The Paris Agreement, which is a legally binding international treaty on climate change entered into force on 4 November 2016. It seeks to combat climate change, accelerate and intensify actions, and activities geared towards a sustainable low carbon future.
The key goal is to hold the increase in the global average temperature to well below 2°C above pre-industrial levels and additionally spur efforts to limit the temperature rise to 1.5°C above pre-industrial levels.
The deal will require transformation of certain social and economic activities. Notably, countries are required to submit their national climate action plans which are known as nationally determined contributions (NDCs).
This is expected to jolt governments to institute certain policy actions that are likely to affect industrial activities and influence behaviours of the citizenry.
Globalisation has increased interconnectedness of countries across the world. Trade and technology are central in increasing the connectivity and interdependence.
According to the World Trade Organisation (WTO) global trade volume today is roughly 45 times the level recorded in the early days of the GATT (4500 percent growth from 1950 to 2022).
This has contributed to growth in the world economy. Individual countries have experienced resultant economic growth, development, and poverty reduction.
States across the world have embarked on a raft of measures to curb effects of climate change. This is via a mix of mitigation and adaptation systems that will impact not only their local industries and citizens but also other nations.
Trade is particularly set to be impacted by these actions which may ultimately tilt the current trade patterns.
For instance, the European Union (EU) has taken several actions to curb carbon emissions and leakage. Carbon leakage entails organisations moving part of their activities particularly the ones which are carbon-intensive to countries that have minimal or no climate policies.
Another notable development is the EU Deforestation Regulation (EUDR). This is seeking to reduce deforestation which has been deemed to be a major contributor of global greenhouse gas emissions.
Importers into the EU will be required to implement a due diligence system to ensure they do not source commodities that are not deforestation-free or those that have not been produced in accordance with the relevant legislation origin country.
Governments across Africa have instituted or are in the process of instituting laws, policies or regulations that will seek to curb effects of climate change.
For instance, Kenya has implemented the Extended Producer Responsibility (EPR) requirements, which require companies which deal with goods that have a negative impact to the environment to institute measures to mitigate their impact.
By and large, these and other actions will have a direct impact on trade patterns as certain goods may be locked out of certain markets due to failure to meet the set standards.
The writer is an associate director at Ernst & Young LLP (EY). The views expressed herein are not necessarily those of EY.
