Decarbonizing Trade through Climate Regulations in the CAREC Region

Climate change stands as one of the most pressing threats of the 21st century, posing significant risks to human civilization and sustainable economic growth. In response, international efforts like the Paris Agreement have set ambitious climate mitigation targets, necessitating transformative shifts in policy and trade practices worldwide. As countries work toward these goals, international trade emerges as a powerful but complex tool in the fight against climate change, providing both opportunities for reducing emissions and challenges in adapting to stringent environmental policies (WTO, 2020).

However, trade’s environmental impact has not been uniformly positive. Rapid production and global trade growth have often resulted in unsustainable resource use, rising emissions, and widened inequalities, both domestically and internationally. These consequences underline the need for a coordinated approach that aligns economic development with environmental protection (UNCTAD, 2020). Despite this, reluctance among export-dependent economies to accept climate agreements persists, stemming from concerns over potential market disruptions, increased production costs from environmental compliance, and fears of losing competitiveness.

The Central Asia Regional Economic Cooperation (CAREC) region, in alignment with global frameworks like the Sustainable Development Goals, has committed to reducing greenhouse gas emissions by 10% to 20% by 2030 (CAREC, 2019). To meet these targets, CAREC countries must bridge the gap between climate policy and trade. While significant strides have been made, recent findings from the Asian Development Bank reveal that much of the region’s climate efforts have been concentrated on energy projects, with less focus on trade dynamics and industrial pollution reduction (ADB, 2023). Addressing this gap is essential to foster sustainable economic development, protect export viability, and ensure resilience to climate impacts.

In terms of low-carbon technology trade, the CAREC region has seen significant growth. Trade in low-carbon technology products increased from US$5.75 billion in 2000 to US$230.29 billion in 2021, in line with global growth in this sector. However, individual CAREC countries differ in their comparative advantage in low-carbon technology exports. For instance, China leads within CAREC with a comparative advantage of 1.318 in low-carbon technology products, followed by Georgia and Kyrgyzstan. In contrast, Afghanistan and Tajikistan lag behind, indicating varying levels of engagement in this sector across the region.

To support climate-friendly trade in the CAREC region, a mix of mandatory and voluntary policy mechanisms can create a strong foundation for sustainable economic growth. Mandatory policies, including environmental taxes, trade-related climate provisions, and green financing initiatives, set essential regulatory frameworks for promoting low-carbon practices. For instance, environmental taxes, such as carbon taxes, effectively reduce greenhouse gas emissions by internalizing pollution costs, incentivizing companies to adopt cleaner practices (OECD, 2022). Additionally, incorporating climate provisions in non-tariff measures, like environmental standards and technical regulations, ensures that traded goods meet environmentally sustainable criteria, aligning international trade with climate goals.

Green finance mechanisms, particularly green bonds, are crucial in directing capital toward eco-friendly initiatives, such as renewable energy projects and pollution control. By developing and promoting green finance options, governments can reduce the environmental footprint of economic activities and drive long-term investment in climate-friendly infrastructure. Technological innovation also plays a role, with policies that encourage the development of green patents and cleaner technologies essential for reducing emissions and enhancing production efficiency. Moreover, digitization offers a powerful tool for monitoring and improving environmental compliance, facilitating transparent environmental governance across sectors (World Bank, 2023).

Voluntary compliance standards complement these mandatory policies, encouraging businesses to meet and exceed regulatory standards for environmental management. Standards like ISO 14001 and frameworks such as Sustainable Corporate Responsibility offer systematic approaches for managing environmental responsibilities, enabling companies to improve resource efficiency, reduce waste, and lower greenhouse gas emissions. ISO 14001 certification, in particular, enhances a company’s reputation by meeting growing consumer and partner demand for eco-friendly products and practices, which is increasingly crucial in competitive international markets. Market-based sustainability initiatives, including certifications from the Forest Stewardship Council and the Marine Stewardship Council, further incentivize businesses to adopt responsible resource management practices, promoting corporate accountability and sustainable resource use.

Combining these mandatory and voluntary measures creates a holistic policy environment that aligns trade with climate objectives, thereby supporting CAREC’s transition to a low-carbon economy. By harmonizing regulatory requirements with market-driven compliance, these policy solutions enhance the region’s competitiveness while ensuring that trade flows contribute to sustainable, climate-resilient development.

References

Asian Development Bank. (2023). CAREC 2030: Supporting regional actions to address climate change–a scoping study.

CAREC. (2019, November). Energy strategy 2030 – common borders. common solutions. common energy future. https://www.carecprogram.org/uploads/CAREC-Energy-Strategy-2030.pdf

Organization for Economic Co-operation and Development. (2022). Environmental taxation: A review of OECD country experiences. Organization for Economic Co-operation and Development.

World Bank. (2023). The role of digital technologies in enhancing environmental governance. World Bank.

World Trade Organization (WTO). (2020). Trade and Climate Change. Overview of trade policies adopted to address climate change. Information Brief #1.