WTO Joint Efforts to Advance Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals

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Five international organizations recently released a landmark report outlining a path to achieving coordinated approaches in climate action, carbon pricing, and the cross-border effects of climate change mitigation policies, aimed at advancing the achievement of global climate goals. The report was released on October 23 by the Joint Task Force on Climate Action, Carbon Pricing, and Policy Spillovers convened by the World Trade Organization (WTO), with joint members including the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD), and the World Bank.

The report is titled 'Working Together to Advance Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals', and was released at a time when countries around the world are intensifying their efforts to address climate change. There are increasingly more policies to mitigate climate change, including carbon pricing policies. Currently, there are 75 carbon taxes and emissions trading systems worldwide, covering approximately 24% of global carbon emissions.

The report emphasizes that in order to achieve global emission reduction targets and promote broader development goals, climate action needs to be accelerated. To this end, the report proposes four important contributions:

1. The report provides a common understanding of carbon pricing indicators to enhance transparency among countries in promoting decarbonization incentives.

2. The report examines the composition of climate change mitigation policies and emphasizes the key role of carbon pricing as a cost-effective tool that can also generate revenue.

3. The report outlines how international organizations support policy coordination to promote the positive effects of cross-border spillover of climate change mitigation policies and limit their negative effects. The report also analyzed the advantages and disadvantages of carbon boundary adjustment policies, including their impact on developing countries.

4. The report indicates that coordinating policies can help bridge the gap in transparency, implementation, and ambition, thereby promoting the expansion of climate action.

The report also clearly states that the future work of international organizations can help fill important knowledge gaps. These gaps include the need for more detailed and better data on embedded carbon prices and embedded emissions, the design and interoperability of boundary adjustment policies, and other methods to enhance cooperation to boost ambition and ensure a fair transition.

Ngozi Okonjo Iweala, Director General of the World Trade Organization, said, "There is an increasing number of climate policies related to trade, with over 5500 measures related to climate targets reported to the WTO between 2009 and 2022. These policies can lead to cross-border spillover effects, potentially increasing trade tensions and retaliatory trade behavior. The future work of international organizations should focus on specific ways to coordinate more ambitious carbon pricing policies, help narrow the climate action gap, and address their cross-border spillover effects. This may require a framework to ensure interoperability between carbon pricing and other climate mitigation policies

Kristalina Georgieva, Managing Director of the International Monetary Fund, said, "This report jointly released by five institutions highlights why carbon pricing and its equivalent policies are crucial for driving climate action. Global emissions need to be urgently reduced to put the world on track to achieve the goals of the Paris Agreement, and global ambitions need to be doubled or quadrupled. Carbon pricing should be a core part of a well-designed policy portfolio, complemented by public investment support and industry policies, and international coordinated mitigation actions can unlock progress

Mathias Cormann, Secretary General of the Organization for Economic Cooperation and Development (OECD), stated that "countries are currently adopting different approaches to reduce emissions, but to achieve net zero emissions, we need to align these efforts in order to have a truly global impact. The OECD's Inclusive Forum on Carbon Reduction Methods currently has 59 members, aiming to gather perspectives from countries and establish a common understanding of climate policies and their impacts. A more coordinated and effective global emission reduction policy can help avoid cross-border negative impacts such as carbon leaks or trade distortions, while maximizing innovation, cost savings, and sharing the benefits of climate transition

Rebeca Grynspan, Secretary General of the United Nations Conference on Trade and Development (UNCTAD), stated that in order to ensure a fair and green transition, UNCTAD encourages and supports developing countries to formulate appropriate policy combinations to advance climate mitigation. We are strengthening research and providing a secure platform for dialogue to ensure that climate related measures, including the Border Carbon Adjustment Mechanism (BCA), are evidence-based and minimize negative spillover effects on developing countries and other sustainable development goals. This is particularly important for developing countries, as they often lack production capacity, infrastructure for monitoring, verification, and reporting, as well as fiscal space. We are committed to helping developing countries achieve decarbonization and promote economic diversification by seizing export opportunities related to the environment, while working with our member countries to reduce compliance and trade costs associated with these transformations

Axel van Trotsenburg, Senior Management Board Member (SMD) of the World Bank Through technical assistance and financing, the World Bank helps countries ensure that climate policies are tailored to each country's specific circumstances, capabilities, political constraints, and development priorities. We believe that carbon pricing can play a central role in these policies as it provides the right incentives for the private sector, creates public revenue, supports broad development processes, and helps vulnerable groups cope with the transition to green energy. However, as each country introduces its own climate policy, the demand for cooperation and coordination continues to grow. This report of in-depth exchanges among five international organizations provides specific ideas to ensure that climate policy design benefits low-income economies, helps them accelerate development, create employment, and participate in the global value chain