DDG Paugam: Aligning carbon measurement standards key to future of global trade

Ladies and Gentlemen,

It is an honour to be here with you today.

Thank you to Edwin for the invitation and for our ongoing partnership.

The topic that you have chosen today, that of aligning CO2 measurement, represent one of the most important keys to the future of globalisation and the world trading system. You may think that I am grossly exaggerating my point but I am not. Let me tell you why.

Ladies and Gentleman, about 30% of steel products are traded internationally so you would know it first hand: globalisation and the World Trading System, as proxied by World Trade dynamics, have proved impressively resilient over recent years.

We went through two major global macro-economic crises: the 2008 financial crisis and the 2020 pandemic. With very different root causes, both had a major recessive impact on world trade and stirred some protectionist tensions. Yet trade bounced back each time and globalisation has continued its expansion. While there is a debate about the dynamic of trade in goods, which has seemed to slow down during the last decade, there is no such debate about trade in services, including of course services to industry, which has been continuously expanding, growing about 15-fold between 1990 and 2019. For the foreseeable future we anticipate a steady growth of world trade, “Steady not Stellar”, as the Chief Economist of the Allianz Group nicely sums it up, around 2.7% in 2024 and 3% in 2025.

Yet globalisation also faces some significant pitfalls, which have a potential to rock the world trading system: geopolitical tensions, strategic industrial autonomy, and climate and sustainability policies are the names of these challenges.

We see that geopolitical tensions, and the rise of national security concerns in international trade, represent a growing threat and a source of increased trade costs, especially for transport and logistics. Related to that, but also responding to more classical competitiveness concerns, we see that industrial policies and policies of strategic autonomy are generating other types of tensions: for instance, the discussions around supply chain resilience, overcapacity, and subsidies and trade defence that the steel sector is historically very familiar with. Please do not get me wrong here:  I am not being judgmental or discussing the political legitimacy of these trends, I am just stating facts which have an influence on trade flows. 

The third challenge to globalisation comes from sustainability and climate policies that countries are implementing in the framework of implementation of the Paris Agreement and other environmental agreements. In the fight against climate change, some countries mobilize carbon pricing strategies, others resort to subsidies or regulations, and several of them combine a mix of all these instruments.  

These policies are not only needed and welcome but must be intensified and accelerated. Yet, countries could do globally a better job in trying to coordinate them and minimize negative trade spill-overs to others. Some developing and LDC Members have raised concerns about the rise of unilateral environmental measures, which can exclude their exporters from value chains, and called for technology transfers to meet these increasing stringent climate measures.

The Members of the WTO have started to recognize these challenges and several of them are calling for renewed discussions about climate-related trade policies. The key concept that some of them put forward is “interoperability”. How to make different policies interoperable so as to minimize their adverse impact on trade flows and foster the investments in decarbonization of the value chains.

This is where the challenge on carbon emission measurement emerges as a central task.

Because to meet the objectives of the Paris Agreement, whatever the mix of instrument countries choose, they will need to measure their impact in terms of emissions reduction. And of course, this brings to the fore a very thorny issue of equivalence among the different regimes. At the WTO Secretariat we have been advocating for a Global Carbon Pricing approach. On these grounds we convened an interagency task force, along with UNCTAD, UNFCCC, OECDE, IMF and World Bank on this topic and we are coming this week with a first report which aims at reviewing the interactions between all these policies.

Also, because even if they choose the same policy instruments, say, for instance, a carbon tax, they will need to compare the tax bases used to establish equivalence and avoid double taxation. This will involve alignment of carbon measurement standards and emissions calculation methodologies.

Of course, the same is true for businesses themselves, which are confronted to multiple reporting and regulatory requirements. This is true especially in heavy industry sectors like steel, which are facing mounting pressures from governments, shareholders, and consumers. According to McKinsey, “global demand for low-CO2 steel is expected to grow tenfold over the next decade from approximately 15 million metric tons in 2021 to more than 200 million metric tons by 2030”. The LEADIT Green Steel Tracker is following more than 60 active green steel projects around the world.

Here is the heart of the challenge that we face: if we can align carbon measurements, we will be able to reasonably guarantee the integrity of the world trading system; if we can't we are entering dire straits. Not only for trade, but also for climate and sustainability.  Because a fragmentation of world trade would immediately lead to inefficiencies and losses of specialisation benefits and economies of scale which would in their turn weaken the struggle against climate change.

As our economies become greener, and market access increasingly depends on sustainability criteria, the measurement of environmental performance will become the gateway to globalisation.

So where do we start? One problem is that there is not really one single place where this question is being globally discussed. Another one is that businesses, not governments, are the one who finally can and must do the measurement and the investments needed for decarbonization.

This is the reason why we, WTO Secretariat, have embarked in a dialogue with you, in businesses, as well as international standards organisations, professional associations, customers and NGOs.

The WTO is uniquely positioned to help address these coordination and cooperation challenges. We are not a standards-setting body, but we are a forum where nations can come together to discuss how to make their policies fit for purpose and avoid trade frictions. By ensuring transparency, facilitating dialogue, and fostering cooperation on issues like carbon pricing, green subsidies, or emissions measurement standards, we can help create a global trading environment that supports decarbonization

The WTO Secretariat dialogue with the steel sector and Worldsteel on CO2 measurement is driven by the will to demonstrate in concrete terms that global trade can be an enabler of the green transition.

The work on “Steel Standards Principles,” which was launched at last year’s COP in Dubai, is the best example of collaboration in this direction. These principles aim to align the way emissions are measured in the steel sector. From our dialogue and the impressive work that World Steel has achieved over this year, I believe there is a path to deliver meaningful outcomes for COP29 in Baku.

If we can get this right, it will show that steel industry decarbonization and trade can work hand in hand for a greener and more prosperous future. By working together — governments, industries, associations, and international organizations — we can ensure that trade accelerates decarbonization.

This is absolutely pioneering work. This is absolutely central to the future of globalisation. Other sectors are watching. WTO Members are watching.  Do give them some surprises in Baku!

Thank you for your kind attention.