Slaughter & Rees Report: How Commerce Can Save the Climate

In the IPCC’s latest major report, Climate Change 2023, it acknowledged that the world’s efforts to date have almost surely failed to keep the planet’s average temperature from rising less than 1.5 degrees Celsius (2.7 degrees Fahrenheit) above preindustrial levels.

That mark became the world’s target in 2015, when at that year’s United Nations climate summit in Paris all participating nations agreed to try to hold global warming below that amount. But alas, countries’ cumulative efforts since then have been woefully insufficient. Thus has the IPCC now concluded that continued greenhouse gas emissions will lead to increasing global warming, with the best estimate of reaching 1.5°C in the near term in considered scenarios and modelled pathways.

To slow the rate of global warming, countries must accelerate the invention and deployment of low-cost green products in key areas, including energy generation, distribution, and transportation. Chief among the needed policies is the implementation of a meaningful world carbon price, in the form of a charge on greenhouse-gas emissions. Such a price would make new green products cheaper than existing carbon-intensive ones. But the prospect of a high and harmonized world price on carbon is not on the horizon. In the United States, for instance, many on the Right deride carbon prices as an intrusive new form of taxation, whereas many on the Left see them as tacitly condoning the continued use of fossil fuels.

So, what to do? One of us (Matt S.) and coauthor Gordon H. Hanson propose a solution that Foreign Affairs has kindly published in its March/April issue. This essay, “How Commerce Can Save the Climate: The Case for a Green Free Trade Agreement,” argues that under the auspices of the World Trade Organization, countries should expedite necessary inventions and lower the cost of green products by establishing an accord that liberalizes trade in green-tech products, investment in environmental industries, and the immigration necessary to foster entrepreneurship and build skilled workforces.

Think of this as a green technology version of the Information Technology Agreement (ITA), a WTO deal initially signed by 29 countries in 1996 that eliminated tariffs on hundreds of IT goods. The ITA eventually expanded from 29 to 82 countries, covering roughly 97 percent of world trade in high-tech products. In 2015, over 50 members concluded an auxiliary IT agreement, known as ITA-2, that widened coverage to an additional 201 products valued at over $1.3 trillion a year. The ITA remains the WTO’s most comprehensive free-trade agreement.

The ITA helped spur innovation, trade, and investment around the world. Through the agreement, companies invented new goods and services and then grew global production networks to scale up, reduce costs, and benefit from comparative advantage. And in addition to the ITA’s cross-border flows of products and capital, the migration of highly talented people contributed to the success of the ITA industry. Between 1995 and 2005, a quarter of all U.S. high-tech startups had at least one foreign-born founder. In 2005, these new companies employed 450,000 people and generated more than $50 billion in sales.

Most importantly for the issue of global warming, all this globalization was a spur to lowering costs and prices. In the ten years after the ITA came into force, U.S. import prices relative to U.S. export prices stopped rising and began a decade-long decline—with falling import prices for IT products leading the way. Between 1996, when the ITA was created, and 2022, overall U.S. consumer prices rose by a cumulative 79.5 percent. But at the same time, the price of a personal computer in the United States fell by an astonishing 97 percent.

The ITA’s success in IT can be reproduced in green products. To harness the innovative power of globalization, like-minded countries should create a similar agreement for green technology, built on the pillars of trade, investment, and immigration. The first pillar should be a free-trade deal in environmental goods and services. The second pillar should be unfettered cross-border flows of foreign direct investment in environmental goods and services. And the third pillar should be the unencumbered movement across borders of highly talented people working in green industries.

This new Foreign Affairs essay explains each of these pillars in detail—and details complementary fiscal investments that sovereign governments should undertake: in early-stage research and development for the world’s most promising green innovations, in university education for engineers and scientists in those areas, and in training for green technical jobs.

We two Matts will close by underscoring one of the essay’s key messages: When it comes to addressing the world’s climate emergency, the key issue is not which countries end up producing new green goods and services—it is how many countries end up consuming them, and at how low of a cost. Countries must stop chasing the elusive goal of selecting and supporting winning industries and companies. Instead, they must start focusing on the immediate imperative of inventing and deploying green innovations around the world as fast, broadly, and inexpensively as possible. A green free trade agreement cannot come soon enough.