Small Country, Big Climate Agenda: New Zealand’s Approach to Climate and Trade

As international partners increasingly converge on policies that could more effectively leverage trade as a means of combating climate change, New Zealand has emerged as a leader in utilizing trade tools to move necessary environmental policies forward. It has done this through the World Trade Organization (WTO), bilateral free trade agreements, and other multilateral agreements.

Most recently, New Zealand concluded free trade agreement negotiations (FTA) with the European Union that included robust and enforceable climate commitments. Both this agreement and a similar agreement between the United Kingdom and New Zealand established in February include advanced language on sustainability and establish a standard for how trade can be a tool to progress a global climate agenda.

While small in size, New Zealand has an influential presence on the world stage when it comes to the intersection of climate and trade. Climate issues are important to New Zealanders, who have infused climate change considerations throughout policymaking. A recent survey found that 81 percent of New Zealanders are concerned with climate change. New Zealand has taken an all-government approach to sustainability, pursuing a trade policy with a focus on sustainable and inclusive growth with active participation from the indigenous population of New Zealand, the Māori, which has strong ties to the land and advocates for environmentally sound policies. The “Trade for All” agenda, established in 2018, focuses on increasing public engagement by expanding trade policy consultations with key stakeholders, creating more sustainable economic opportunities, supporting regional integration in the Asia-Pacific region, and advocating for a rules-based international system.

The U.S. approach to international engagement on trade has largely eschewed traditional trade tools and mechanisms, such as tariff liberalization, and therefore makes an FTA like the one signed between New Zealand, the European Union, and the United Kingdom, unlikely in the short term. Nevertheless, the United States and New Zealand are working together on developing the Indo-Pacific Economic Framework for Prosperity (IPEF), which aims to advance sustainable growth in the region.

Q1: How has New Zealand approached the climate and trade nexus at the WTO?

A1: New Zealand’s comprehensive approach to climate policy and trade is demonstrated in its leadership in climate work on the world stage. New Zealand views the WTO as a forum that can play a central role in increasing sustainability in the global economy. The WTO framework is endowed with mechanisms for accountability, making it an ideal forum for tackling these challenging issues.

When Environmental Goods Agreement (EGA) negotiations launched in Geneva in 2014, New Zealand quickly emerged as a key leader. Although EGA negotiations fell apart somewhat abruptly in late 2016, New Zealand’s leadership in Geneva remains highly involved in other trade and environmental conversations. For example, the Trade and Environmental Sustainability Structured Discussions (TESSD), which New Zealand cosponsors, is a WTO forum established to further dialogue about achieving a global trading system that protects the environment.  Furthermore, the Agreement on Climate Change, Trade and Sustainability (ACCTS), which New Zealand established in 2019 and oversees in partnership with Costa Rica, Fiji, Iceland, and Norway, seeks to leverage trade rules to tackle climate change. One of the explicit goals of the ACCTS, unlike IPEF or TESSD, is to liberalize tariffs on environmental goods. The ACCTS also seeks new commitments on environmental services and binding rules to eliminate fossil fuel subsidies.

Beyond the ACCTS, New Zealand has been a leading advocate for fossil fuel subsidy reform. New Zealand issued a joint ministerial statement this past December that recognized the harmful effects of fossil fuel subsidies and outlined the need to phase them out. This statement has 47 cosponsors, and the United States is not one. Many of these same countries are also part of the Friends of Fossil Fuel Subsidy Reform (FFFSR), which is an informal group of non-G20 members that works to raise awareness and share knowledge on these issues.

The recent partial success of the 12th WTO ministerial, particularly the fisheries outcome, established historic parameters on subsidies for fishing. This agreement prohibits subsidies for illegal, unreported, and unregulated (IUU) fishing, fishing overfished stocks, and fishing in the unregulated high seas. This demonstrates that highly complex policy outcomes with environmental benefits are possible, even at the multilateral level. Therefore, the conclusion of a fisheries deal underscores the potential of the WTO system in effecting greater change at the trade and climate nexus. Deputy Director-General Angela Ellard stated that the success of the fisheries subsidies agreement created a newfound momentum for other environmental initiatives.

Q2: Why is the UK-New Zealand FTA significant in the climate context?

A2: In addition to the multilateral agenda at the WTO, New Zealand is also making tangible progress at the bilateral level. The UK-New Zealand free trade agreement is one of the most environmentally comprehensive deals to date. It contains a thorough environment chapter and sustainability-focused language throughout the deal. Perhaps its most laudable achievement is the creation of a lengthy list of environmental goods with reduced tariffs. The list covers 290 environmental products, from electric vehicles to wind turbines. For scale, this covers nearly five times as many products as the Asia-Pacific Economic Cooperation (APEC) list of environmental goods.

This deal confirms the importance of other multilateral avenues for advancing climate goals.  The agreement explicitly recognizes the commitments of the Paris Agreement to achieve net-zero emissions and the commitments of the 26th UN Climate Change Conference of Parties (COP26) to phase out “inefficient subsidies” for all fossil fuels. New Zealand also included the importance of creating a platform to cooperate on issues of relevance to the Māori, reinforcing the broader COP26 theme of protecting indigenous rights. The agreement uses specific Māori language throughout, such as “kaitiakitanga” (guardianship and protection) and “mauri” (vitality of a being), which are often used to describe the environment.

Through the agreement, the parties also aim to facilitate greater international cooperation in the global transition to a low-carbon economy. This includes policy provisions, such as promoting a carbon price as an effective tool for reducing greenhouse gas emissions and taking steps to remove harmful fossil fuel subsidies. The European Union, New Zealand, and the United Kingdom each have a domestic price on carbon, which underscores the significantly different approach the United States has taken, which tends to favor incentives over regulation.

Beyond the environmental chapter, the agreement has integrated sustainability as a core element throughout. For example, there are references to sustainable procurement, sustainable finance, and intellectual property concerns with clean technologies. Interestingly, the agreement omitted investor-state dispute settlement (ISDS) provisions, which have been used by investors when a country’s environmental policies harm their company's profits.

Critics argue that, while the agreement contains many groundbreaking sustainability provisions, it is ultimately insufficient in bringing about systemic change at the climate and trade nexus. Moreover, an impact assessment estimated that the FTA would result in a nearly 50 percent increase in transport emissions. It also does not account for how the parties will counteract this consequence or move toward more tangible outcomes when it comes to decarbonizing supply chains themselves. Furthermore, some fear that lower tariffs in the agricultural sector will incentivize carbon-intensive farming practices and undermine attempts at building a more sustainable approach to food production.

Q3: What is novel about the EU-New Zealand FTA?

A3: The EU-New Zealand trade agreement contains a chapter on trade and sustainable development, which covers some of the same provisions as the environment chapter in the UK-New Zealand agreement. European Commission president Ursula von der Leyen said that the agreement includes “unprecedented social and climate commitments.” The deal includes provisions such as commitments to multilateral climate agreements, reforms on fossil fuel subsidies, conservation efforts, and removal of tariffs on environmental goods and services.

The key difference between the EU-New Zealand trade agreement and the UK-New Zealand trade agreement is the strength of the enforceability of these climate provisions. The commitments made in this chapter are legally binding and enforceable through the agreement’s dispute settlement mechanism. For example, the Paris Agreement itself does not have an enforcement mechanism, but through this FTA, the European Union and New Zealand hold each other accountable. This enforcement mechanism includes the possibility of sanctions in the case of a serious violation of the agreement. This is the first time the European Union has included language like this in a trade agreement. The UK-New Zealand does not have this same level of enforcement in its dispute settlement provisions.

“It’s interesting that the EU used the New Zealand FTA as the first [such agreement] to include the binding requirements—it’s not surprising, it’s easiest to reach an agreement with New Zealand because of who New Zealand is,” Yves Melin said, Secretary-Treasurer of the International Bar Association International Trade and Customs Law Committee.

The agreement also includes a unique Sustainable Food Systems Chapter, in which the countries agree to cooperate on issues related to the global food supply. This would create a pathway to exchange information and research as well as enhance cooperation at the international level on topics such as the environmental impacts of food production.

Q4: What does New Zealand's leadership look like in the Asia Pacific?

A4: The Asia-Pacific region has been increasingly affected by climate change. Nearly 70 percent of all natural disasters occur in this region, and the region’s vast coastlines are impacted by rising tides. Therefore, APEC has been looking for opportunities to promote sustainable development in the region.

 In 2021 New Zealand hosted the APEC summit and succeeded in establishing further commitments to climate change in this forum. The Aotearoa Plan of Action outlined the way to achieve goals on numerous issues, ranging from opening markets, innovation, resilience, indigenous empowerment, and climate change. The plan helped cement climate issues on the APEC agenda for the future.

At the APEC summit, Prime Minister Jacinda Ardern stated that New Zealand has not done enough and is arguably “playing catch up." The summit pushed for progress in facilitating the trade of environmental goods and fisheries-related initiatives. Instrumentally, the members accomplished an agreement to stop increasing fossil fuel subsidies, which amounted to nearly $500 billion worth of funds.

Q5: How are the United States and New Zealand working together on climate and trade issues?

A5: New Zealand and the United States have many opportunities to work together to progress on climate and trade issues. However, significant challenges remain. New Zealand is a leader in using renewable energies. Around 40 percent of the share of its total primary energy supply comes from renewable sources. This is much greater than the 12 percent share of primary energy in the United States or the 17 percent in the European Union. The United States aims to diversify into sustainable energy sources. Congress recently passed the Inflation Reduction Act (IRA), the world’s single largest investment in combating climate change, which includes many provisions, such as tax credits on solar and green energy industries, to incentivize growth in these industries. However, experts differ on whether certain provisions of the IRA will ultimately contravene core climate objectives by raising costs and slowing the deployment of renewables.

New Zealand and the United States have multilateral opportunities to advance issues at the intersection of climate and trade. The United States and New Zealand recently partnered in the IPEF, a multiparty initiative formally launched in May 2022. One of the key aspects of this new economic arrangement will be to facilitate decarbonization and environmental trade among the 14 participant countries. The CSIS Scholl Chair recently published a report with recommendations on how to deliver a decarbonizing agenda within IPEF.

The United States has signaled a shift in climate policy after passing the IRA. Now, the United States should make additional headway with partners throughout the international realm. In terms of its bilateral relationship with New Zealand, the United States should work more closely to institutionalize mutual commitments to green trade, which the United States can do by reaffirming U.S. leadership within the WTO system. At the WTO, the United States has already joined the TESSD, a plurilateral group of countries convening on green trade issues. In addition to joining the ACCTS, the United States should also join other initiatives alongside New Zealand, including the Informal Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade (IDP) and discussions on combating deforestation. Wherever possible, the United States should seek to codify in trade arrangements the obligation to engage in these multilateral environmental discussions within the WTO system.

Overall, the conclusion of far-ranging FTAs with the European Union and the United Kingdom, particularly the signing of the most ambitious agreement on environmental goods, makes it even more important that the United States work towards the conclusion of new trade agreements that could spur green growth and help achieve deeper decarbonization.

Emily Benson is a fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Elizabeth Duncan is an intern with the Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Emily Benson
Director, Project on Trade and Technology and Senior Fellow, Scholl Chair in International Business

Elizabeth Duncan

Intern, Scholl Chair in International Business