trade before 2030,” Purvis continued, “because failing to do so could stifle climate progress and lead to harmful trade disputes.”

Internationally traded goods account for 25% of global greenhouse gas (GHG) emissions and can be an important area for spurring decarbonization of economies worldwide. G7 members are adopting national and regional policies that have climate and trade implications, such as the EU carbon border adjustment mechanism that went into force this year and U.S. climate subsidies in the Inflation Reduction Act passed by Congress last year. Disagreements about these policies are growing. Climate–aligned trade actions are needed to reduce trade friction and accelerate climate solutions in these sectors by minimizing carbon leakage and accelerating clean energy solutions.

“Making reducing emissions intensity the primary focus of trade is critical for allowing countries to be flexible in developing and implementing a mix of effective policy solutions”, said Matt Piotrowski, Senior Director at Climate Advisers and CCAT project leader.

CCAT’s recommendations make the case that collaboration among G7 members can help pave the way for a broader political agreement that includes other nations and ultimately a faster shift to a clean economy globally based on free and fair trade. Crucially, by working together, G7 members can minimize carbon leakage — the shifting of GHG emissions from one country to another — which risks undermining the effectiveness of climate policies, distorting trade, and harming companies, workers, and communities. Harmonizing trade policies would avoid these negative outcomes and provide the private sector and other governments confidence in committing to additional decarbonization efforts.

CCAT members and expert advisers shared the following statements about the initiative and the importance of establishing climate–aligned trade.

“As countries rush to restructure their economies to achieve climate change goals, their efforts will increasingly affect high emitting heavily traded sectors like steel, cement, aluminum. The G7 has a unique role to play in garnering international agreement on what is appropriate, what is best practice, for countries implementing trade–affecting climate policies,” said Aaron Cosbey, Senior Associate, International Institute for Sustainable Development (IISD)

“Today’s trade rules need to be aligned with new economic and political realities of what it means to transition to a net–zero economy. They must be fair and as open as possible. But they must also balance new and legitimate concerns about carbon leakage, green industrial development, and clean energy security,” said Oliver Sartor, Senior Advisor, Agora Industry

“If the G7 aligns its trade policies with climate objectives, it can lead the way towards a sustainable future and inspire non–G7 nations to do the same.” – Joseph Dellatte, Resident Fellow – Climate, Energy and Environment, Institut Montaigne

“The Climate Leadership Council is proud to join leading think tanks from across the G7 in the launch of the Consortium for Climate–Aligned Trade. International collaboration on trade is essential to achieving global decarbonization, and we look forward to participating in the CCAT’s important work,” said Climate Leadership Council CEO Greg Bertelsen

“Fair, meaningful climate policy on an international scale needs to be supported by a backbone of good research. The researchers who are participating in CCAT have decades of experience between them—it’s great to get all of these people and organizations in one room to discuss our climate future. It’s conversations like these that will start to move the needle. But pinpointing what policy options will be effective is only the first step; buy–in from G7 leaders will be vital to making recommendations reality,” said Ray Kopp, a senior fellow at Resources for the Future and director of its International Climate Policy Initiative and Comprehensive Climate Strategies Program

“International trade offers the possibility to align global climate ambition. The forthcoming G7 in Japan may be the most suitable place to strengthen an alliance of member countries, open to the rest of the world, to combine climate and trade policies, with the goal of accelerating global decarbonisation and ensuring more secure and reliable supply chains”, wrote Massimo Tavoni and Andrea Tilche, of the Italy–based European Institute on Economics and the Environment

CCAT’s full list of recommendations for G7 members are listed below:

1. Reaffirm G7 commitment to decarbonize industrial sectors and agree to meet the Paris Agreement timeframe. G7 members already have pledged to reach net zero GHG emissions by midcentury. Achieving this goal will require rapid and deep decarbonization of their entire economies, including energy intensive industrial sectors. In 2021, G7 leaders pledged to take action to decarbonize their industrial sectors and launched the Industrial Decarbonization Agenda (IDA) to promote cooperation. In 2022, G7 leaders pledged to work toward the creation of a climate club, the mandate for which includes industrial decarbonization. Now, G7 leaders should clarify that industrial decarbonization will occur fast enough to contribute to limiting global warming to well below 2 degrees Celsius, and preferably no more than 1.5 degrees Celsius.

2. Elevate reducing emissions intensity of traded goods as the primary focus of climate–aligned trade policies. To achieve rapid GHG emission reductions, efforts to decarbonize the industrial sector should be aimed first and foremost at reducing the emissions attributable to goods, including those that are traded. The Climate, Energy, and Environment ministers agreed in 2022 on the importance of reducing emissions intensity. While that was a positive step forward, they have not made reducing intensity the main focus of climate–related trade policy. Moreover, G7 leaders have never talked about how reducing carbon intensity is vital in aligning climate and trade policies. This year’s G7 summit provides the opportunity to rectify these omissions. Doing so would help focus policymaking attention on measuring, reporting, and verifying improvements in emissions intensity, even as G7 members continue to pursue somewhat different mixes of climate policies.

3. Affirm that climate–related trade policies can be useful and appropriate policy tools for tackling the climate crisis. [1] Such policies can include carbon border adjustment mechanisms, subsidies for climate–friendly technologies, green procurement and more. These climate–related trade policies are legitimate ways for members to advance climate goals. [2] The G7 has never communicated this important principle and it should do so this year.

4. Set a time–bound goal to create a mutually supportive and rules–based framework well before 2030 for aligning climate–related trade policies. As a first step, G7 members should agree to work with coalitions on a bottoms–up, global approach. Decarbonizing the industrial sectors will become more difficult, if not impossible, if nations are reluctant to adopt strong climate policies because they fear carbon leakage. Similarly, the adoption of conflicting and contentious climate–related trade policies could result in trade conflicts that reduce climate ambition by chilling trade in environmental goods and services. To avoid these negative outcomes and develop international consensus on how best to align trade with climate goals, the G7 should set a time–based goal for developing and agreeing to a common framework for aligning trade and climate policies. Building on existing national, regional, and international approaches, a goal should be to make respective national and regional systems interoperable and compatible. Differences with other trading partners should not stop the G7 from reaching agreement before 2030, especially if a more inclusive approach is not possible within that timeframe. At the same time, G7 members should strive to include nations outside the G7 in articulating a shared framework.

5. Pledge to strive to find common ground and reduce trade tensions when managing differences on climate–related trade policies. While the G7 works to create a shared framework for climate–related trade policies, G7 members should avoid trade tensions by striving to overcome differences through dialogue whenever possible. This includes agreeing on interim principles for subsidies, border adjustments and green public procurement. Even when differences remain, G7 members should make every effort to avoid escalating trade disputes or seeking international review. Trade confrontations risk slowing climate action and undermining many other shared G7 interests.

6. Agree to work together to expand trade in climate–friendly goods and services in ways that help create resilient and secure supply chains. The world needs to raise climate ambition, including by increasing trade in environmental goods and services. The world also needs secure and resilient supply chains to ensure that natural disasters, future pandemics, and geopolitical disputes do not slow the rapid transition to a clean economy. Trade that does both – increasing the availability of clean goods and services while also improving supply chain resilience and security – is needed most of all. G7 members should commit to work together and with others whenever possible to advance these common goals.

7. Commit to work together on data and technical issues, both directly and via international institutions. Specifically, the G7 should pledge to:
• Improve data transparency, availability, and quality.
• Better align national definitions for categories of goods and methods for calculating emissions intensity in goods.
• Work toward creating interoperable approaches through trade policies to reduce embodied carbon in traded goods.

[1] These policies should be in accordance with international rules. G7 should work toward common understanding of principles in the interim,
and a mutually supportive global framework in the years to follow.
[2] For these purposes, the phrase ‘climate-related trade policies’ refers to any policy where trade and climate interests are intertwined.

The Consortium for Climate Aligned Trade (CCAT) is an informal coalition of researchers and institutions from a dozen leading think tanks in the G7 community. The CMCC Foundation is member of CCAT. These researchers bring extensive expertise in climate and trade policies. CCAT members understand that meeting global climate goals will depend in significant part on whether trade policy helps rapidly decarbonize energy intensive industrial sectors, such as steel, aluminum, chemicals, fertilizers, and cement. 
The Consortium is facilitated by Climate Advisers, a U.S.–based policy, analysis, and communications firm working to strengthen global climate action. CCAT is supported by
philanthropic grants, including from Breakthrough Energy. https://climatealignedtrade.org/