The trade system and climate action: ways forward under the Paris Agreement

The document examines the tension between WTO non-discrimination rules and national climate policies, such as renewable energy subsidies and carbon pricing. It analyzes recent WTO disputes over local content requirements and proposes solutions including authoritative interpretations of GATT Article XX, the use of regional trade agreements (RTAs) to test new rules, and increased institutional coordination between the WTO and UNFCCC.

• The WTO's non-discrimination principles, specifically the most-favoured nation (MFN) obligation and national treatment, create challenges for climate policies that differentiate products based on non-product-related processes and production methods (PPMs), such as embedded carbon.
• There is a growing trend of WTO disputes centering on national renewable energy laws, particularly those employing local content requirements (LCRs) which often conflict with the TRIMS Agreement and GATT national treatment obligations.
• The Paris Agreement lacks explicit references to trade, leaving the 'forum on the impact of the implementation of response measures' as the primary institutional space for discussing trade-related concerns within the UNFCCC.
• Border carbon adjustments (BCAs) are proposed to prevent 'carbon leakage' where production shifts to countries with laxer climate rules, but their legality under WTO rules depends on whether they are designed as internal taxes under Article III or as exceptions under Article XX.
• Intellectual property rights (IPRs) under the TRIPS Agreement remain a source of conflict, as developed and developing countries disagree on whether strong IPR protection fosters or hinders the transfer of climate-friendly technologies.
• Regional trade agreements (RTAs) and 'mega-regional' deals (such as TPP and TTIP) are viewed as promising tools for introducing and testing new climate-trade rules and preventing a 'race to the bottom' in environmental standards.
• The authors suggest an 'authoritative interpretation' of GATT Article XX as a pragmatic way to clarify environmental exceptions and signal that the WTO supports members' climate policies without requiring a full treaty amendment.
• Fossil fuel subsidies are rarely challenged in the WTO compared to renewable energy subsidies, partly due to low notification rates and the difficulty of proving that such subsidies are 'specific' under SCM rules.
• The ICAO's adoption of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) represents a breakthrough in addressing emissions from sectors that operate in international spaces beyond sovereign territory.

APA

Droege, S., van Asselt, H., Das, K., & Mehling, M. (2016). The trade system and climate action: ways forward under the Paris Agreement. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2016/10/Trade-and-climate-ways-forward-1.pdf

Chicago

Droege, Susanne, Harro van Asselt, Kasturi Das, and Michael Mehling. The trade system and climate action: ways forward under the Paris Agreement. Climate Strategies, 2016. https://climatestrategies.org/wp-content/uploads/2016/10/Trade-and-climate-ways-forward-1.pdf.

Wikipedia

{{cite report |last1=Droege |first1=Susanne |last2=van Asselt |first2=Harro |last3=Das |first3=Kasturi |last4=Mehling |first4=Michael |title=The trade system and climate action: ways forward under the Paris Agreement |publisher=Climate Strategies |date=October 2016 |url=https://climatestrategies.org/wp-content/uploads/2016/10/Trade-and-climate-ways-forward-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{droege2016trade, author = {Droege, Susanne and van Asselt, Harro and Das, Kasturi and Mehling, Michael}, title = {{The trade system and climate action: ways forward under the Paris Agreement}}, institution = {Climate Strategies}, year = {2016}, month = oct, url = {https://climatestrategies.org/wp-content/uploads/2016/10/Trade-and-climate-ways-forward-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }