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Footprints in the rainforest

Yesterday (4 December), the UN held its first ever ‘trade day’ at a COP conference, which included a programme of events dedicated to the role of international trade in fighting climate change.

Ahead of the inaugural day, the Institute of Export & International Trade’s (IOE&IT) head of policy, Hemita Bhatti, told the Daily Update that the event reflected an ongoing shift in dialogue, whereby trade is being seen as being as much a solution as it is a challenge.

“Trade can be a part of the problem but also a key solution to reducing emissions and reaching low carbon,” she said.

The day saw trade leaders from the public and private sectors meet and take stock of how international trade was working in the global fight against climate change, and what more could be done.

A ‘just’ transition

One major theme was how the transition towards net-zero can be better designed to benefit developing nations.

UNCTAD secretary general Rebeca Grynspan said that the energy transition was an “opportunity” for mineral-rich developing nations, at an event on the transition to net zero, but added that more needed to be done to help them “add value” to global supply chains.

Grynspan argued for greater trade facilitation:

“You have a lot of obstacles in relation to the flow of goods and services, so it is more difficult for the Global South to be part of the global value train.”

Developing countries, especially in Africa, could stand to benefit from investment in the green economy if they can process minerals locally, rather than just exporting the raw materials, according to the UNCTAD head.

The value

Developing nations – like the Democratic Republic of Congo (DRC), which produces most of the world’s supply of cobalt – are historically dependent on exporting raw materials and do not participate much beyond shipping the initial commodities.

Grynspan argued that helping countries add value locally was important to their local economies.

An UNCTAD report, released during COP28, highlighted the importance of adding this value, as well as the risks of concentration.

In a net zero emissions scenario, demand for critical minerals is expected to surge: for example, 454% for lithium and 115% for cobalt from 2022 to 2030.

The report highlighted the role of the DRC, as well as countries like Chile and Indonesia, in exporting critical minerals.

It also warned of the dangers of concentration of these critical minerals in any one country, which brought risks – such as supply disruptions and price volatility – to the world economy.

‘Inclusive’ opportunity

However, each step in the global supply chain, beyond just producing the raw material, adds more value to a country’s economy, which indicates “the potential for high returns at various stages”.

Director general of the WTO, Dr Ngozi Okonjo-Iweala, said that the net zero transition gave the world the opportunity to diversify and become “inclusive” in its trade practices.

“Yes, there will be some re-shoring of supply chains, some nearshoring. But let us look at building resilience by including many more countries who were on the margins of the global value chains before so we can kill two birds with one stone.”

Doing so would “spread the risk” when it came to supply chain shocks and avoid the problems of concentrating trade in one place, according to Okonjo-Iweala.

Sustainable trade evolution

The International Chamber of Commerce (ICC) used trade day to announce its next step towards establishing “a standardised method for assessing the sustainability of trade transactions.”

At COP27, the ICC launched Wave 1 of a framework that it claimed would set the standard framework for reporting and assessing the sustainability of supply chains.

Wave 2, unveiled yesterday, will now expand to other sectors, such as the energy, agriculture and automotive industries, and take a more ‘holistic approach’, with a granular grading system and a more detailed assessment system.

John Denton, ICC secretary general, said that, “Trade must transform itself into an engine for the implementation of the Paris Agreement and for sustainable development.”

He added that he hoped that the evolution of this framework would help deliver on sustainable trade.

Finance agreements

During the conference, the UK government announced what was described as the first ever climate resilient debt clauses (CRDC) with Senegal and Guyana.

At COP27, UK Export Finance (UKEF) committed itself to offering CRDCs to low-income and small island developing states directly.

According to the COP28’s x (formerly known as Twitter) account, 73 countries supported the adoption of these clauses on a wider scale, including Barbados, Canada and France. The clauses would pause debt payments when a country is hit by natural disasters.

President of Senegal, Macky Sall, said that “by including a climate resilient debt clause in our loan from UKEF, Senegal will be able to pause payments when a climate disaster strikes, releasing much needed finance when we need it most to focus on resilience and boosting our economy instead.”

The UK’s Department for Energy Security and Net Zero also announced £85m of funding to cut deforestation and methane emissions, including £2m for US president Joe Biden’s Methane Finance Sprint programme.

Overall, the government claimed it had generated over £1.6 bn in climate aid during COP28.