A New Trade Vision for a Green New Deal
In August, the Intergovernmental Panel on Climate Change (IPCC) warned that without huge reductions in greenhouse gas emissions, global warming will dangerously exceed 1.5 to 2 degrees Celsius by the end of the century. Such a scenario would render much of the world uninhabitable due to extreme heat, drought, flooding and other catastrophic weather events.
We can avoid the worst of this potential future, but only if we find ways to rapidly decarbonize our CO2-intensive energy grids, transportation systems, manufacturing processes and agricultural practices.
Market-based solutions, including carbon pricing and voluntary carbon offsets by business, may play a secondary role in reducing emissions. But these schemes can be used to delay real emissions cuts and leave socially harmful economic power and wealth imbalances intact. Instead, climate justice activists are increasingly rallying behind ‘Green New Deals’ which would improve living standards for all through public investments in zero-carbon infrastructure, decent jobs and better social services.
However, progress towards a Green New Deal is at risk of being undermined by outdated international trade and investment rules which deliberately hold governments back from setting strong environmental policies, creating decent jobs, and ensuring a fair distribution of wealth between workers and their bosses. The optimistic new commitments world leaders have been making this month at COP26 in Glasgow to halt deforestation and tackle methane emissions are also under threat. These rules need urgent reassessment.
For example, in 2009, the Canadian province of Ontario launched a landmark Green New Deal–style energy transition policy with the goal of rapidly phasing out coal-powered electricity. To secure maximum social and economic benefits from this policy, the government put local content requirements on the procurement of solar, wind and other new-build renewable energy projects.
The Ontario policy succeeded in removing coal-fired power from the grid and attracted new investment in renewables manufacturing and installation services. Unfortunately, it also attracted a trade fight. Japan and the European Union challenged the policy at the World Trade Organization and won. Canada was ordered to remove the “discriminatory” local content rules in the Ontario policy, which a dispute panel found violated the WTO’s Agreement on Trade-Related Investment Measures (TRIMs).
Several years later, another WTO dispute panel ruled renewable energy policies which supported local green jobs in eight U.S. states also violated international trade rules by providing an advantage to local producers inconsistent with the same WTO rules. The case was brought by India against US incentives to use local content in new renewable energy projects.
It is not just the outcome which is significant, but also the reasons behind the dispute. India brought the case in response to an Obama administration challenge at the WTO to India’s own solar program, decided in favour of the US in 2016.
This begs the question: why are countries wasting so much time and effort fighting each other’s efforts to build greener economies instead of going after corporations for evading regulations and stalling on greenhouse gas emissions cuts?
Another example of trade and investment rules getting in the way of climate action is the proliferation of investor–state dispute settlement (ISDS) suits against dirty energy phaseouts and harmful extractive projects. Fossil fuel companies are benefiting from free trade agreements and bilateral investment treaties (BITs) to sue governments when Green New Deal measures interfere with their profits.
ISDS tribunals don’t care whether a government’s actions are legal or in the public interest; only if they violate an investor’s rights as established in a free trade deal or investment treaty. Those rights include vague guarantees to “fair” treatment and to have one’s “legitimate expectations” of future profits met. In the eyes of ISDS tribunals these rights take precedent over the freedom of governments to legislate on behalf of their citizens.
In 2017 UK firm Rockhopper lodged an ISDS case against Italy for that country’s decision to deny the firm an offshore drilling permit. US coal mining firm Westmoreland has been challenging Canada since 2018 under NAFTA’s ISDS process for Alberta’s planned phaseout of coal-fired power plants. And this year Canada’s TC Energy launched an eye-popping US$15-billion NAFTA claim following the Biden administration’s cancellation of the Keystone XL pipeline.
These and many other needless—and needlessly expensive—ISDS cases are putting a regulatory chill on government transitions away from fossil fuels.
This month, as world leaders meet in Glasgow and Geneva for the COP26 and WTO ministerial meetings, our organizations jointly launched a new web resource, GreenNewTrade.org. It outlines the trade and investment treaty threats to strong climate action—and how we can defuse those threats. The website is both a resource for climate justice activists on current trade challenges to Green New Deal–type policies and a call for a just trade transformation.
Our hope is not just to draw attention to these threats but to show how easy it would be to diffuse them so that all countries can pursue Green New Deal–type policies which benefit everyone.
Stuart Trew and Hadrian Mertins-Kirkwood are senior researchers with the Canadian Centre for Policy Alternatives. Karen Hansen-Kuhn is Program Director at the Institute for Agriculture and Trade Policy. Manuel Pérez-Rocha is Associate Fellow at the Institute for Policy Studies. Aaron Eisenberg is Project Manager at Rosa Luxemburg Stiftung–New York.