The UN Conference on Trade and Development (UNCTAD) has released its 2021 Trade and Environment Review. This edition focuses on ways that developing countries can enhance the resilience of their trade to climate change through economic diversification and adaptation actions.

‘Trade and Environment Review 2021’ recognizes that climate change and the policies designed to mitigate it will result in complex and different effects on trade and world markets, which will impact competitiveness, sectoral comparative advantages, productivity, transportation costs, and trade policies. The report examines the physical impacts of climate change, noting that society is “already committed to a certain level of warming,” and the physical impacts that accompany it. Consequently, adaptation “is an imperative regardless of the level of progress achieved in mitigating global emissions.”

The agriculture, fishing, and tourism sectors are the three sectors most vulnerable to adverse climate impacts, the report finds, and many least developing countries (LDCs) and small island developing States (SIDS) will face challenges in maintaining production and related employment and export levels in these sectors in the future. The review observes that, unless developing countries enhance their trade resilience by taking actions that reduce exposure and risk, these countries will export “substantially less” in climate-sensitive sectors as climate change impacts accumulate. Further, the report suggests that, when adaptation is neither cost effective nor possible, diversification within the sector or economic restructuring to move resources to less climate-sensitive sectors can be pursued.

The review reflects on the costs of climate change adaptation and options for climate finance. According to the report, the aggregate cost of adapting to climate change in developing countries has recently been estimated at between USD 140 billion and 300 billion per year in 2030. Through the Green Climate Fund (GCF), developed countries have committed to mobilize USD 100 billion annually in climate finance to address climate change mitigation and adaptation needs of developing countries. Yet only USD 50 billion per year is allocated to adaptation needs, resulting in an adaptation finance gap. The report notes response measures to increase adaptation funding could include border carbon adjustments or border carbon taxes. It cautions, however, that the impacts of these measures on trade “cannot be generalized,” and modelling studies will be needed to provide estimates of the direction and magnitude of trade impacts that countries are likely to experience on a sectoral basis.

The review proposes opportunities for developing countries to enhance their “trade-climate readiness,” noting that each country will have its own unique trade-climate resilience pathway. To identify and pursue trade-climate resilience pathways, national stakeholders will need to assess the physical impacts of climate change, potential national responses, and the competitiveness and export capacity of regions and countries that are competitors for the country’s exports. The report recommends stakeholders consider the temporal dimensions of when impacts will be experienced by producers, costs of specific actions, potential financing options for implementation, and implementation timeframes. [Publication: UNCTAD Trade and Environment Review 2021] [Publication Landing Page]