Having just left the COP26 UN Climate Change Conference behind, it is time to look whether countries are going to walk the talk on climate change. Following the guidance and recent ultimatum of the Intergovernmental Panel on Climate Change (IPCC), it has been restated, with renewed vigour, the necessity to ‘keep 1.5 alive.’ The goal encompasses a series of actions: from ending coal use to the reduction of methane emissions, from net-zero carbon to circular economy policies.
For the interest of this article, however, it shall be noticed that the participating countries and thus the ones pledging to take action against climate change are mostly OECD countries. Together, those developed economies make up for almost 70% of global GDP and 55% of global population – such numbers, however, do not necessarily translate into the same percentage when it comes down to carbon emission and pollution. It is evident how developing countries have been under-represented in the Conference and, on top of that, how such economies are still greatly unable to meet the necessary requirements to go back to the 1.5C target. The situation appears tragic when listening to the statement of the Indian Prime Minister Modi on India achieving net-zero carbon by no early than 2070, but it shall not be thought that it is much different when looking at other parts of the world.
In one of their studies, the International Institute for Sustainable Development (IISD) analyses what these aforementioned policies could represent for low-income economies, being resource materials the largest share of exports by far for developing countries (83% of the total in sub-Saharan Africa, for instance). First, the IISD study predicts a decline in oil demand by 2050 and a consequent increase in international oil supply competition and thus in prices, due to market tightening. Under such circumstances, developing countries which are oil suppliers risk being outcompeted by lower-cost competitors, especially from the Middle-East. Same story goes for the coal market and the natural gas market with Asian competitors. As markets are tightening on all three fossil fuel sectors, serious threats are posed to the export sector of low-income economies, especially those that rely more heavily on such kind of revenue, such as South Sudan, Nigeria, and Congo (IISD 2021).
On the other hand, however, the green transition requires an increased supply of minerals and metals, necessary for resource-intensive renewable energy technologies and for electricity storage devices such as batteries. The potential growth in these markets presents a significant opportunity for those low-income countries naturally endowed with such resources, whose export is the second largest share, right after fossil fuels. Regardless of this, IISD experts correctly highlight some ‘supply-side challenges’ mostly related to investments that developing countries could face when trying to exploit the aforesaid potential. These challenges mostly regard the capital-intensive nature of investments in resource extraction, which rely on assumptions about the longevity of their use and the dubious capacity of low-income countries to effectively capture and exploit the growth in demand.
Other fields which pose a relevant growth opportunity for developing economies are the agricultural sector, which is less likely to be impacted by net-zero policies imposed by developed countries thanks to the already advanced state of South-South trade of its products, as well as the so called waste market. As circular economy policies start to be enhanced, developing economies could open up markets for labour-intensive repairs with export-reimport schemes. If done right, says Van Der Ven (2020), this could eventually result in a circular transformation of waste trade itself, with developing countries becoming the main secondary raw materials suppliers.
Following the IISD analysis, a few remarks appear necessary. The impact that net-zero and climate policies are likely to have on international trade and low-income countries’ export markets will ultimately depend, first of all, on the effectiveness of such policies themselves, as at the moment the large majority of countries are far from being on schedule with their climate commitments. Secondly, they will also depend on how well diversified developing countries’ exports are. With regard to this last point, it is worth noticing how export destinations also matter in identifying possible opportunities: intra-African trade, for example, already appears more differentiated and rapidly growing than African global trade and thus represents a good starting point for further development. Only by exploiting these opportunities, together with capacity-building and technical assistance, it can be reached a good balance between greener policies for all and a sustainable growth for the ones that until now have been left behind. Such actions are all the more necessary as the planet’s time is running by.
Financial Times (2021). “Special Report Managing Climate Change”. Available at: https://www.ft.com/reports/managing-climate-change
International Institute for Sustainable Development (2021). “Impacts of Climate Change Policies on Developing Country Export Markets”. Available at: https://www.iisd.org/system/files/2021-07/climate-change-developing-country-export-markets.pdf
Moerenhout, T. (2021). “Net-Zero Should Not Be a Net Loss for Low-Income Economies”. Available at : https://www.iisd.org/articles/net-zero-international-trade
Van Der Ven, C. (2020). “The Circular Economy, Trade, and Development: Addressing Spillovers and Leveraging Opportunities”. Available at : https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3759786
Student of the Master’s Degree in Economics
Nova School of Business and Economics