Close trade ties with India will give us leverage to claim climate wins
International trade and climate change are two of the most vexing global policy conundrums. The UN’s Intergovernmental Panel on Climate Change has warned that we are at a final catalyst: human activity is damaging every region across the world, at an unprecedented rate. World leaders must accelerate comprehensive action working to minimise damage to the environment and help vulnerable communities build resilience. Against this backdrop, global trade has a significant role to play in developing green jobs and sustainable economies.
Over the past few months, the UK and India have reinforced their dialogue on trade, investment and climate issues. Cop26 president Alok Sharma visited India in August to raise the country’s ambitions in emission reduction targets, offering a delivery plan on finance for developing countries. In early September Rishi Sunak and his Indian counterpart Nirmala Sitharaman announced new steps to tackle climate change and boost investment in green projects during the virtual 11th India-UK Economic and Financial Dialogue. Finally, India’s Prime Minister Narendra Modi has announced he will be attending Cop26 after initially signalling he wouldn’t.
Climate change is front and center of UK-India relations for a reason. India is one of the highest per capita emitter of greenhouse gas in the world and the third-largest absolute emitter, after China and the United States. The country has committed to meet the Paris Agreement pledge and reduce its carbon footprint by 33-35 per cent from its 2005 levels by 2030. But it’s unclear whether India will commit to a net-zero greenhouse gas emissions goal by 2050.
Whilst the evolving architecture of trade deals is becoming more comprehensive, not many trade negotiations include specific or immediate climate change objectives. The Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are exceptions. Most clauses in both deals seek to foster cooperation, consultation, and best endeavour. Transformative policies such as border carbon adjustments, however, are lacking.
With the UK aiming to take on a leading role in tackling climate change globally, rapidly evolving UK-India relations could be an opportunity to act and meet climate targets under the proposed trade agenda. This could be done in practice by agreeing on harmonised standards on environmental goods and services, and by eliminating poorly designed subsidies on fossil fuels and agriculture. Other instruments could include an option to introduce border carbon adjustments.
An agreement on climate change mitigation between the UK and India will benefit the British financial sector. As the largest financial services exporter in the world, the UK is well positioned to be the international green finance hub. British financial services can invest in innovation to tackle climate change in India by strengthening the financial market collaboration efforts already underway. The cluster of international firms in the UK with global reach and a large pool of capital makes the UK the ideal place to link demand for green investments with global sources of funding.
Recent developments coupled with the UK’s emphasis on bringing climate change action into UK-India relations present an opportunity for a new collaborative paradigm. While agreeing on measures to introduce carbon taxes into FTAs will be technically and politically challenging, partnering on issues such as climate change may take the UK and India a step closer to a speedy trade deal.