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Green protectionism: principles, examples and concerns
In a time when environmental sustainability is increasingly taking centre stage, transitioning from traditional economic protectionism to green protectionism marks a significant shift in global trade dynamics. This new trend merges ecological goals with trade policies, reflected in initiatives like the EU's Carbon Border Adjustment Mechanism and the U.S.'s Inflation Reduction Act. The approach has both challenges and opportunities, particularly in balancing ecological concerns with the economic realities of developing countries and ensuring fair global trade practices.
👉In this article we explore what green protectionism is, its environmental benefits, and challenges.
What does protectionism mean?
What is traditional protectionism?
Traditional protectionism is an economic policy aimed at protecting a country's domestic industries from foreign competition. Historically, traditional protectionism is rooted in what’s known as mercantilism, a dominant economic theory from the 16th to 18th centuries. Mercantilism posited that trade was the source of wealth and should be actively promoted and protected by the government. The central belief was that national wealth could be maximised by limiting imports and encouraging exports, thereby accumulating precious metals and resources. This approach was favoured until the mid-20th century, with the rise of global free trade agreements and institutions advocating for lower trade barriers, such as the World Trade Organization (WTO).
Supporters of traditional protectionism believe that it helps new industries to develop, protects jobs, and ensures national security by reducing dependency on foreign suppliers. Critics, however, view it as a deterrent to global economic efficiency. They contend that protectionism leads to trade wars, increases consumer prices, and ultimately stifles innovation and economic growth by sheltering domestic industries from healthy competition.
What is green protectionism?
Green protectionism differs from traditional protectionist policies by combining environmental concerns with economic measures. This approach to protectionism is driven by the increasing urgency to address global ecological challenges, such as climate change and environmental sustainability. Green protectionism employs similar methods to its traditional counterpart but with one distinct goal: to protect the environment and promote sustainable practices on a global scale.
Unlike traditional protectionist measures, green protectionism is not solely focused on economic benefits, it also aims to foster global ecological standards and encourage more sustainable manufacturing processes worldwide. However, green protectionism is not without controversy. Distinguishing between measures that genuinely advance environmental goals and those that mask economic protectionism under the guise of environmentalism can be tricky. The line between genuine environmental stewardship and economic protectionism is often blurred.
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What does green protectionism look like in real life?
We can see green protectionism in action in many parts of the world. Below we’ve outlined several key examples, illustrating how countries are linking environmental objectives with trade policies.
The European Union’s Carbon Border Adjustment Mechanism (CBAM)
A key initiative in green protectionism is the European Union's Carbon Border Adjustment Mechanism (CBAM). Introduced as part of the EU's Green Deal, the CBAM aims to prevent carbon leakage by imposing a levy on imports of certain goods from countries with less stringent climate policies. This mechanism is designed to ensure that the carbon emissions associated with the production of imported goods are accounted for, effectively extending the EU’s internal carbon pricing to the borders. Starting with industries like steel, cement, and aluminium, the CBAM seeks to level the playing field for European companies undergoing green transitions and encourages global partners to adopt similar environmental standards.
👉 To learn more at the CBAM head over to our article.
The United States Inflation Reduction Act (IRA)
In the United States, the Inflation Reduction Act (IRA) represents a significant step towards green protectionism. The legislation includes substantial investments in renewable energy, transportation, and technologies promoting the energy transition. A crucial aspect of the IRA is its emphasis on domestic production for renewable energy technologies, aiming to boost the US clean-tech manufacturing sector and reduce dependence on foreign sources - particularly those with lower environmental standards. This approach mirrors green protectionist policies by incentivising local production underpinned by environmental sustainability goals.
👉 To learn more about the Inflation Reduction Act check out our article.
China’s green industrial policies
China, too, is engaging in forms of green protectionism, particularly in the electric vehicle (EV) battery and solar panel manufacturing sectors. The country has implemented various measures to promote domestic clean technology industries, establishing itself as a major player in the global green economy. These policies have included subsidies and incentives for local producers, as well as regulatory frameworks that favour domestic production of green technologies, contributing to China's dominance in these industries.
👉 Learn more about China’s role in the fight against climate change over on our blog.
Motivations Behind Green Protectionism
The primary motivation behind these green protectionist measures is environmental sustainability and climate change mitigation. By aligning trade policies with ecological goals, countries can reduce global carbon emissions and encourage a shift towards cleaner, renewable sources of energy. Additionally, these measures are seen as a strategic response to the challenges of global warming, fostering technological innovation in green industries, and reducing dependence on fossil fuels.
Moreover, there is a growing recognition that the fight against climate change requires global collaboration, coupled with local action. Green protectionism, in this sense, is seen as a means to push domestic industries towards greener practices while also exerting international pressure on environmental standards.
Does green protectionism help the environment?
Green protectionism is increasingly being adopted as a strategy in the global fight against climate change, bringing with it a range of environmental benefits. Let’s take a closer look at the benefits of green protectionism:
Environmental benefits of green protectionism
- Reducing carbon emissions - Perhaps the most significant benefit of green protectionism is its potential to reduce global carbon emissions. By imposing measures like the carbon border tax, countries incentivise industries to adopt cleaner, more sustainable practices. These policies aim to level the playing field for businesses adhering to stringent environmental regulations, thereby reducing the advantage of importing cheaper, higher-emission goods. This can lead to a decrease in overall global emissions as it encourages a shift towards greener production methods worldwide.
- Promoting sustainable practices - Green protectionist policies can also drive innovation in sustainable technologies and practices. For example, the focus on domestic production in the USA's Inflation Reduction Act spurs investment in renewable energy and clean technology, encouraging innovation in these sectors. Similarly, the EU's CBAM incentivises not just European industries but also international exporters to the EU to invest in greener technologies and production methods.
- Stimulating green economies - These policies can spark the development of green economies. By prioritising environmentally friendly production, countries can promote new industries and job markets, centred around sustainable practices. This not only contributes to ecological preservation but also to economic resilience and diversification.
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The impact of green protectionism on international trade and developing countries
Green protectionism helps to address environmental concerns, however, it also significantly impacts global trade patterns, posing several challenges for developing countries:
Altered trade dynamics
Green protectionism introduces new criteria into the global trading system, where environmental standards become as important as price and quality. Measures like the EU’s carbon border tax fundamentally alter trade dynamics, potentially reshaping supply chains and trade flows. Industries in countries with strict environmental policies might gain a competitive edge, while those in nations with less strict regulations could find themselves at a disadvantage. This shift can lead to a realignment of global trade, with some countries consolidating their positions as green leaders, while others struggle to keep up.
Challenges for developing countries
For developing countries, the rise of green protectionism presents a complex challenge. Many of these nations rely heavily on traditional industries and lack the financial and technological resources to rapidly transition to greener practices. The implementation of measures such as the carbon border tax by major trading partners like the EU could significantly impact their export markets. For example, African countries, whose economies are often heavily reliant on the export of raw materials and low-value goods, could face a decline in their exports to Europe, as these goods could become more expensive due to the added environmental tariffs. This could lead to a reduction in GDP and exacerbate existing economic challenges.
Balancing environmental goals and economic interests
The central concern when it comes to green protectionism is balancing environmental goals with the economic realities of developing nations. While the urgency of addressing climate change is undeniable, there is a risk that stringent environmental policies could impose an unequal burden on developing countries. These nations might find themselves caught between the need to adapt to new global standards and the immediate economic pressures of sustaining their industries and livelihoods.
Developing countries require support in building their capacity for sustainable practices. This support can come in various forms, including technology transfer, financial assistance, and capacity-building initiatives. This is why developed countries and international institutions must play a crucial role in facilitating this transition, ensuring that the move towards a greener global economy is both inclusive and equitable.
The risk of green protectionism as a cover for traditional economic protectionism
While green protectionism holds the potential to drive global environmental sustainability, there is a risk of it being used as a cover for traditional economic protectionism. This risk is one of the primary challenges in the implementation of green protectionist policies.
Concealing traditional protectionism
The main concern is that some countries might use the claim of environmental concern to impose trade barriers that primarily serve economic interests. Policies that disproportionately favour domestic industries under the pretence of environmental protection for example distort global trade dynamics in much the same way as traditional protectionism. Such actions can undermine global efforts to address climate change and environmental degradation, leading to scepticism and potential trade conflicts.
Challenges in distinguishing genuine efforts
Distinguishing between genuine green protectionist measures and those serving as a cover for traditional protectionism is challenging. The criteria for what counts as an environmentally motivated trade measure versus an economically motivated one can be ambiguous and open to interpretation. This ambiguity can lead to disputes in the international trade arena, where countries may accuse each other of using environmental concerns as a shield for protectionist practices.
The role of transparency and international oversight
To mitigate these risks, there is a need for increased transparency and international oversight in the implementation of green protectionist policies. International bodies like the WTO could play a pivotal role in establishing clear guidelines and standards to differentiate between genuine environmental measures and protectionist ones. Additionally, international cooperation and dialogue are essential in developing a shared understanding and consensus on what constitutes fair and legitimate green protectionist measures.
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What does the future hold for green protectionism?
As the world grapples with the challenges of environmental sustainability, green protectionism is set to significantly shape the future landscape of international policy and trade dynamics.
Evolution in international policy
Green protectionism policies are likely to become more widely adopted and more sophisticated as countries increasingly prioritise environmental objectives. We can reasonably predict a rise in policies similar to the EU's Carbon Border Adjustment Mechanism and the US's Inflation Reduction Act, as nations seek to align their trade and environmental goals. These policies may evolve to cover a broader range of industries and include more nuanced mechanisms to assess environmental impacts.
Shifts in global trade dynamics
The adoption of green protectionist measures could also lead to a shift towards geopolitically aligned trade. Countries with similar environmental standards and policies may form new trade alliances, creating 'green trade blocs.' This realignment might result in a more fragmented global trade landscape, with distinct clusters of countries trading primarily within their blocs. Such a scenario could accelerate the development of regional supply chains and potentially decrease the reliance on global, just-in-time supply chains, which have shown vulnerabilities in recent times (particularly during COVID-19).
Moreover, green protectionism could drive a technological race in green industries, with countries competing to become leaders in sustainable technologies and practices. This competition could spur innovation but also risks increasing trade tensions, especially if perceived as a tool for economic dominance under the guise of environmentalism.
Role of international organisations and agreements
International organisations and multilateral agreements will likely come to play a central role in the future of green protectionism. Organisations like the World Trade Organization (WTO) and the United Nations may help establish norms and regulations that balance environmental goals with fair trade practices. There is also likely to be an increased emphasis on creating mechanisms for collaboration and dispute resolution, as countries navigate the complex interplay of trade and environmental policies.
Future international agreements may also focus on standardising environmental metrics and certifications, making it easier to assess and compare the environmental impact of products and services globally. This standardisation could help mitigate some of the challenges associated with implementing green protectionist measures, such as accurately measuring the carbon content of imports.
Round up
While green protectionism offers a pathway to a more sustainable future, it also raises critical questions about fairness and equity in the global trading system. Ensuring that developing countries are not left behind in the green transition is essential for the creation of a truly sustainable and equitable global economy. The international community must strive to find a balance where environmental considerations do not unduly disadvantage the economic interests of the world's most vulnerable nations.
What about Greenly?
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If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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