Can climate change policies change global trade behaviour?

To kick start the first Trade Finance TV show of the new decade, we welcome Luke Templeman, Analyst, Thematic Research at Deutsche Bank and the return of Dr Rebecca Harding, CEO of Coriolis Technologies to discuss what climate change-related issues came out of the World Economic Annual Meeting Davos 2020 that could impact global trade.

“The leaders at Davos are accepting that multilateral solutions are required for climate change and trade is a big part of this,” says Templeman.


Harding explains how the multilateral response has been reshaping ever since the Paris Agreement on Climate Change (albeit with one major non-signatory), and there is a fragmentation into nationalistic objectives – making it difficult to re-invigorate the climate change debate.

With some countries, this is galvanising a multinational response. Some blocs will drive the conversation forward. The EU could lead the charge, particularly if it starts to regulate for climate change, as it has 30 % of world trade and a huge amount of power.

Both guests discuss the lower-than-anticipated trade growth and how trading blocs could respond with climate-change focussed regulation and standards. Templeman highlights the dangers of how poorer economic performance – along with recession and unemployment – could threaten the climate change work already completed if populist leaders try to roll back some of the measures.

But there is plenty of scope for optimism – join us on the show to find out more.

Transcript of interview:

Clarissa Dann Welcome to Trade Finance TV, your insight into the global trade climate for importers, exporters and their financiers. I’m Clarissa Dann. In this episode, we’re talking with international trade economist Dr. Rebecca Harding and thematic research analyst Luke Templeman at Deutsche Bank, about how climate change discussions at Davos (World Economic Annual Meeting) could change trade behavior.

Luke, Rebecca, welcome to Trade Finance TV. Lovely to have you in the studio today.

Dr. Rebecca Harding Thank you.

Luke Templeman Thank you.

Clarissa Dann Let’s cast our minds back to Davos. Climate change was the big, big, big topic there, wasn’t it? What are the takeaways for trade?

Luke Templeman For me, it became increasingly clear that the leaders at Davos are accepting that multilateral solutions are required for climate change. And trade is a very big part of that. And that may sound obvious, but a lot of countries have implemented their own domestic climate change policies. And these are obviously very admirable, but they’re not really moving the needle as much as we need to to respond. And where this becomes an issue for trade is when you have a country that has very strong domestic response to climate change, speaking with a country with perhaps a weaker response. And there’s a real worry that some trade barriers might be erected between the two.

Clarissa Dann And Rebecca, all the work you’ve been doing on the weaponization of trade, will climate change become another weapon?

Speaker 3 So I think what’s really interesting here is that we’ve seen a political weaponization of trade, but what we’ve also seen is environment also becoming part of trade discussions. So if you look at the European Union’s negotiations with Mercosur before Christmas last year, you saw actually climate change being an important part of that. The European Union was trying to impose some conditions on the Mercosur countries, and it came back to the European Union as a sense that the emerging economies think that’s a very imperialistic and slightly degrading thing to do. And the solution to that is obviously to say this is in the long term interests of this planet, it’s not us being imperialistic, but there is some work that we need to do, particularly in developed economies, to understand the development pressures that emerging economies face in this space.

Clarissa Dann What do you think about that, Luke?

Luke Templeman I think you make a very good point about how developing countries are going to come into this, because we’ve seen proposals in the US, we’ve seen proposals in the EU for a carbon border adjustment tax or some variant thereof. And this is something that would basically tax the import of goods into a country and roughly based on the amount of carbon that went into making those goods.

And while there might be a lot of merit to these programs in concept, the implementation is really difficult, as you mentioned. So you might end up with a situation where a country is about to have their exports/imports taxed somewhere else, and they might be arguing, ‘well, actually, maybe that’s a local, protectionist move.’ And reconciling that between developed and developing countries is quite tricky.

Dr. Rebecca Harding And just to add to that, I mean, I think the difficulty is very simply that if you look at fx, sustainable development goals, access to clean drinking water, well, that’s actually on the list of climate change issues for the World Bank as well when they’re looking at climate regulations and climate progress. So the two things really need to be adjusted and thought together in a multilateral kind of a way.

Clarissa Dann How do you see the multilateral response shaping up, both of you?

Dr. Rebecca Harding I think post-Paris Climate Accord, it’s very difficult. We’ve got a major non-signatory to that particular agreement, so it’s very difficult. And we are seeing, particularly in trade terms, we’re beginning to see the whole world fragment into bilateral and actually nationalistic type objectives. Against that backdrop, reinvigorating the climate change debate is going to be difficult because there are these sort of individualistic, nationalistic or bilateral interests.

Luke Templeman It’s interesting that you mentioned the unilateral response that some countries are increasingly taking, and that is obviously a negative for the multilateral response that we need. But it’s interesting how that with some countries it’s actually galvanizing a multilateral response within certain blocs and economic blocs around the rest of the world. So, you know, if I can be a little bit optimistic, I can hope that those blocs will sort of drive the conversation forward.

Dr. Rebecca Harding I think you’re absolutely right. I think the European Union has the capacity to lead the charge because it has such a large proportion of world trade. You know, over 30% of world trade is European or originates and more than that in some supply chains. So Europe actually has a huge amount of power in terms of trade. And if it starts to regulate for climate change and starts to look at maybe carbon taxes, maybe actually measuring sustainable supply chains, that’s something that it can lead the world on. I think it’s in a very good place to do that.

Clarissa Dann How does this all sort of pan out for the growth of trade this year? It’s been a bit damp recently, hasn’t it?

Dr. Rebecca Harding So trade has not grown in the way that everybody was expecting it to after the financial crisis had an initial burst and then it’s just not reached that escape velocity, if you like.

Luke Templeman We’re also waiting to see a pick up in trade following the Phase One agreement between China and the US, and hopefully some progress on a more comprehensive trade deal between those two countries. But if we can take that thought through to its logical extension, it’s also a dampener, as you mentioned, for economic growth. And I think this is a real negative for the environment, because if we’re in a situation with lower trade, lower economic growth, we end up with recession, we end up with unemployment.

And then it’s easy to see a situation develop where people rally around a populist leader, political leader who then promises to roll back some of the climate policies that we obviously need. And I’m obviously not advocating a lessened response to climate change. What I’m saying is that we need to take into account the economic side effects of our response as we formulate environment specific policies.

Dr. Rebecca Harding I’d add to that as well and just say there’s huge scope for innovation here. So, I mean, if you look at trade in electric cars fx, it’s a relatively small sector at the moment. It’s something like 10.2 billion globally, which is very small, but it’s grown by 22% on an annualized rate since 2015. So you’re looking at a fairly rapid growth, or very rapid growth, above average growth in that sector. There is innovation beginning to happen. You are beginning to see changes in the way in which we are trading around the world and we have to look at prioritizing that type of innovation that’s going on as well.

Clarissa Dann Do you think the impetus will be coming from the corporates, from the private sector?

Dr. Rebecca Harding Absolutely. Because, you know, shareholder activism, we have a generation of shareholders coming through now who want to see environmental and social goals being met, as well as commercial ones.

Luke Templeman If I could add, I think that there’s a real place for government impetus and nudging as well. During the 1970s, when we had the oil shock, government regulation in the US meant that car makers were incentivized to become a lot more efficient, and that happened very quickly. So if you can combine the private sector and the public sector, that can have a very strong response.

Clarissa Dann Turning to the year ahead, how do you think that will shape up in terms of progress on climate change?

Luke Templeman Well, we have the Glasgow summit later this year, and it seems like over the last 12 months, and particularly at this latest Davos meeting, that we’ve reached a real tipping point, not only in awareness, but in the general public’s desire for action. You see an increasing number of surveys showing people are actually willing to take an economic hit in order to adjust to climate change. People are now actively making decisions on their normal consumer behavior, whether it be their diets or their car choices or whatever it is. So it seems like we’ve had a very, very long build up. And this year is the year that we might actually get some real action catalyzed at a political level.

Clarissa Dann And what do you think, Rebecca?

Dr. Rebecca Harding I think this is going to be the year where it starts to hit the trade finance community and the trade finance community starts to build a really positive attitude towards climate change, in terms of the practice in funding supply chains fx. I think there are already moves towards that beginning to happen. It’s accelerating very rapidly. It’s becoming the new block-chain, if you like. People are beginning to talk about environmental sustainability across supply chains in a way that they’ve not done over the last 10 years, despite the problem being a very long- term one. So I think we’re going to see this become more than just a talking shop during the course of next year.

Clarissa Dann Luke and Rebecca, thanks so much for coming in to talk to us.

Both Thank you.

Clarissa Dann I’d like to thank Dr. Rebecca Harding and Luke Templeman for their insights on climate change responses and their impact on trade. And of course, to all of you for watching. To catch our monthly reports on other markets or to subscribe to our newsletter, do go to TRADEFINANCETV.NET.

Published on February 18, 2020

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