Promoting trade in environmental goods and low-carbon technologies can be a powerful tool to combat the climate crisis. The transition to a low-carbon economy will only be possible if green goods and technologies – everything from septic tanks and catalytic converters for vehicles to biofuels and mercury-free batteries – are developed, deployed and diffused at an unprecedented pace. Looking at the share of environmental imports and exports to total imports and exports in 2022, we find that Germany, Japan and South Korea are the largest producers of green goods, but Germany, the UK and France are the largest consumers. Between 2000 and 2022, Germany has seen the largest increase in exports of environmental goods as a share of GDP (+6.9pps), followed by South Korea (6.2pps) and China (5.0pps), while US exports fell by -1.3pp over the same period. Some small economies also have a comparative advantage: In 2022, North Macedonia, the Slovak Republic and Hungary had the largest green trade surplus (measured as a percentage of GDP) due to their specialization in a few environmental products that account for a significant share of their exports.
Removing tariffs on green goods could boost exports volumes by over +10% per year, which amounts to about USD184bn. Barriers to trade in environmental products are still significant, with tariffs at a high 5.4% compared to 8.6% for all good. Given ambitious plans to develop domestic green industries, there is a risk of seeing further tariffs on green goods. But this would be counterproductive: Reducing the cost of importing green goods would make them more affordable and accessible to consumers and businesses alike, as well as stimulating competition among producers, driving innovation domestically and globally. However, the main obstacle to green trade is protectionism in the form of non-tariff measures such as technical barriers to trade or export-related measures. To remove these barriers and accelerate the green transition, international cooperation needs to move from regional to multilateral.
There can be no green trade without green shipping. Approximately 11bn tons of goods are carried by sea every year worldwide (85% of total global trade), a figure that is estimated to triple by 2050. Though maritime transportation is currently responsible for only about 3% of global greenhouse-gas emissions, this share could surge to 17% by mid-century if no action is taken today. Carriers know that besides being a challenge, decarbonizing also represents a market-gain opportunity for those players that are ahead in the greening of their fleets, as rising demand for clean transportation will give them carbon pricing power. As of today, 13 of the world’s 30 largest shipping companies have already set a net-zero target between 2040 and 2060 and the sector’s capex is expected to continue growing in 2023 and 2024 after two record years. However, it will need to invest a minimum of USD23bn per year to achieve its climate targets.
The EU is leading in the adoption of carbon-pricing mechanisms affecting global trade. The EU is taking steps to address shipping emissions by including them in the EU Emission Trading System (EU ETS) and implementing the EU Carbon Border Adjustment Mechanism (EU CBAM). This move aims to align with climate objectives, promote energy efficiency and low-carbon fuels and level the playing field for EU industries. The inclusion of shipping emissions in the EU ETS could lead to a +20% increase in maritime transport costs and a -11% reduction in shipping demand. Additionally, if the EU CBAM incentivizes carbon pricing policies in non-OECD countries, it could significantly lower the carbon intensities of their exports.
Coherent policy action is needed to reap the benefits of green trade and we see five main calls for action. First, leading economies should re-engage in promoting and facilitating green trade to help increase the supply and lower the price of green technologies. Second, all stakeholders need to agree on what counts as a green product. Third, governments should give clear guidelines and standards for sustainable production and consumption through appropriate labelling (green scores) and public price subsidies. Fourth, customs duties for green products need to be reduced further or even removed to make them more affordable for consumers, which would require a deep reform of the WTO most-favoured-nation tariffs. Finally, governments need to redirect excess savings towards financing companies that produce a green product, while implementing additional tax breaks for those businesses. From a regulatory perspective, financing could be eased if “green loans” were to be introduced within the next Basel regulations for the banking sector.