A lack of progress and the threat of setbacks currently characterize climate policy: While the traffic light coalition is failing to reduce fossil fuel subsidies, the CDU is adopting a 15-point immediate action program that, among other things, wants to reintroduce subsidies for agricultural diesel – one of the few hesitant advances made by the traffic light coalition on this issue, as Bernhard Pötter writes.
The steel industry is also currently in crisis, and with it its efforts to decarbonize. Of all things, less steel is coming from the “cleanest” production than just a few years ago. Alex Veit has taken a closer look at how the current demand crisis is linked to future decarbonization. Why the emerging tariff conflict between the USA, China and the EU is becoming a real obstacle to global climate protection – and how this can be prevented – is the subject of today’s article by renowned Beijing expert on sustainable finance Ma Jun.
As always, there are also several relevant reports from the global climate scene.
We wish you a stimulating read!
The German government and Bundestag have made little progress in reducing environmental and climate-damaging subsidies in the past legislative period. According to internal assessments by experts on environmentally harmful subsidies from the Federal Environment Agency (UBA), the abolition of some subsidies was announced – but in most cases, these were not implemented or new environmentally harmful regulations were introduced. “The bottom line is that in recent years there has been neither the necessary environmental nor fiscal progress in the abolition of subsidies,” the UBA explained to Table.Briefings.
The authority thus confirms the calculations of the “Forum Ökologisch-Soziale Marktwirtschaft” (FÖS). In a recent report for Greenpeace, the NGO confirmed that the G7 states have not reduced fossil fuel subsidies as promised, but have instead increased them over the last few years. According to figures from the International Monetary Fund (IMF), these subsidies rose to a new record of USD 1.36 trillion in 2023. The 15 percent increase since 2016 contrasts with the G7 decision in 2016 to phase out inefficient fossil fuel subsidies by 2025. The main reason for the increase is government aid for gas and electricity in the energy crisis following the Russian attack on Ukraine in 2022.
For Germany, the report calculates fossil fuel subsidies of EUR 85.3 billion for 2023, of which a total of EUR 32.6 billion are measures to combat the energy crisis since the war in Ukraine. Depending on how broadly the definition of “subsidies” is interpreted (direct and indirect state aid, lost revenue, externalized costs for environmental damage), various institutes, ministries, and research groups around the world calculate different sums.
For Germany, for example, the calculations of climate-damaging subsidies range between EUR 35.8 billion and EUR 114 billion per year. The 28th subsidy report of the German government from 2021, on the other hand, only lists around EUR 7.4 billion in subsidies as “emission-favoring” – and contrasts this with the sum of EUR 6.7 billion in “emission-reducing” payments.
In the coalition agreement, the traffic light coalition had planned to “gain additional budgetary leeway by reducing superfluous, ineffective and environmentally and climate-damaging subsidies and expenditure in the budget”. The coalition has also made some attempts to do this: For example, the subsidy for agricultural diesel (EUR 440 million) was due to expire at the end of 2023, as was the relief for vehicle tax in the agricultural sector (EUR 480 million). Following protests, the agricultural diesel regulation was postponed and is not due to disappear until 2028 – however, the CDU/CSU intends to reinstate it following an election victory. The motor vehicle tax relief for the agricultural sector will also be retained. The “peak equalization for energy tax” subsidy has been removed. A planned tax on kerosene for domestic flights was not pursued further – instead, however, the Bundestag increased the air traffic tax.
FÖS praises the fact that fossil subsidies have actually been reduced in freight transport: the “CO2 component” of the truck toll levies higher taxes on diesel consumption and thus reduces indirect subsidies. And a “plastic tax”, which is to be paid by consumers and no longer by all taxpayers, was also planned for 2025. However, it will no longer be introduced as a result of the premature traffic light phase-out.
The traffic lights also left the large chunks of fossil fuel subsidies virtually untouched:
The topic will also remain important for the next German government, according to the “Climate Neutrality Foundation”. In its 55 “Recommendations for the 21st legislative period“, which the think tank presented last week, the authors warn that climate-damaging subsidies are “doubly expensive: they cost budget funds that are not available for other projects. And they create false incentives that have to be compensated for by other subsidies, bans or higher CO2 prices“. According to the report, the German fossil fuel subsidies of EUR 35 billion would lead to an additional 156 million tons of CO2 being emitted by 2030.
Last year, for the first time, a report by the Öko-Institut on behalf of the Ministry of Economic Affairs showed where and how many emissions are caused by subsidies in Germany: According to the report, most emissions are caused by aid for energy taxation, diesel fuel, electricity tax for companies, VAT for animal products and distance and company car regulations. By far the most money from this (around EUR 25 billion) goes to transport, followed by agriculture (EUR 4.7 billion), industry (EUR 4.1 billion), and the energy sector (EUR 2.1 billion). At the same time, the state is collecting less and less through taxes and levies in the environmental sector. According to another FÖS study, their share of tax revenue fell from 9.5 percent to 6.2 percent of government revenue between 2003 and 2022.
The steel industry in Germany is facing two challenges at once. The first is the crisis of the present: the weak demand for steel products. The second challenge concerns the future: The planned decarbonization of its particularly climate-damaging and at the same time largest production sites, the eight integrated steelworks in the country, which produce 70 percent of the steel manufactured in Germany. While the solution to the current crisis suggests that production capacities should be shut down, decisions on new plants are needed now for future steel production.
The German Steel Federation (WV) reported last week that crude steel production in 2024 had risen by five percent compared to the previous year. However, at 37 million tons of crude steel, production was 14% below the 2017 level. In addition, demand in Germany is currently “extraordinarily weak” and has fallen by a third in seven years. This is largely due to the reluctance to buy on the part of the two largest customers of the local steel industry, the construction industry, and the automotive industry. Tilman von Berlepsch, steel expert at the environment and development NGO Germanwatch, points this out. Both industries, which each account for around 30 percent of steel production, are ordering less steel than before. “These problems have nothing to do with decarbonization,” says Berlepsch. “But they are putting steel producers under pressure.”
The part of the industry with the “cleanest” production methods is feeling the effects of the current crisis most acutely: the electric steel mills. Their crude steel production has slumped by almost 17% since 2017. Yet the electric arc furnaces of the “electric steelmakers” could already be operated with electricity from renewable sources, which would then cause hardly any greenhouse gases. In addition, electric steelworks sometimes melt down scrap steel instead of using new material extracted from iron ore. They are therefore potentially recyclable and climate-friendly without having to invest in new production facilities. However, companies such as the Georgsmarienhütte Group are now calling on politicians for help: They need cheaper electricity in order to be able to operate profitably at their sites.
In fact, it is the price of electricity that links the current steel crisis with decarbonization. “In the blast furnace route, but also in the many electric steel companies in Germany, enormous amounts of renewable, affordable electricity are needed to achieve climate neutrality,” says Kerstin Maria Rippel, Managing Director of WV Stahl in talks with Table.Briefings. She calls for structural solutions to bring electricity prices to an internationally competitive level. In the short term, the transmission grid fees should be subsidized again with EUR 5.5 billion, as was planned until the end of 2023.
It is true that the increased electricity prices cannot be explained solely by the conversion of the electricity supply to renewable electricity. However, this transformation is already leading to massively increased transmission grid charges, particularly due to high redispatch costs. These are caused by bottlenecks in the transmission grid. This is because even if enough cheap renewable electricity is produced in northern Germany, it often does not reach the major consumers. As a result, expensive conventional power plants beyond the grid bottlenecks are instructed to increase their feed-in capacity.
The steel industry’s most pressing task for the future, the replacement of coal-based blast furnaces in integrated steelworks with hydrogen-based direct reduction plants (DRI plants), depends to a large extent on reliably low electricity prices. This is because “green” hydrogen is produced using renewable electricity. ArcelorMittal doubts that sufficient cheap green electricity and corresponding hydrogen will be available in the near future. The world’s second-largest steel group also operates blast furnaces in Germany. Rippel also says: “Green hydrogen will neither be available in sufficient quantities nor at an affordable, internationally competitive price in the foreseeable future.” Both industry and politics will have to adapt to this reality. Interim solutions based on cheaper, mostly fossil energy are needed.
“In the medium term, the decarbonization requirements will increase the costs of steel production,” says Germanwatch steel expert von Berlepsch, referring to the investments for the new DRI plants. ArcelorMittal and Thyssenkrupp in particular, the two largest steel manufacturers in Germany, have repeatedly questioned the construction of DRI plants despite high state subsidies. Von Berlepsch sees this as “a kind of investment strike” and believes that the two steel companies are “playing poker so that even more money flows”.
WV Stahl boss Rippel, on the other hand, points to the companies that are “staying the course” and investing “billions of euros in their plants”. With Salzgitter AG and Saarstahl, there are actually two blast furnace operators that have started the conversion. At least publicly, they are not questioning the fact that they want to manage the transformation to sustainable steel production even in the current sales crisis.
However, von Berlepsch also sees the need to think again in view of the simultaneous sales and energy crisis and the investment decisions that are now necessary: “As a society, we should ask ourselves the question: Is it worth it to us to have our own steel production?” he says. Ultimately, this is about the decarbonization of the entire economy, which requires steel for new wind turbines, rails, and trains. “It would make sense in terms of both climate policy and labor market policy to produce some of this here in the country.”
There is a straightforward path to ending our dependence on fossil fuels: nurture green industries – which would not only mitigate climate change, but also boost economic growth and job creation – and ensure that their output can be traded as widely as possible. Open trade would strengthen these industries, reduce the costs of green goods and services in most countries, and facilitate the adoption of low-carbon practices and technologies.
At a time of rising protectionism, pursuing this path requires the establishment of a special green free-trade arrangement, involving sharp reductions in tariffs and non-tariff barriers on goods and services that deliver environmental and climate benefits. Since one or two economies could scupper a truly global framework, multiple smaller arrangements could be created by “coalitions of the willing.”
Using existing regional trade agreements as a basis for green trade could hasten this process considerably. Consider the Regional Comprehensive Economic Partnership (RCEP) – the world’s largest trade bloc by both population and GDP – comprising Australia, China, Japan, New Zealand, South Korea, and the ten ASEAN countries. Operating within the RCEP’s framework may enable quicker agreement and implementation of a green free-trade arrangement involving countries that collectively account for 30 percent of global economic activity.
The first step toward realizing this vision would be to demonstrate clearly the economic benefits of a green trade agreement to all members of arrangements like the RCEP. A preliminary study, based on a “computable general equilibrium” model and conducted by the Institute of Finance and Sustainability (which I chair) and research partners, does just that. Our study, which we will present at a conference in Hong Kong in March, found that a green free-trade arrangement could boost members’ economies (in terms of GDP, exports, jobs, and fiscal revenue), bolster their green industries, and bring about faster decarbonization.
Next, in order to help mitigate climate change and address environmental degradation, countries must identify the goods and services that should be covered by the green free-trade arrangement. Our study suggests that this list could include a few dozen categories and a few hundred products and services, including renewable energy, electric vehicles (EVs) and their components, waste management, sustainable agriculture, nature-based solutions, and environmental professional services.
A third priority is to attract green foreign investment and technology transfers, which requires a more stable policy environment, protections for investors, and secure intellectual property rights in the regional trade blocs. A green trade arrangement that ensures these conditions would help lower-income countries, in particular, to develop their green industries and create green jobs. In the RCEP, for example, Chinese, Japanese, and South Korean firms producing, say, EVs or solar panels might license their technologies to producers in the ASEAN countries and invest in building up the region’s green supply chains.
Such arrangements must also address non-tariff barriers, which can impede trade and investment even within low-tariff or tariff-free zones. A successful green trade arrangement must start with careful analysis of all non-tariff barriers, including those arising from import and export quotas, quality-control and customs-clearance processes, product-traceability requirements, trade-finance and export-credit insurance, and the settlement of cross-border payments. Targeted measures to lower these barriers – for example, harmonizing quality and traceability standards across jurisdictions and reducing the cost of trade finance using green finance instruments – should then be implemented.
Leadership and open dialogue are essential. In the case of the RCEP, larger economies like Australia, China, Indonesia, Japan, and South Korea should take the lead in cultivating consensus, with discussions highlighting the arrangement’s wide-ranging benefits for all. This approach would support a “just transition” to a climate-neutral economy, by accelerating decarbonization in participating countries, advancing growth and job creation in green industries, and fostering the mutual trust that is essential to broader cooperation on climate and trade issues.
The case for green trade arrangements is even stronger when one compares them to the approach being embraced by advanced economies. While the carbon border adjustment mechanism (CBAM) favored by the European Union, the United Kingdom, and potentially the US can reduce carbon “leakage” from imports produced in countries with more lenient emissions rules, it harms incomes and employment in the developing economies exporting carbon-intensive goods. And it does nothing to foster cooperation; on the contrary, such unilateral measures could lead to retaliation and yet more protectionism.
As incentives go, CBAM amounts to a “stick,” which punishes developing countries for not sacrificing domestic growth and development in order to reduce emissions. A green free-trade arrangement, by contrast, amounts to a “carrot”: by aligning climate goals with development objectives, it rewards participating economies for making progress in the green transition. It is a win-win solution - just the type a just green transition demands.
Ma Jun is President of the Beijing-based Institute of Finance and Sustainability and former Co-Chair of the G20 Sustainable Finance Working Group.
Copyright: Project Syndicate, 2025
Editor’s note: Discussing China today means – more than ever – engaging in controversial debate. We aim to reflect a wide range of opinions to give you an insight into the breadth of the debate. Opinions do not reflect the views of the editorial team.
A lack of progress and the threat of setbacks currently characterize climate policy: While the traffic light coalition is failing to reduce fossil fuel subsidies, the CDU is adopting a 15-point immediate action program that, among other things, wants to reintroduce subsidies for agricultural diesel – one of the few hesitant advances made by the traffic light coalition on this issue, as Bernhard Pötter writes.
The steel industry is also currently in crisis, and with it its efforts to decarbonize. Of all things, less steel is coming from the “cleanest” production than just a few years ago. Alex Veit has taken a closer look at how the current demand crisis is linked to future decarbonization. Why the emerging tariff conflict between the USA, China and the EU is becoming a real obstacle to global climate protection – and how this can be prevented – is the subject of today’s article by renowned Beijing expert on sustainable finance Ma Jun.
As always, there are also several relevant reports from the global climate scene.
We wish you a stimulating read!
The German government and Bundestag have made little progress in reducing environmental and climate-damaging subsidies in the past legislative period. According to internal assessments by experts on environmentally harmful subsidies from the Federal Environment Agency (UBA), the abolition of some subsidies was announced – but in most cases, these were not implemented or new environmentally harmful regulations were introduced. “The bottom line is that in recent years there has been neither the necessary environmental nor fiscal progress in the abolition of subsidies,” the UBA explained to Table.Briefings.
The authority thus confirms the calculations of the “Forum Ökologisch-Soziale Marktwirtschaft” (FÖS). In a recent report for Greenpeace, the NGO confirmed that the G7 states have not reduced fossil fuel subsidies as promised, but have instead increased them over the last few years. According to figures from the International Monetary Fund (IMF), these subsidies rose to a new record of USD 1.36 trillion in 2023. The 15 percent increase since 2016 contrasts with the G7 decision in 2016 to phase out inefficient fossil fuel subsidies by 2025. The main reason for the increase is government aid for gas and electricity in the energy crisis following the Russian attack on Ukraine in 2022.
For Germany, the report calculates fossil fuel subsidies of EUR 85.3 billion for 2023, of which a total of EUR 32.6 billion are measures to combat the energy crisis since the war in Ukraine. Depending on how broadly the definition of “subsidies” is interpreted (direct and indirect state aid, lost revenue, externalized costs for environmental damage), various institutes, ministries, and research groups around the world calculate different sums.
For Germany, for example, the calculations of climate-damaging subsidies range between EUR 35.8 billion and EUR 114 billion per year. The 28th subsidy report of the German government from 2021, on the other hand, only lists around EUR 7.4 billion in subsidies as “emission-favoring” – and contrasts this with the sum of EUR 6.7 billion in “emission-reducing” payments.
In the coalition agreement, the traffic light coalition had planned to “gain additional budgetary leeway by reducing superfluous, ineffective and environmentally and climate-damaging subsidies and expenditure in the budget”. The coalition has also made some attempts to do this: For example, the subsidy for agricultural diesel (EUR 440 million) was due to expire at the end of 2023, as was the relief for vehicle tax in the agricultural sector (EUR 480 million). Following protests, the agricultural diesel regulation was postponed and is not due to disappear until 2028 – however, the CDU/CSU intends to reinstate it following an election victory. The motor vehicle tax relief for the agricultural sector will also be retained. The “peak equalization for energy tax” subsidy has been removed. A planned tax on kerosene for domestic flights was not pursued further – instead, however, the Bundestag increased the air traffic tax.
FÖS praises the fact that fossil subsidies have actually been reduced in freight transport: the “CO2 component” of the truck toll levies higher taxes on diesel consumption and thus reduces indirect subsidies. And a “plastic tax”, which is to be paid by consumers and no longer by all taxpayers, was also planned for 2025. However, it will no longer be introduced as a result of the premature traffic light phase-out.
The traffic lights also left the large chunks of fossil fuel subsidies virtually untouched:
The topic will also remain important for the next German government, according to the “Climate Neutrality Foundation”. In its 55 “Recommendations for the 21st legislative period“, which the think tank presented last week, the authors warn that climate-damaging subsidies are “doubly expensive: they cost budget funds that are not available for other projects. And they create false incentives that have to be compensated for by other subsidies, bans or higher CO2 prices“. According to the report, the German fossil fuel subsidies of EUR 35 billion would lead to an additional 156 million tons of CO2 being emitted by 2030.
Last year, for the first time, a report by the Öko-Institut on behalf of the Ministry of Economic Affairs showed where and how many emissions are caused by subsidies in Germany: According to the report, most emissions are caused by aid for energy taxation, diesel fuel, electricity tax for companies, VAT for animal products and distance and company car regulations. By far the most money from this (around EUR 25 billion) goes to transport, followed by agriculture (EUR 4.7 billion), industry (EUR 4.1 billion), and the energy sector (EUR 2.1 billion). At the same time, the state is collecting less and less through taxes and levies in the environmental sector. According to another FÖS study, their share of tax revenue fell from 9.5 percent to 6.2 percent of government revenue between 2003 and 2022.
The steel industry in Germany is facing two challenges at once. The first is the crisis of the present: the weak demand for steel products. The second challenge concerns the future: The planned decarbonization of its particularly climate-damaging and at the same time largest production sites, the eight integrated steelworks in the country, which produce 70 percent of the steel manufactured in Germany. While the solution to the current crisis suggests that production capacities should be shut down, decisions on new plants are needed now for future steel production.
The German Steel Federation (WV) reported last week that crude steel production in 2024 had risen by five percent compared to the previous year. However, at 37 million tons of crude steel, production was 14% below the 2017 level. In addition, demand in Germany is currently “extraordinarily weak” and has fallen by a third in seven years. This is largely due to the reluctance to buy on the part of the two largest customers of the local steel industry, the construction industry, and the automotive industry. Tilman von Berlepsch, steel expert at the environment and development NGO Germanwatch, points this out. Both industries, which each account for around 30 percent of steel production, are ordering less steel than before. “These problems have nothing to do with decarbonization,” says Berlepsch. “But they are putting steel producers under pressure.”
The part of the industry with the “cleanest” production methods is feeling the effects of the current crisis most acutely: the electric steel mills. Their crude steel production has slumped by almost 17% since 2017. Yet the electric arc furnaces of the “electric steelmakers” could already be operated with electricity from renewable sources, which would then cause hardly any greenhouse gases. In addition, electric steelworks sometimes melt down scrap steel instead of using new material extracted from iron ore. They are therefore potentially recyclable and climate-friendly without having to invest in new production facilities. However, companies such as the Georgsmarienhütte Group are now calling on politicians for help: They need cheaper electricity in order to be able to operate profitably at their sites.
In fact, it is the price of electricity that links the current steel crisis with decarbonization. “In the blast furnace route, but also in the many electric steel companies in Germany, enormous amounts of renewable, affordable electricity are needed to achieve climate neutrality,” says Kerstin Maria Rippel, Managing Director of WV Stahl in talks with Table.Briefings. She calls for structural solutions to bring electricity prices to an internationally competitive level. In the short term, the transmission grid fees should be subsidized again with EUR 5.5 billion, as was planned until the end of 2023.
It is true that the increased electricity prices cannot be explained solely by the conversion of the electricity supply to renewable electricity. However, this transformation is already leading to massively increased transmission grid charges, particularly due to high redispatch costs. These are caused by bottlenecks in the transmission grid. This is because even if enough cheap renewable electricity is produced in northern Germany, it often does not reach the major consumers. As a result, expensive conventional power plants beyond the grid bottlenecks are instructed to increase their feed-in capacity.
The steel industry’s most pressing task for the future, the replacement of coal-based blast furnaces in integrated steelworks with hydrogen-based direct reduction plants (DRI plants), depends to a large extent on reliably low electricity prices. This is because “green” hydrogen is produced using renewable electricity. ArcelorMittal doubts that sufficient cheap green electricity and corresponding hydrogen will be available in the near future. The world’s second-largest steel group also operates blast furnaces in Germany. Rippel also says: “Green hydrogen will neither be available in sufficient quantities nor at an affordable, internationally competitive price in the foreseeable future.” Both industry and politics will have to adapt to this reality. Interim solutions based on cheaper, mostly fossil energy are needed.
“In the medium term, the decarbonization requirements will increase the costs of steel production,” says Germanwatch steel expert von Berlepsch, referring to the investments for the new DRI plants. ArcelorMittal and Thyssenkrupp in particular, the two largest steel manufacturers in Germany, have repeatedly questioned the construction of DRI plants despite high state subsidies. Von Berlepsch sees this as “a kind of investment strike” and believes that the two steel companies are “playing poker so that even more money flows”.
WV Stahl boss Rippel, on the other hand, points to the companies that are “staying the course” and investing “billions of euros in their plants”. With Salzgitter AG and Saarstahl, there are actually two blast furnace operators that have started the conversion. At least publicly, they are not questioning the fact that they want to manage the transformation to sustainable steel production even in the current sales crisis.
However, von Berlepsch also sees the need to think again in view of the simultaneous sales and energy crisis and the investment decisions that are now necessary: “As a society, we should ask ourselves the question: Is it worth it to us to have our own steel production?” he says. Ultimately, this is about the decarbonization of the entire economy, which requires steel for new wind turbines, rails, and trains. “It would make sense in terms of both climate policy and labor market policy to produce some of this here in the country.”
There is a straightforward path to ending our dependence on fossil fuels: nurture green industries – which would not only mitigate climate change, but also boost economic growth and job creation – and ensure that their output can be traded as widely as possible. Open trade would strengthen these industries, reduce the costs of green goods and services in most countries, and facilitate the adoption of low-carbon practices and technologies.
At a time of rising protectionism, pursuing this path requires the establishment of a special green free-trade arrangement, involving sharp reductions in tariffs and non-tariff barriers on goods and services that deliver environmental and climate benefits. Since one or two economies could scupper a truly global framework, multiple smaller arrangements could be created by “coalitions of the willing.”
Using existing regional trade agreements as a basis for green trade could hasten this process considerably. Consider the Regional Comprehensive Economic Partnership (RCEP) – the world’s largest trade bloc by both population and GDP – comprising Australia, China, Japan, New Zealand, South Korea, and the ten ASEAN countries. Operating within the RCEP’s framework may enable quicker agreement and implementation of a green free-trade arrangement involving countries that collectively account for 30 percent of global economic activity.
The first step toward realizing this vision would be to demonstrate clearly the economic benefits of a green trade agreement to all members of arrangements like the RCEP. A preliminary study, based on a “computable general equilibrium” model and conducted by the Institute of Finance and Sustainability (which I chair) and research partners, does just that. Our study, which we will present at a conference in Hong Kong in March, found that a green free-trade arrangement could boost members’ economies (in terms of GDP, exports, jobs, and fiscal revenue), bolster their green industries, and bring about faster decarbonization.
Next, in order to help mitigate climate change and address environmental degradation, countries must identify the goods and services that should be covered by the green free-trade arrangement. Our study suggests that this list could include a few dozen categories and a few hundred products and services, including renewable energy, electric vehicles (EVs) and their components, waste management, sustainable agriculture, nature-based solutions, and environmental professional services.
A third priority is to attract green foreign investment and technology transfers, which requires a more stable policy environment, protections for investors, and secure intellectual property rights in the regional trade blocs. A green trade arrangement that ensures these conditions would help lower-income countries, in particular, to develop their green industries and create green jobs. In the RCEP, for example, Chinese, Japanese, and South Korean firms producing, say, EVs or solar panels might license their technologies to producers in the ASEAN countries and invest in building up the region’s green supply chains.
Such arrangements must also address non-tariff barriers, which can impede trade and investment even within low-tariff or tariff-free zones. A successful green trade arrangement must start with careful analysis of all non-tariff barriers, including those arising from import and export quotas, quality-control and customs-clearance processes, product-traceability requirements, trade-finance and export-credit insurance, and the settlement of cross-border payments. Targeted measures to lower these barriers – for example, harmonizing quality and traceability standards across jurisdictions and reducing the cost of trade finance using green finance instruments – should then be implemented.
Leadership and open dialogue are essential. In the case of the RCEP, larger economies like Australia, China, Indonesia, Japan, and South Korea should take the lead in cultivating consensus, with discussions highlighting the arrangement’s wide-ranging benefits for all. This approach would support a “just transition” to a climate-neutral economy, by accelerating decarbonization in participating countries, advancing growth and job creation in green industries, and fostering the mutual trust that is essential to broader cooperation on climate and trade issues.
The case for green trade arrangements is even stronger when one compares them to the approach being embraced by advanced economies. While the carbon border adjustment mechanism (CBAM) favored by the European Union, the United Kingdom, and potentially the US can reduce carbon “leakage” from imports produced in countries with more lenient emissions rules, it harms incomes and employment in the developing economies exporting carbon-intensive goods. And it does nothing to foster cooperation; on the contrary, such unilateral measures could lead to retaliation and yet more protectionism.
As incentives go, CBAM amounts to a “stick,” which punishes developing countries for not sacrificing domestic growth and development in order to reduce emissions. A green free-trade arrangement, by contrast, amounts to a “carrot”: by aligning climate goals with development objectives, it rewards participating economies for making progress in the green transition. It is a win-win solution - just the type a just green transition demands.
Ma Jun is President of the Beijing-based Institute of Finance and Sustainability and former Co-Chair of the G20 Sustainable Finance Working Group.
Copyright: Project Syndicate, 2025
Editor’s note: Discussing China today means – more than ever – engaging in controversial debate. We aim to reflect a wide range of opinions to give you an insight into the breadth of the debate. Opinions do not reflect the views of the editorial team.
