Historically, trade agreements have focused on reducing barriers to trade—such as tariffs and quotas—while encouraging economic integration and growth. Environmental protection was often considered a separate issue, addressed primarily through national regulations or multilateral environmental agreements like the Paris Agreement. However, recent developments suggest that trade and environmental concerns are converging, with many new trade agreements incorporating specific environmental provisions. The European Union, for example, has been at the forefront of integrating environmental commitments into its trade agreements. The EU leverages its bilateral trade agreements to support climate action by reinforcing commitments to international climate conventions, facilitating early access to environmental goods that help mitigate climate change, encouraging trade and investment in environmental goods and services, and eliminating non-tariff barriers to renewable energy generation and investment. The EU has helped shape several major international agreements and became a party to CITES, or the Convention on International Trade in Endangered Species
Green Trade Agreements: A Growing Trend?
Similar trends are emerging in other regions, reflecting a broader shift toward recognizing the importance of environmentally sustainable trade practices. Looking ahead, it seems likely that future trade agreements will increasingly prioritize environmental protection. So-called “green” trade agreements, or trade agreements that include environmental regulations and requisites, are emerging. These agreements may include commitments to reduce carbon emissions, promote renewable energy, and ensure the sustainable management of natural resources. Such agreements have the potential to reshape global trade by encouraging environmentally responsible practices across industries. For instance, countries that invest in clean energy or sustainable agriculture could gain preferential access to international markets, while countries with lower environmental standards may face new pressures to improve their regulations.
Carbon Border Adjustments: A Tool for Environmental Compliance
One of the key mechanisms being discussed in the context of sustainable trade is the Carbon Border Adjustment Mechanism (CBAM), sometimes referred to as carbon tariffs. It is a tax on carbon-intensive imports, most notably targeted towards China. This tool is designed to address the problem of companies relocating production to countries with less stringent environmental regulations to avoid compliance costs. Under a CBAM, countries that enforce strict environmental standards would impose tariffs on imports from countries with weaker regulations, ensuring that domestic industries are not disadvantaged by their environmental commitments. Proponents argue that this approach could incentivize more widespread adoption of sustainable practices, while critics caution that it could lead to “green protectionism,” where trade restrictions are used in the name of environmental protection but with potential negative impacts on developing economies.
Consumer and Investor Influence: Is ESG Still a Thing?
Remember how ESG standards took off not too long ago? Now, it seems to have dipped in relevance. But consumer and investor preferences are still shifting towards sustainable practices. As public awareness of environmental issues grows, there is a corresponding rise in demand for products that are sustainably produced. According to a white paper published by Key ESG, a management-software company, 76% of consumers would cease buying from firms that neglect environmental, employee, or community well-being, highlighting the direct impact of ESG practices on consumer behavior and at present, 53% of the income for the top 500 U.S. corporations and 49% of the earnings for the largest 1,200 companies worldwide are derived from business operations that contribute to the Sustainable Development Goals (SDGs).
The U.S Customs and Border Protection Green Trade Strategy: What Is It?
Launched in 2022, the CBP Green Trade strategy provides the federal agency with a framework to combat climate change. The four goals according to their website are listed as: 1)Incentivize Green Trade – Provide facilitation benefits and other incentives to promote environmentally friendly trade practices and supply chains 2) Strengthen Environmental Enforcement Posture – Enforce against environmental bad actors to drive meaningful changes in trade practices. 3) Accelerate Green Innovation – Promote and invest in the deployment of innovative, sustainable trade practices by government and private industry. 4)Improve Climate Resilience and Resource Efficiency – Decrease the greenhouse gas emissions associated with CBP operations and strengthen the resilience and sustainability of trade infrastructure and assets. Some examples of the above in practice are acquiring electric vehicles, charging stations, and enforcing environmental provisions under the United States-Mexico-Canada Agreement (USMCA). It seems as if the efforts beyond that are still in the ideate phase. Under the FAQs portion of their website, one question asks how the CPB incentivizes green trade. The agency responded: CBP is currently conducting research to develop a better understanding of “the art of the possible” for meaningful and effective green trade incentives. Our plans include reviewing existing authorized economic operator programs, surveying international organizations and governments such as the World Customs Organization and the European Union, and engaging with our industry partners, non-governmental organizations, and academic institutions to solicit ideas and perspectives. The goal is to identify incentives that aim to reduce carbon emissions, encourage the use of eco-friendly modes of transport, and support adoption of technologies and practices with positive environmental impacts. Incentives would encourage green trade practices while avoiding negative impacts on the flow of legitimate cargo. The agency isn’t currently pursuing any rulemaking directly related to green trade protections, so it seems as if these efforts are at a standstill at the moment, according to their website which was last updated in March of 2024.
Looking Ahead
The future of environmental protection laws and trade agreements is likely to see closer alignment between economic growth and environmental sustainability. As countries, industries, and consumers increasingly prioritize sustainability, trade agreements will evolve to reflect these changing priorities
