A recent report by the World Bank has found that global trade, especially between developed and developing countries, is reducing greenhouse gas emissions by as much as 2.2% annually. However, the opposite effect is seen in emissions of PM2.5, tiny airborne particles responsible for air pollution, which worsen as global trade increases.
Greenhouse gases, a range of compounds that trap heat in the air and are responsible for global warming, are produced by human activities that involve burning coal, oil, and gas, like transportation and heavy manufacturing. Developed countries use cleaner technology to manufacture products that would otherwise be highly emission-intensive, like electronics, chemicals, and heavy machinery. When developing countries import those products instead of manufacturing them domestically at a far higher emissions cost, they reduce the impact of the product without needing to adapt costly new production processes.
While trade remains responsible for as much as 31% of global emissions each year – a number that is rapidly increasing – the report finds that were it not for trade, the situation would be even worse. Global trade is facilitating a sort of environmental comparative advantage: production is now centred, not in countries that can produce goods at the lowest monetary cost, but in countries that are more environmentally efficient, decreasing emissions worldwide. These “environmental gains from trade,” as the report calls them, are often missed in reports on the environmental impact of trade, which focus on individual countries or industries rather than the impact on the system as a whole. This means that high income countries may be overestimating the environmental impact of their economies, especially in sectors with high export potential.
On the other hand, trade may be increasing air pollution by facilitating exports by upper-middle-income countries like China or Brazil. These countries have laxer regulations around PM2.5 emissions but are some of the world’s biggest producers of PM2.5-intensive goods like chemical and mineral products. PM2.5 is a tiny particulate matter that can’t be filtered out by lungs and is responsible for most air pollution; it has been linked to a range of health issues, from asthma to cardiovascular disease, that disproportionately affect children and the elderly.
The paper is all the more timely as the effects of trade and so-called “emissions leakage” – when companies respond to emission regulations by shifting production to countries with laxer climate laws – come to the forefront of discussions on reducing climate change. To combat emissions leakage, the EU introduced the Carbon Border Adjustment Mechanism (CBAM), a system to price the environmental impact of imports; the CBAM is expected to receive an update targeting the risk of leakage by the end of this year.
A recent controversial decision by the International Court of Justice that countries may, in some circumstances, sue each other for not abiding to climate change regulations is fueling a conversation over which responsibilities, if any, countries have to each other and to the global community around reducing emissions.
Crucially, while developed countries may be reducing global greenhouse gas emissions, they are benefiting from offshoring production of PM2.5-producing goods, thereby shifting the burden of air pollution to countries less able to cope with its negative effects. India, for example – which the report finds is one of the top exporters of PM2.5-intensive goods – contains 17 of the world’s 30 most air-polluted cities; air pollution is estimated to be responsible for up to 1.5 million excess deaths each year.
The “trade emissions paradox,” as the report terms its findings, shows that the impact of global trade on climate change is far more nuanced than it seems. The interconnectedness of the global economy means shifts in trade relationships can have wide-ranging effects on climate change that go far beyond a single country, industry, or region.
