HORIZON EUROPE┋Improved toolbox for evaluating the climate and environmental impacts of trade policies

Expected Outcome

Project results are expected to contribute to all of the following outcomes:

• Enhance our knowledge and inform policy makers on the positive and negative impacts of trade and trade policy on the climate. Additionally, where relevant, broader effects on the environment, in particular biodiversity, pollution and natural resources depletion may also be considered.
• Improve and enlarge the toolbox of models and other research techniques as well as available data and its processing to analyse the impact of trade and trade policy on the climate.

Scope

Actions are expected to cover all of the following areas:

Study and quantification of the effects of trade on the climate and the environment

• In-depth study/quantification of the technique and composition effects: in addition to the scale effect of increasing production, trade also has an impact on the sector composition of economies and the technologies used for production. The project(s) should quantify and decompose these effects, including their underlying mechanisms/causes.
• Growth projections of trade related emissions in developing countries and newly developed countries: it can be expected that most of future trade-related emissions will take place in these countries. The project(s) should therefore estimate and quantify these future emissions under different scenarios, including the extent to which this is related to pollution offshoring and pollution haven effects.
• Estimate the net effect of trade: clarify/quantify how much of trade related emissions would still take place in the context of the domestic economy without international trade. While trade-related emissions are an important part of total world emissions, not enough is known about the counterfactual, i.e. emissions profiles in the absence of international trade.
• Study the effects stemming from changes in the use of resources attributable to international trade, both in terms of efficiency gains (e.g. in energy and material use) and in terms of changes in the climate impacts associated with production and consumption, and whether externalities are likely to be internalised. For specific sectors, the action should look into emissions linked to the production in different countries versus transport emissions in trade to those countries.
• Study trade-related climate and environmental impacts in key sectors like agriculture and livestock, including linkages to regional land use change, water resources and differences in agricultural production techniques worldwide. Specific tools and methodologies for agriculture and livestock should also be proposed and refined to be able to give sector-specific advice to policy makers.
• Study the public perception vs. the reality of trade impacting on the environment and climate: while in the public debate trade is often associated with increased emissions related to the scale effect, technique and composition effects point to positive impacts in certain cases. Case studies should also include concrete examples of cases where public perception of trade effects on emissions and real effects diverge.

Study and quantification of the effects of trade policy on the climate and the environment

• In-depth study/quantification of trade creation and trade diversion effects in relation to the climate and the environment: trade liberalisation affects trade flows through the diversion of such flows as well as inducing additional trade. The project(s) should study the net effect of these phenomena on the climate and the environment.
• Impact of environmental/climate regulation on trade and competitiveness: it can be assumed that in some cases tightened environmental legislation can lead to compliance costs and competitiveness effects. It should be empirically studied to what extent this assumption is correct and to what extent the so-called ‘Brussels Effects’ impacts these cost and competitiveness effects.
• What do the expansion of global value chains, offshoring and their fragmentation (and a possible reversal of such trends) mean for the climate and climate-related trade policy: the project(s) should analyse the effectiveness of climate and trade policies in such an international economic context.
• Effects of openness to trade on environmental and climate policy: trade and international exchanges lead to the diffusion of technology and ideas. To what extent do these effects influence emissions and global climate/environmental policies?
• The role of trade policy as a tool to address the free rider problems in climate policies: since addressing climate change is a global public good, free-rider problems persist. To what extend can trade incentives and the trade policy toolbox help overcoming these?
• Analyse the coherence between trade policies, climate policies and other policies such as nutrition-food, resources policies and development policies that affect the impacts on the climate and the environment. Analyse how these policies affect the trade-off between food security and conservation of natural resources (such as forests and water resources).

Methodology and toolbox related aspects

• Impact of trade and foreign direct investment (FDI) on the productivity of sectors (do more productive sectors/producers tend to be cleaner?): the project(s) should endogenise (Global Trade Analysis Project (GTAP) sector productivity to trade beyond a Melitz-type of framework, including the separation of energy efficiency effects among the productivity effects. Currently since, technological change is mostly exogenous or only roughly calibrated in Computable General Equilibrium (CGE) models, technique effects on carbon leakage cannot fully be captured.
• Impact of trade on land use (overall and composition), in particular on deforestation: the project(s) should study methodologies that can be used to better understand the effects of trade and trade policy on land use. Actions should also create/update a trade induced land use/land use change matrix for GTAP sectors.
• Transport-related pollution: the project(s) should create a transport mode matrix for GTAP sectors per countries and their related emissions.
• Enlarge/split the GTAP sectors list for emission-intensive sectors: the project(s) should create/improve the GTAP sector matrix for emission-intensive sectors.

Actions are also encouraged to explore and promote synergies between the use of modelling approaches in international trade analysis and in comparable macroeconomic modelling in climate policy, for example, in Integrated Assessment Modelling.

International cooperation with research clusters, which have specific knowledge in areas of this call, is encouraged.

The project should also include dissemination and capacity-building for the findings and tools created among policy makers at the EU and Member States/Associated countries level.