Climate Change

Climate change is having a profound impact on people’s lives across the world. Mitigating and adapting to climate change will require major economic investment and coordinated action to transition to a sustainable, low-carbon economy. The 2022 World Trade Report explores the complex interlinkages between climate change and international trade and how international trade and trade rules can contribute to addressing climate change.

Global progress towards tackling climate change is lagging. This paper puts forward a framework to design comprehensive decarbonisation strategies while promoting growth and social inclusion. It first highlights the need of evaluating a country’s national climate targets and current policy mix, in conjunction with facilitating monitoring tools to assess current and future progress, as a key step to design effective decarbonisation strategies. It then provides a detailed comparison of several policy instruments across different assessment criteria, which indicates that no single instrument is clearly superior to all others. This highlights the need for developing decarbonisation strategies based on a wide policy mix consisting of three main components: 1) emission pricing policy instruments; 2) standards and regulations; 3) complementary policies to facilitate the reallocation of capital, labour and innovation towards low-carbon activities and to offset the adverse distributional effects of reducing emissions. However, there is no one-size-fits-all policy mix, as feasible policy choices depend on countries’ industrial structure, social preferences and political constraints. A robust and independent institutional framework, stakeholders engagement and credible communication campaigns are key to managing these constraints and ultimately enhancing public acceptance of climate mitigation policies.

This paper assesses the role of carbon pricing in a sustainable recovery from COVID-19. It tracks the policy changes in carbon pricing within OECD and G20 countries between January 2020 and August 2021 of the COVID-19 pandemic. Carbon pricing as defined here includes emissions trading schemes, fossil fuel support and carbon, fuel excise or aviation taxes. The paper also highlights the need for the recovery to be sustainable and discusses the advantages, limitations and uses of carbon pricing therein. In addition, it describes additional challenges to as well as increased rationale for carbon pricing in the pandemic. It provides evidence on the effects of carbon pricing on the challenges and discusses carbon pricing design elements to help overcome those challenges. The paper concludes that there were more policy changes with an expected negative impact on climate. However, it is likely that the impact of the climate-positive changes – which are broader in coverage and scope - will outweigh the climate-negative changes.

2021 was clearly not a year for geopolitical optimism. Almost every month, a new crisis dominated the news, contributing to a sense that this mounting tide of crises threatens to overwhelm us.
Against this backdrop, it is not surprising that in Europe and beyond, concern about a growing loss of control is prevalent. In fact, findings from the Munich Security Index 2022 not only reflect the high level of risk perceived by respondents in the G7 and BRICS countries; they also suggest the emergence of “collective helplessness” in the face of a plethora of crises that reinforce each other. Just like people can suffer from “learned helplessness” – a psychological term describing the feeling that nothing one does can effect positive change – societies, too, may come to believe that they are unable to get a grip on the challenges they are facing. Whether it is the seemingly endless pandemic, the increasingly tangible threat of climate change, the vexing vulnerabilities of an interconnected world, or increasing geopolitical tensions, all these challenges contribute to a feeling of a loss of control. Liberal democracies appear to feel particularly overwhelmed.
This perception is highly dangerous because it can turn into a self-fulfilling prophecy. Societies that have concluded that they cannot solve humankind’s most challenging problems might no longer even try to turn the tide. Will our stressed and overburdened societies end up accepting what they see as their fate, although they have the tools and resources to change it?

The previous Commission policy on resources management was part of the priority for jobs and growth and economic competitiveness. The circular economy will be no less important for the new political priority of climate neutrality; it will become one of the indispensable elements for meeting the EU’s ambitions. EU climate policy and the circular economy are by and large complementary and mutually reinforcing. The circular economy is more than just another ‘product standards’ policy.In order for this to happen, •there is a need for a framework that is able to systematically address trade-offs, such as between the circular and the bioeconomy, but also between material efficiency and energy use, as well as •a mechanism to steer and monitor progress, touching upon the question of whether and if so, how to increase ambition and develop tools to monitor progress, for example via targets, and •the new Commission will need to develop and then scale up successful products and processes to create opportunities for new value chains while addressing risks, such as dependency on raw materials. Circular economy products for the foreseeable future will require both technology push and market pull policies. Both the circular economy and low-carbon economy will require new and often yet unknown business models. This will also require new methods of regulation. The principal challenge will be to create ‘lead markets’ for the circular economy in combination with low-carbon products. Many ideas for this exist. They include, for example, ‘carbon contracts for difference’, carbon budgets for projects, consumption charges, taxes and tax exemptions, sustainable finance, product standards and public procurement. Ideas now need to be tested to see whether they could work in practice. Finally, the EU circular economy will need to be underpinned by a robust and transparent carbon accounting system. If effective, such as system can at the same time act as a catalyst -carbon products and processes.

The ‘Two Degrees of Transformation’ report was developed in collaboration with the Alliance of CEO Climate Leaders – a leadership community supported by the World Economic Forum’s Shaping the Future of Environment and Natural Resource Security System Initiative. The run-up to 2020 is a crucial period for delivering progress in line with science if the world is to avoid the worst effects of climate change. Climate change will shape the way in which we do business for decades. Business has a vital role to play in curbing its effects by limiting carbon emissions, but success isn’t just about action from individual companies. Business, sectors, states and regions need to consolidate efforts to create change on a level large enough to halt the crisis. The report reveals what is already happening, bringing together examples from CEOs, companies and sectors from around the world, of smart working, new thinking and innovation. It highlights examples that others can follow, and that will make transformation happen faster than ever before.