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EU commits to green trade plan as Fed warns of climate change impact

The European Union will make fighting the climate emergency central to its trade policy, push for major reform at the WTO and continue to be assertive in its dealings with the US and China, according to a new strategy revealed on Thursday.

The new thinking on EU trade policy came with hopes in Brussels for deeper cooperation with the Biden Administration in the US after four years of fractious ties with the protectionist Donald Trump.

The EU, a massive market of 450 million people, has struggled to meet its trade policy objectives in the face of US protectionism and other obstacles.

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And at the same time, a key Federal Reserve policymaker said on Thursday that uncertainty about the impact climate change may have on the financial system should not prevent financial firms and their supervisors from moving now to prepare for the shocks to come.

Lael Brainard told an Institute of International Finance forum that financial firms faced risks not just from weather-related disasters, but also potentially fast changes in asset prices, if and when government policies change.

A top official of the European Commission, which handles trade policy for the EU’s 27 member states, announced the new strategy, which is intended to help set goals over the next 10 years.

“The challenges we face require a new strategy for EU trade policy,” EU Executive Vice President Valdis Dombrovskis, who leads the bloc’s trade policy, said.

GLOBAL EFFORT

“Trade policy must fully support the green and digital transformations of our economy and lead global efforts to reform the WTO.”

In its new vision, the Commission proposed that future trade deals embrace the 2015 Paris climate change agreement, whose absence from previous accords has been seen as a major shortcoming.

One example is the EU’s long-negotiated trade deal with the South American Mercosur countries, which is in jeopardy because of concerns over mass deforestation in Brazil. 

Brussels will also seek to become more assertive in projecting its independence from the US and Chinese economic behemoths, with an embrace of multilateralism to include India and African nations.

MAJOR OVERHAUL

This would require a major overhaul of the 164-member World Trade Organisation that has been crippled by a deep rift with the US, which believes its rules are inadequate on reining in China.

“The global rulebook is outdated. It no longer guarantees a level playing field,” Dombrovskis said.

The new appointment of Nigerian-American Ngozi Okonjo-Iweala as the WTO’s new head presents “an opportunity for a fresh start,” the commission said.

She will take over leadership on March 1 of an institution that has become weighed down and increasingly de-fanged, notably by Washington’s refusal to replace key posts.

The EU also said it would set up mechanisms to ensure that companies do not use forced labour, an especially sensitive topic after Europe signed a controversial investment deal with China in December.

AVIATION FUEL

In the States, airlines and renewables companies are lobbying the Biden administration to back a big increase in subsidies for lower-carbon aviation fuel, arguing new incentives are needed to help fight climate change and will also make their recovery from the pandemic much greener.

Air travel contributes around 2% of global greenhouse gas emissions, the Air Transport Action Group said. It is projected to grow rapidly in coming decades if airlines do not quickly switch to “sustainable aviation fuel.”

This is made from biologically-sourced wastes like old cooking oil, animal fat and plant oils and is a much more expensive product than traditional jet fuel.

  • Reporting by AFP & Reuters

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Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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