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Implication of COP 26 for WTO negotiations and what can steel learn from aviation

Policy Pulse – 16 November 2021 – George Anjaparidze

Photo by UNclimatechange on Flicker

Key messages:

  • Announcements at COP 26 side-lines could potentially be more impactful than outcomes from formal negotiations

  • Sectoral initiatives targeting steel and aluminum need better representation

  • The global sectoral approach developed for international aviation holds valuable lessons for the steel sector and other heavy industries

Announcements at COP 26 side-lines could potentially be more impactful than outcomes of formal negotiations

The UK successfully shepherded climate negotiations towards a meaningful outcome as host of this year’s main UN climate conference (COP 26). The outcome of formal negotiations resulted in incremental progress across almost the entire negotiating agenda. To achieve this progress at a time of significant shortfalls in promised climate finance is impressive. Perhaps most notably, several decisions were taken that were critically needed to unlock greater cross-border cooperation on climate change mitigation under the Paris Agreement, including cooperation through carbon markets. But this year, more so than any previous year, what happened on the side-lines of the COP was arguably just as consequential, if not more so, than the outcomes of formal negotiations.

The UK presidency used COP 26 to announce new coalitions across government and non-government stakeholders to advance sectoral initiatives. This was done largely through the World Leaders Summit by launching the “Breakthrough Agenda”, with its own process, timelines and checkpoints. The overarching aim of this agenda is to work together to make clean technologies and sustainable solutions the most affordable, accessible, and attractive option in each of the targeted sectors. In addition, stand-alone initiatives were also kicked-off such as the International Aviation Climate Ambition Coalition as well as targeted initiatives for addressing sustainable forest and land use. Sectors covered by announcements from forged coalitions include agriculture, aviation, forestry, hydrogen, power, road transport, and steel.

Other countries also used COP 26 as a platform to announce bilateral initiatives. Perhaps the most widely covered announcement by international press was the US-China Joint Glasgow Declaration on enhancing climate action in the 2020s. However, other bilateral initiatives such as the US-EU announcement to negotiate a carbon-based sectoral arrangement on steel and aluminum trade could potentially have the largest practical implications in the near term. Bilaterally led initiatives can morph into broader coalitions, as can be observed in the case of the Global Methane Pledge, where this US-EU led initiative now includes over one hundred countries.

Sectoral initiatives have potential to build momentum for identifying technically feasible options for scaling-up climate action. But if representation of stakeholders excludes major industry or government actors, there is a risk that such initiatives only have marginal impact. The upcoming 12th Ministerial of the World Trade Organization could be an opportunity to create processes that give space for sectoral initiatives launched through bilateral or plurilateral approaches to feed into the multilateral system in the future. For example, in the context of future work of the WTO on the nexus of climate change and trade.

Sectoral initiatives targeting steel and aluminum need better representation

Issues related to greenhouse gas emissions in the aluminum and steel sectors were not specifically on the formal negotiating agenda at COP 26. However, aluminum and steel are getting increasing attention due to EU plans to introduce a carbon border adjustment mechanism targeting these sectors. Therefore, it is not surprising that announcements and declarations made on the side-lines of COP 26 targeted emissions from these sectors.

The steel sector is included in the "Breakthrough Agenda" launched at the World Leaders Summit. The initiative aims to have near-zero emission steel become the preferred choice in global markets, with efficient use and near-zero emission steel production established and growing in every region by 2030. The countries that have signed-up to the coalition include major steel producers in developed countries such as Japan, US and members of the EU as well as key producers among developing countries such as India, South Korea, and Turkey. However, the states included in the coalition only accounted for 31% of global crude steel production in 2019. Major steel producers such as China, Russia, and Brazil are not part of the coalition.

Furthermore, the US-EU announcement to develop a carbon-based sectoral arrangement that would include the steel sector would be representative of only about 13% of global crude steel production.

Lessons for the steel sector from international aviation

The first global sectoral approach that includes an absolute cap on CO2 emissions was developed for international aviation. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), adopted by the UN International Civil Aviation Organization (ICAO) in October 2016, addresses the growth in total CO2 emissions from international aviation. The International Air Transport Association (IATA), which at the time represented about 84% of global air traffic, played a critical role in developing workable solutions for the scheme. (ICAO is an international governmental organization, and IATA is a business association.)

The approach and design elements of the multilateral agreement addressing growth in CO2 emissions from international aviation hold valuable lessons for developing other sectoral schemes. Key lessons are highlighted below:

Include representative perspectives from industry and government in scheme design

The options developed by IATA tapped into industry specific knowledge. While the discussions at ICAO were particularly useful in highlighting the diverse set of perspectives, especially from developing and emerging economies. The scheme design features were often developed in small groups (usually championed by industry leaders), but for approaches to be palatable internationally, buy-in was essential from representative governance structures, including a balance between industry and government.

The coalition announced at COP 26 to address emissions from the steel sector may need to enhance representation through either growing the coalition or finding ways to feed its proposals into multilateral bodies with appropriate representation such as the World Trade Organization.

Focus on largest producers

In 2018, about 90% of international air traffic was performed by airlines registered in 22 countries plus the European Free Trade Association area. The scheme was made mandatory only for operations to and from these countries, while other countries were exempted by a de minimis provision. Through this exemption it was possible to have more meaningful exchanges on scheme design. Subsequently, after scheme agreement, through various incentives all countries were encouraged to participate in the scheme.

In 2019, the top 20 steel producing countries made up about 90% of crude steel production. An approach that starts by focusing on the largest producers may also be appropriate for the steel sector.

Do not try to solve other grievances

During negotiations between airlines, there were several attempts to use the climate issue to correct for other grievances and imbalances. Such attempts were largely unproductive. Any perceived imbalances, for example due to subsidies or capacity manipulation, are best handled through separate interventions. Otherwise, there is a heightened risk of failure in addressing the core climate concerns and could lead to unnecessarily dragging out negotiations.

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Briefing prepared by:

George Anjaparidze

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