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What is the ‘green squeeze’ and how can it be mitigated?

• ODI

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Time is running out to keep the climate goals set out in the Paris Agreement within reach. Wealthy countries have introduced new industrial and green trade policy measures, but there are concerns that some of these are having adverse effects – hitting countries that have contributed the least to the climate crisis the hardest.

This episode examines the concept of the ‘green squeeze’ – the notion that climate-related trade policies are negatively impacting low-income countries, unfairly putting the burden of adjustment on them. We ask what the ‘green squeeze’ means, both at a broader policy level and on the ground for producers having to adapt to these new trade measures.

What can be done to help exporting countries navigate such measures? Would the Villars Framework enable a more equitable way forward?

At a time when geopolitical tensions are running high and countries are fighting for leadership on green technology, guests discuss what action is needed to drive fair and sustainable progress on green trade.

Guests

  • Sara Pantuliano, Chief Executive, ODI
  • Faizel Ismail, Director of the Nelson Mandela School of Public Governance, University of Cape Town
  • Jan Yves Remy, Director of the Shridath Ramphal Centre for International Trade Law, Policy and Services (the SRC), University of the West Indies
  • Jodie Keane, Senior Research Fellow, ODI

Related resources

We all know that we have very limited time to keep the goal of the Paris Agreement within reach.  And we know that these climate goals will not be achieved without drastic action.  So we're seeing wealthy nations taking bold steps, including developing new industrial and trade policy measures. They are meant to support the achievement of their climate change mitigation target.

But some of these measures May end up having perverse effects just to give some examples in recent weeks, the US administration dramatically raised tariffs against China across several products, including electric vehicles. The, you as initiated a number of measures to support the green deal, and that includes plans 2026, which will impose.

New charges on selected imports based on the CO2 emissions embedded in their production. This move will influence mitigation policy elsewhere, including in countries that have contributed the least to the climate emergency.  So this week we are going to explore the concept of a green squeeze. This is the term that has been used to refer to the potentially negative effects of climate related trade policy on low-income countries. 

These issues are technical and complex. There is no doubt about it. But in this episode, we want to consider both the big trade policy developments, but also what this means on the ground for producers, producers, the need to adapt to both the physical effects of climate change. And this new requirements in export markets. 

Joining me today, I'm delighted to welcome Professor Faizel Ismail. Faizel is the Director of the Nelson Mandela School of Public Governance at the University of Cape Town. Dr. Jan Yves Remy. Jan Yves is the Director of the Sri Datta Ramphal Centre for International Trade Law Policy and Services at the University of the West Indies. And our own Dr. Jodie Keane, Senior Research Fellow in the International Economic Development Group at ODI.  

Okay, let's get started.  You've all heard the expression, the green squeeze. What does it mean to you, Faizel? 

Well, it suggests that there is an enormous amount of pressure  being put on developing countries,  constraints, if you like, or additional burdens  on developing countries who are already faced with huge developmental challenges,  uh, now impacted  by the impact of climate change on their economies, but also by a number of measures being taken by the north  to address climate change. 

So it's an additional burden on developing countries that, uh, we now see proliferating across the, uh, the world.  Hence the squeeze in the name of green. Uh, Janie, what do you think?  Thanks for the question. You know, I'm always going to take it from a different angle. So in my part of the world, I'm from the Caribbean. 

Squeeze definitely has the connotation of being crowded out.  But when you say that's your main squeeze, it’s also a positive connotation. It means usually somebody that you like. So I'm going to put that riff on it, which is, yes, there's an enormous amount of pressure being exerted by this transition on developing countries.

But how about if we thought about it as an opportunity for us to fall in love with the green transition? How about if we thought about the competitive opportunities for developing countries, especially the smallest ones coming out of this transition? I just read. An amazing book by the Associate Professor, Amir Lebdioui

His book is called “Survival of the greenest.” And he puts into that book, some amazing ways that in spite of the many pressures that are being brought to bear of compliance and having to transition, there are also opportunities for the smallest and most vulnerable. I choose in spite of all of the doom and gloom, and it's warranted to think about where can we squeeze the opportunities coming out of the green economy because most of the resources in the world are located in these developing countries and even the smallest like the Caribbean have large oceans.

Surrounding them that provide great opportunities for us to leapfrog and develop our economy. I like that positive speed. That's great. Jodie, where do you sit between, you know, the more positive and actually reflecting on what many, um, low- and middle-income countries are protesting really? Yeah, absolutely.

I think you've got these two dimensions to it. You know, either we get the right frameworks in place and so that this transition is a just transition and it's really transformational, or there are very, very big risks that are kind of hostile climate. In all of the different dimensions will ensue. So we are really at quite a pivotal moment in, in this respect.

I just want to put another kind of dimension on the green squeeze within the world trading system. We do have this principle of special and differential treatment. The fact that, um, poorer, smaller developing countries, they need more time to adjust. And I think that. Really is what the demand is. I think the principle everyone agrees with the urgency of dress addressing climate change, but I think it's just the methods that there's some there are tensions around this, and countries is just asking more time and more support.

I mean, everyone gets what we need to do, but it's just the methods and how we get that. I think that really is at the crux of the issue at the moment.  Good points.  Faizel, you are a former trade negotiator, obviously now an educator. You are a prominent thought leader in South Africa and elsewhere in the continent.

How do you think countries who are at the receiving end of these new green trade measures engage strategically? I think, yes, I think Yaniv's is absolutely right. There are big opportunities here, but I think before you get there, you really have to analyse those constraints that, um, are serious impediments.

So the constraints that are imposed on developing countries by measures put in place in Europe and the United States are in fact going to crowd out the possibility of opportunities to transform unless they're not addressed. So the first one, I think the biggest one is the constraint on developing countries to adaptation that will be required.

Not just the mitigation. Yes, we all will have to move towards a low carbon economy, but I We will have to in the developing world, African countries, but also small island economies like the Caribbean's will have to finance the adjustments that are coming from massive impacts. You've seen it on television screens and some floods, droughts and locusts, extreme temperatures that have causing more and more countries to go into debt.  So many African countries, including Caribbean countries are in severe debt, making it really almost impossible to address the current negative impacts of, uh, of climate change. Never mind what you need to do to become more resilient.

 

So you need to build, you know, better drainage systems, better roads, better rail, but also different agricultural, uh, production methods and techniques.  Bring in new technologies to address climate change now, if the developed countries do not add to those burdens by imposing new restrictions into European markets, these all, of course, will need to be addressed, but developing countries will need assistance.

They will need new technologies. They'll need finance to address them. So we do need to a level playing field here. You do have an inequity where the developed countries have been primarily responsible for creating the conditions that we have today of climate changing and the world getting hotter and hotter because of carbon emissions in the industrialization and the development of the north.

Whereas in our countries, in Africa and in the Caribbean, uh, we have yet to develop.  And we have contributed maybe three or 4 percent to the carbon that has been created and has that is creating such disruption around the world. So we have to have a more balanced discussion, a more even playing field about how we all can contribute towards the common goal to save the planet.

But at the same time, we're going to have to all also have the capacity and the space.  to develop our economies so our people are in a position to, uh, also, uh, have access to energy, also industrialised so they can add value to their production, also have the financial resources which everyone else has access to.

And the irony is that the poorest countries pay a multiple of the cost of finance that developed countries pay. So poorer countries pay more. Why? Because of the inequity of the global financial system. Yes, there is an opportunity for Africa and the Caribbean countries to also take advantage of the new technologies that are now available to create the energy systems that are needed.

But those technologies have to come at a reasonable cost, and that's what I think. we understand by the green squeeze, the challenge that is being imposed by developing countries and unfairly and in an asymmetrical way. So yes, there are opportunities, but that those opportunities will only become possible if there's a more even playing field and aerial engagement and discussion between the North and the South on this. 

Thanks Faizel. I think you make a critical point about the need for this Love them. playing fields and inequities that stand in the way both in the global financial system, but also in the global trade system. And Jenny, that's something you've done a lot to work on. You know, you've done some really seminal work, um, as part of this remaking global trade project and the development of the VLAR framework and actually your project recently been launching the framework in capitals, including at ODI. Can you tell us more about the framework? Why is it so important now, especially, you know, given the rise of these new green trade measures?  Before I do that, though, if I can just step in to respond to what Faizel said, which is completely unobjectionable.

I absolutely agree with his diagnosis and solutions to the problem. I'd say one thing, though, where I would disagree. I don't think we need. A level playing field. I think we need an uneven playing field because we are not the same. And I think at the, I know what he means, of course, is that we should all have equity in our opportunities.

That's of course what he means. But I think the trade system needs to come to grips with the reality of the world, which is even the MFN concept that we're all the same. This is the most favoured nation treatment, which is premised on equal access and equal opportunities. It has been, I think, in all sorts of realms of international law and governance. 

We've moved to an understanding that the rules need to be much more nuanced. You cannot treat South Africa how you treat a Nauru, how you treat an Ireland. These countries come from very different historical and geographical and resource bases. We need to see SIDS as different from landlocked as they are.

Different from resource.  Ridden countries. And so at the end of the day, I think that kind of much more mature approach to trade rules will get us a lot further than assuming that we start from the same baseline now, pivoting to the question you've asked about the framework. So, about a year and a half ago, maybe 2 years.

Three of us academics, to one from, um, Tufts University, 1 from Yale University and myself from the University of the West Indies. We decided to what I call begin a movement to get the trade rules to reckon with the sustainable development agenda. We felt that we had been. Operating alongside each other for way too long and that the trade community, including the negotiators, but also the capitals at home, um, that are represented in Geneva, the World Trade Organization and even the broader ecosystem of international organization. 

We need to come together to realize that this sustainable development agenda was here to stay that sometimes we thought trade could exist.  Independent of these other imperatives, but it was time to see trade as part of the solution. And so. We came up with what I call a process for understanding with the humility befitting of the time, understanding what the sustainable agenda is from the economic environment and sometimes forgotten social dimension.

And so over the last couple of months, what we've been doing Is bringing together these communities of people, whether it's in the realm of finance, we discussed the blue economy standards, agriculture, um, women, indigenous communities. We had a series of workshops where we presented them with some ideas about where trade can be much more fit for purpose to align with the sustainable development goals.

And we got amazing feedback. The first thing we got Was a sense of finally the trade communities here and the trade community wants to be part of the solution. And that's actually reflected in the fact that a cop. We now have a trade day. So, finally, trade is integrating very substantially into some of these other negotiations and just to give you a sense of the areas in which we, we came up with some recommendations for.

For retrofitting of the trade system in the VLA framework, which represents the accumulation of our, I would call our round robinning of this of the issues and we presented it in this VLA framework. We looked at areas like how trade. Can align with climate change and climate change obligations. How do we deal with these very harmful, pernicious subsidies that yes, Faizel, a lot of developed countries can provide, a lot of developing countries cannot provide, and in that war to provide these subsidies, this new Green industrialization, how are we leaving out smaller, more vulnerable developing countries that cannot enter that race?

And ultimately, we've seen these fossil fuel subsidies, these agricultural subsidies that go against our demands for a more climate positive future. And at the same time, we need to redirect positive subsidies, less harmful positive subsidies to areas where you need to incentivise. Growth like renewable energy.

We also looked at sustainability when it comes to standard settings. This could be problematic if we don't have a multilateral approach, not just an implementation, but the very setting of the standards that will impact market access opportunities.  And finally, I'd say, after we came up with this framework, we thought. 

Well, the WTO is certainly an important forum for this discussion, but we need to see what's happening in the capitals in the regional blocks where a lot of this green transition trade rules are actually happening where a lot of the activity is. And so, 1 of the places we came to hosted by ODI and others.

Was the London to actually, um, launch the villa framework and the remaking trade. I would say 2. 0, which is about how do we move it from talking in the very broad multilateral context? How do we move the agenda forward in domestic and regional context? So thanks for the opportunity, Anna. Ah, it's great.

Remaking Trade 2. 0. We love to hear, you know, bringing together development, climate, and trade specialists and thinkers. And that's very much the intersection at which you work, Jodie. Um, this is your world. And as, uh, Janine was saying, you recently brought together experts and high-level country officials to try and identify ways, uh, to try and navigate this green trade landscape.

Can you share what you heard? I mean, particularly, have you heard any things that we should all learn about how we can change these dynamics and move towards more facilitative trade measures, particularly for exporting countries?  Thanks very much indeed. Yes. So the kind of views that I'm hearing. So when we listen to the Ethiopian ambassador, who was talking about the impact of the EU deforestation regulation, I mean, the message that was conveyed was that, you know, Ethiopia completely agrees with the objectives here.

It also has its own existing legal frameworks in place. Um, so I think it raises the question, you know, the EU You know, wants to go beyond those, you know, wants more, you know, it wants demonstrable compliance and Ethiopia is saying, okay, well, if you need that, then we need more support and we need more time to do this.

And we also need unfulfilled commitments on, say, the provision of aid for trade. Um, the focus on digital trade, we need these to be fulfilled as well. There are obvious links between, you know, kind of digitalization and traceability and compliance and getting these systems set up, but they require investment and business completely gets the objective here, but it needs to feed in so that the right systems are put in place so that they are effective and efficient and so on.

Because we really do need to start kind of diffusing some of the trade tensions that exist. And I think it's really some really kind of concerning issues in the case of Ethiopia, where you've got big donors stepping in to help a humanitarian crisis that is in part caused by the physical effects of climate change.

But then on the other hand, potentially imposing measures that may restrict, um, exports with all of the knock-on effects on households. So we really need to start having a more, um, uh, joined up policy here, not forgetting the global goals. We've already got sustainable development goals. We've already got commitments towards sustainable production and so on.

We've also got the Doha program of action and within this framework, the met, the technology transfer, that word is mentioned several times throughout. So I would absolutely agree with the points that Faizel made that we've got a lot of unfulfilled commitments there and what we can see within the trade world is that you've got conversations going on amongst negotiators that.

They undertake technology needs assessments, so they are actually working, you know, to identify the technology needs and so on, but we don't yet know how that then translates into the kind of negotiating mandate of, of, of trade negotiators. You know, we're almost kind of 10 years since the Paris agreement, but we still don't have that structured.

Discussion and interaction between climate and trade negotiators. If you recall the outcome of the trade ministers coalition that works on climate change, action point number one for them was bringing together these two different communities because we have, we know what the needs are, but we need to start making sure that those needs are met and that we're facilitating and we're supporting this adaptation imperative.

We're building more resilient value chains and so on. Because I think the risk at the moment is that the kind of combined effects of all of the green trade measures, if we consider them together, you could see that they're kind of maybe shifting supply to countries that have the prerequisite compliance systems in place and so on.

So you've got these exclusionary effects being unleashed and that that really is quite problematic. Problematic, and it kind of goes against all of the work that we've been trying to do on supply chain resilience that requires more diversified supply and so on to kind of support adaptation to climate change.

You know, we need to ensure that international trade can still provide the kind of on press like that. We all know it's like the main driver of reducing poverty. So we don't have a structured dialogue yet, and yet we all know that the next few years are critical.  In the meantime, the political context is pretty complex, is marred by geopolitical tensions, and we have global powers fighting for leadership on green technology.

So given all that, what do you think would be the most effective way to drive real progress on green trade in a way that is equitable, um, in a way that these outstanding commitments that you've all stressed can finally be fulfilled? I think that's a good point to start the geoeconomics, uh, that's the tension between China and the U.S. and the geopolitics.  Is actually stymie and creating a dysfunctional institution. So the WTO, quite frankly, is quite dysfunctional. Now, the appellate body is not functioning because the U. S. insists on vetoing the appointment of appellate body members, but also people are not really negotiating because of these tensions. 

We need to engage on issues related to trade, finance, technology, and how we actually transition from a high carbon and intensive, uh, production system to a low carbon energy system.  But we do need to take into account the situation of poorer countries, including. Countries like the Caribbean and Africa, because they also have solutions for the challenges that we have.

We are well endowed in Africa with critical minerals, for example, which are essential for the new technologies that are needed. To, uh, transition us from a high carbon, uh, economy. We also have the biodiversity, the natural assets, the resources that the world needs to continue to serve the, uh, the environment and to protect the biodiversity of the, the environment.

Uh, we also have the renewable energy. We have the sun. We have hydro power. We have wind. We can create hydrogen to support low carbon energy for the world. But in order to access to make all these opportunities possible, we need the technology. At a cost that we can afford, we need the finance at a cost that is fair and that is reasonable.

And we need the trading system to and the rules to be fair and equitable and I think I agree with the young is it's not just about special and differential treatment and, you know, common and differentiated responsibilities. That is essential. But if the underlying structure of the system is inequitable and continues to be skewed in favour of the rich countries, and we continue to leave countries and keep them at the level of low value added production, once again, it means that you're going to end up with a system Which will be unsustainable because poor people will have no other choice but to use the forest  for the wood that is required to, to cook, you know, because 600 million people in Africa don't have.

access to clean energy. And therefore, we have to address the question of transformation of poorer economies so that they can seek a fairer share of the wealth that is produced in these countries and allow them to all participate in a new economy. Which is more sustainable, uh, for everyone. And this is the way in which we can go forward.

We need a dialogue and I agree with a new forum that brings all these discussions together, trade, finance, technology, environment, climate change.  Jenny, I see you nodding heavily. I agree completely. I mean, I so love the emphasis. If we just close our eyes and think about what are we trying to achieve?

Whose life, whose livelihoods are we trying to elevate at the end of the day? There are poor people in both rich countries and in poor countries.  Disproportionate amounts are found in the developing world, and if we were just to focus on what will bring these millions of people out of poverty, the whole focus would be so much more enlightened, and we'd be so much more pre purposed to think about the actual solutions, because there's more than enough.

In the world to feed everyone, so I'm going to take come off my soapbox and answer the actual question you posed, but always with that load star in mind. How do we move forward? This sustainable development agenda? We know all of the, the problems we have in bringing solutions forward at the WTO because of the political stalemates. 

And we didn't want to focus on that in the VLAR framework. We do propose in Chapter 12, and it's often overlooked, some very concrete solutions, one of which is continue with the plurilateral initiatives. At the very least, it allows countries to learn about each other's approaches to sustainable development.

How are they doing it either in their domestic context or in their regional trade agreements? So continue that discussion, irrespective of how it gets absorbed into the wider. Um, consensus based, um, decision making. The second one is to look to preferential trade agreements. Some of them bring in very concrete obligations and commitments, sometimes from the Paris, um, agreement into Trade agreements, making them more enforceable.

Likewise, thinking about labour and women. How do we bring these more centrally and environment these provisions into trade agreements? So they're more enforceable and finally, I would say we argue for a much more inclusive approach outside just the W. T. O. So we need to think about these silos, not just at the international level.

How do we actually break down the silos of communication within countries so that we, and that's why we are doing the capital-based outreach, and we want to come to South Africa. Faso, we were in London. We want to come there because climate people need to talk to, shipping. People need to talk up to, to people in the environment need to talk to people in trade.

That domestic greater coalition and cohesiveness. Will translate into the demands we are all looking for at the international level where climate must talk, as Jodi said, to trade must talk to shipping. So we advance this agenda cohesively and coherently. So these are just some of the wonderful, if I may say so myself, suggestions to how we move that sustainable development agenda.

And look to all of the forces for good around the world, because they're most of us want to see the good happen and we don't want to be stymied by the political tensions that are just not allowing the sustainable development agenda to move forward.  That's really interesting. I mean, a number of, uh, the things you're recommending really speak to the governance of this mechanism and this, you know, coalition building across sectors and silos, which is something we're also really advocating strongly to the IAEA to, you know, transform global cooperation.

Um, so on that, Jodi, any final reflections from you?  Thanks very much indeed. So I think what the two interventions have really highlighted is that we've got, we've got an opportunity to kind of build new scaffolding rather than have this kind of kicking away the ladder, this kind of perception that that is out there at the moment when we think about it.

Punitive green trade measures. We don't have many measures that are actually more facilitative. So we really, really do need to change these dynamics around. Um, you know, it is unfortunate that the big players, you know, at the WTO, you've got these tensions, but also that the discourse is very much focused on this more mitigation agenda, but we're missing out this big player.

big agenda on adaptation as well that Faisal's mentioned, the issues around technology transfer and you know, linking to this, the imperative of sustainable structural economic transformation. This is what you're talking about, Jan, that there are really big opportunities here if we can get the right frameworks in place.

And it requires new skill sets, it requires new mindsets. As well, in order to overcome these, these silos that we've been talking about, I did just want to zoom in on the issues around critical minerals, because I just don't think they get enough attention, actually. I mean, I don't really see these issues discussed at the WTO, because what we've got is this movement more.

like kind of use of soft law approaches, and it's a bit uncertain, you know, how would you, would you want to take an impact assessment? Like what's their legal status even? I mean, I think there's a, there's big uncertainties around there, and this isn't very helpful, um, in, in, in the current context, and it's potentially, you know, Undermining the African continental free trade area, which includes objectives there to develop and strengthen intra-regional value chains to develop the battery value chain and so on.

So I think it is important that the, the kind of trade and climate community raises the attention and advocates for changes. We need to build new. New scaffolding. We don't want to kick away the ladder, but I just want to come back to the multilateral trading system, because I think despite all of the problems and what we saw at the last ministerial conference was that smaller, poorer countries like Timor Leste, the Comoros is the big outcome at the last ministerial conference that you have these countries becoming WTO members because those countries see that it's this multilaterally agreed framework of rules that can best protect their interests.

They require this stability and, and, and consistency. And so I think we can't forget how important the framework is. There are imperfections, there are gaps. That's what the Villars framework has, has tried to, um, highlight. But it's also the fact that, you know, within the system, we have the principle of special and differential treatment.

But we also have this recognition of aid for trade and support for trade related adjustments. So just to come back to some of the earlier points, there are costs of adjustment. We know this. And so we can't shy away from these issues. We do need to think about kind of upgrading, upskilling, how to overcome these transition costs that are definitely arising.

We just need to have a more. open conversation about how we, we kind of shift these dynamics and what kind of new skill sets, mindsets and so on. And we really need in place to ensure that we do achieve the transformation that we, we know is so urgently needed. Like we've only got a couple of years left in order to really get the right frameworks in place. 

While that's all we have time for today, thank you to my brilliant guests for joining me on this episode of Think Change. I hope we've helped shed some light on the different aspects of the green squeeze and really the need to mitigate the burden of adjustments to new green trade measures, including through finance.

We heard very clearly about many unfulfilled commitments, including on technology transfer within both the trade and climate change regimes.  And we've heard about the continued lack of systematic engagement between the two. Well, rest assured, we'll continue to play our part in breaking down these silos.

If you want more information, do check out our Green Squeeze explainer and other links to recent events, they're all in the show notes, and watch out for more publications coming. As ever, if you enjoyed the episode, please do like, subscribe, and rate it, and I hope you will join us again next time.

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Sara Pantuliano

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