China prepares COP29 agenda battle with EU over trade measures

A group of emerging economies chaired by China has suggested that what they see as protectionism from developed countries should be formally discussed at the COP29 climate summit, sparking an “agenda battle” that could disrupt the talks.

The BASIC group of countries – Brazil, South Africa, India and China – has proposed an agenda item for COP29 in Baku, seen by Climate Home, that addresses “concerns about unilateral restrictive trade measures related to climate change.”

The submission to the UN states that these trade measures “under the guise of climate targets represent a systemic problem with a disproportionate impact on development”. [countries]“.

“Such measures increase the costs of global climate action, hinder developing countries’ efforts to advance their climate commitments and ambitions, undermine the foundation of multilateral cooperation and contradict UN climate agreements,” it says.

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Aaron Cosbey, a trade expert at the International Institute for Sustainable Development (IISD), said in a recent webinar that BASIC’s proposal was “explosive,” adding: “The potential for these issues to derail progress at this COP.” , is very real.”

EU carbon border levy

The BASIC proposal is likely to face strong opposition from the European Union (EU) and the United States. Although no specific policy measures are mentioned in the submission, BASIC has criticized the EU’s plan for a Carbon Border Adjustment Mechanism (CBAM) – essentially a carbon tax on imports – as well as certain provisions of the US Inflation Reduction Act (IRA).

The President of COP29, Mukhtar Babayev of Azerbaijan, and the head of the UN climate panel, Simon Stiell, are tasked with drawing up a draft agenda for the UN summit from a list of submissions after consulting with governments. At the start of COP29, all governments will examine the proposed items and agree on what will be included in the final agenda. Disputes could delay the start of talks.

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Cosbey said the EU and others would “never agree” to the trade agenda item because its language was “prejudicial” and the issues it raised were already included in a section of the U.N. climate negotiations known as “response measures.”

“They’ll argue, ‘We don’t want to discuss this as a general agenda item – we want to put it in this box over here where we’ve discussed it all these years,'” Cosbey added, noting that it “might be.” “It sounds like a small thing,” but previous negotiations had been on hold for days because of such “agenda battles.”

The BASIC countries have long rejected the CBAM – and have put forward a similar agenda proposal in the run-up to COP28. But under the leadership of the group’s then-chairman Brazil, they backed down and accepted the issue being removed from the agenda.

Cosbey said the question of whether it will delay the adoption of the COP agenda this time depends on whether the BASIC countries are “serious” about wanting a formal discussion or whether they are “strategizing” for attention to draw attention to the issue and force some concessions back because I dropped it.

The EU’s CBAM is a levy on certain carbon-intensive and heavily traded products imported into the Union from countries where there is no price on carbon. It was approved by the EU in 2021 and will come into force in 2026.

Its supporters argue it is necessary to prevent carbon leakage, in which manufacturers of energy-intensive products such as steel, cement and aluminum move their operations from the EU to countries with weaker environmental regulations.

But in a communiqué issued after its leaders met in Russia in late October, BASIC described the CBAM as a “unilateral, punitive and discriminatory protectionist” measure.

Aruna Sharma, a former secretary of India’s Steel Ministry, said in the same webinar that the EU wanted other countries to follow the pace of its emissions reduction targets without properly consulting them. Measuring emissions from products to comply with the CBAM will be expensive, she added.

Compliance costs

Chantal Line Carpentier, head of the New York office of the United Nations Conference on Trade and Development (UNCTAD), said many developing countries spend more on debt servicing than on welfare. “So how are these people going to be able to invest their money? [carbon] Monitoring and verification systems when they can’t even finance their education or their health?” she asked.

IISD’s Cosbey added that even green exporters have to pay to have their emissions measured under CBAM, which results in “significant costs, especially if you are a small producer.”

Both Cosbey and Sharma said those costs would rise if other countries introduced similar measures with different emissions measurement and reporting requirements. Cosbey said a proliferation of such systems would be “trade-restrictive and would undermine the ability of trade as an engine of development… to lift countries out of poverty.”

Canada, Australia and the United Kingdom are among the countries considering their own carbon trading levies.

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Sharma added that the EU’s CBAM does not take into account a concept at the heart of the UN climate agreement on common but differentiated responsibilities (CBDR), which requires developed countries to do more to combat climate change than developing countries.

The EU has previously stated that the CBAM should be dealt with at the World Trade Organization (WTO) and not at the UN climate negotiations. But UNCTAD’s Carpentier said the WTO talks would not recognize the CBDR principle – and that including the CBAM there “would lead to endless discussion”.

A UNCTAD study suggests the EU could use some of the revenue from its CBAM levy to help developing countries clean up production of goods taxable under the system. Sharma noted that while the EU produces much of its steel in electric arc furnaces, many of its trading partners still use more polluting blast furnaces fueled by coking coal.

The Biden administration’s U.S. Inflation Reduction Act has also been criticized by other governments for providing subsidies for electric vehicles, which require much of their parts to be manufactured in North America.

This requirement has angered other automotive countries, which see it as an unfair attempt to encourage automakers to relocate to the United States. The EU, UK, Japan and South Korea have all complained to the US government about the provision.

(Reporting by Joe Lo, Editing by Megan Rowling)