Setting Standards for Environmental Goods

Trade in environmental goods plays a central role in addressing global environmental challenges. It facilitates the advancement, adoption, and dissemination of environmental technologies to mitigate environmental risks, reduce pollution, and optimize resource utilization. In ATC’s previous Policy Brief (23-02), we discussed two main categories of environmental goods: 1) products that are supportive of environmental protection or yield positive environmental outcomes and 2) products that are comparatively more “environmentally friendly” than similar products serving the same purpose.

The latter category presents particular challenges for the trading system, as identifying environmentally friendly goods necessitates clear criteria and standards, which can be complex to define. Moreover, establishing interoperable standards and labelling criteria for environmental goods requires a delicate balance between setting ambitious environmental objectives and ensuring feasibility and cost-effectiveness for manufacturers. The absence of universally accepted standards and labels for environmental goods leads to variability across countries and regions, which can hinder trade and create disparities in the assessment of product environmental performance. Despite the challenges, institutional and country-level initiatives have gained momentum in developing internationally recognized standards, particularly in areas such as carbon footprint measurement, energy efficiency, water efficiency, and greenhouse gas emissions. Quantification of such production emissions and performance outputs provide increased knowledge base and data to promote international cooperation in the exchange of environmental and trade policy-relevant technical and scientific information, and support work to harmonize product standards and labels relevant to achieving environmental objectives. Our newest Policy Brief, released today, discusses two types of environmental standards and labels – mandatory or voluntary. Mandatory standards and labels are imposed by government regulations and can be considered non-tariff measures (NTMs). Voluntary standards, on the other hand, are typically developed by non-governmental entities or corporations and are not regulated by laws. Both approaches have their advantages and disadvantages, and their selection depends on industry-specific objectives and regulatory environments.

Crafting a Climate Trade Agreement (CTA)

Part of the problem is that the entire policy landscape for managing sustainable trade with a focus on climate or environment remains at an early stage. Climate has been managed by officials through the UN Framework Convention on Climate Change (UNFCCC). Trade officials, agencies or ministries may participate, but are not driving the agenda. Many of the ideas circulating to address climate and trade are quite new as well. It isn’t entirely clear, as an example, what sort of trade implications will come from the growing use of carbon border adjustment taxes. The trade consequences of green subsidies are likely to be significant, but uncertain. There are some elements of a trade and climate agenda with more consensus, including the potential inclusion of clauses on pollution or managing endangered species. Some trade agreements include commitments to sign on and implement a variety of climate-related international treaties and conventions. The critical importance of the “climate and trade” agenda is clearly crying out for a suitable response. Yet existing mechanisms for delivering results seem limited. Adding climate to trade agreements, as noted above, tends to be unsatisfactory. Asking global or regional institutions to manage any possible trade-related fallout from climate actions taken by the UNFCCC or others is also problematic. One solution that seems achievable is to create a new style of trade agreement, the CTA. It could pull out the most useful and innovative element of a digital counterpart, the DEPA.