Trade and Climate Change Linkages

This scoping paper, produced for the Trade Ministers’ Dialogue on Climate Change Issues in 2007, examines the multifaceted linkages between trade, investment, and climate change. It analyzes how trade policies influence greenhouse gas emissions, the legal interactions between WTO and UNFCCC frameworks, the physical risks climate change poses to trade infrastructure, and the competitiveness implications of climate regulations.

• Trade policy impacts climate change through four primary economic mechanisms: scale effects (increased economic activity leading to more emissions), composition effects (shifts in production toward comparative advantages), technique effects (adoption of more energy-efficient technologies), and direct effects (increased emissions from the transport of goods).
• Specific trade policy interventions can yield predictable climate outcomes; for instance, lowering tariffs on environmental goods and services is likely to produce a positive result via the technique effect, whereas lowering tariffs on GHG-intensive goods may aggravate climate change.
• There are few inherent conflicts between trade law (WTO) and climate change law (UNFCCC/Kyoto Protocol), as both contain language supporting sustainable development and the environment. Most potential legal conflicts are considered resolvable through careful drafting.
• Certain trade-related legal uncertainties exist regarding standards based on production processes (such as GHG-intensity) rather than end-product characteristics, as well as the legality of border tax adjustments used to level the playing field for producers facing strict domestic climate measures.
• Climate change physically threatens trade by altering comparative advantages in sectors like agriculture and forestry, and by damaging critical infrastructure. Risks include the endangerment of coastal ports and refineries due to rising sea levels and flooding, and the potential damage to high-latitude pipelines and railways from melting permafrost.
• Climate policies can create competitiveness concerns, specifically the risk of 'leakage,' where strict domestic regulations cause firms to relocate to jurisdictions with weaker rules. The extent of these impacts depends on sectoral energy intensity, the ability to innovate, and the ability of firms to pass cost increases to customers.

APA

Cosbey, A. (2007). Trade and Climate Change Linkages. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/trade_climate_linkages.pdf

Chicago

Cosbey, Aaron. Trade and Climate Change Linkages. International Institute for Sustainable Development, 2007. https://www.iisd.org/system/files/publications/trade_climate_linkages.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |title=Trade and Climate Change Linkages |publisher=International Institute for Sustainable Development |date=2007 |url=https://www.iisd.org/system/files/publications/trade_climate_linkages.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2007trade, author = {Cosbey, Aaron}, title = {{Trade and Climate Change Linkages}}, institution = {International Institute for Sustainable Development}, year = {2007}, url = {https://www.iisd.org/system/files/publications/trade_climate_linkages.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }