Sustainability is no longer a woolly concept. Adopting sustainable practices has become a golden ticket in a world that is increasingly concerned with its impact on the environment. The European Green Deal, first presented in December 2019, epitomises the growing significance of sustainability on trade by increasing requirements for importers. In fact, swift sustainability action is needed for exporters to Europe as it prepares to become the first climate-neutral continent in the world.
At the same time, New Zealand, Norway, Iceland, Costa Rica, and Fiji jointly launched the Agreement on Climate Change, Trade and Sustainability (ACCTS) in September 2019. This shows that trade rules can support countries to take climate action by removing barriers on environmental products and services.
The European Green Deal will impact trade
The overarching aim of the European Green Deal is to make Europe climate neutral by 2050. This is planned to be achieved with 50 policies covering the following areas:
- Climate Neutrality
- Circular Economy
- Building and Renovation
- Farm to Fork
- Eliminating Pollution
- Sustainable Mobility
- Biodiversity
Many of the policies will relate to activities within the EU. The areas of Climate Neutrality, Circular Economy, and Farm to Fork strategies will have particular relevance to trade.
Achieving Climate Neutrality depends on EU’s trading partners
Over the past three decades, the EU has succeeded in growing economically while minimising emissions. Net greenhouse gas emissions have fallen by 25 percent between 1990 and 2019, while GDP grew by 62 percent. However, it is still far away from being climate neutral in 2050.
The European Parliament voted on 6 October 2020 on an interim goal to reach by 2030. They have updated their climate target to reduce emissions by 60 percent compared to 1990 levels by 2030. However, approximately a quarter of the emissions from all goods consumed or processed in the EU are due to imports.
“The EU’s share in global emissions is declining, we need to make sure now that our partners also take action. The Commission will enhance enforcement of sustainability commitments in trade agreements,” states the European Commission.
The carbon content of goods imported into EU countries will be reflected in the EU carbon border tax, officially known as the carbon border adjustment mechanism. Essentially, the EU does not want to reduce emissions in its own countries only to negate it by importing emissions from other countries.
This means it will be harder for European companies to transfer production from the EU to countries with lower climate requirements. It will also be difficult for businesses and consumers to choose carbon intensive products from those countries over EU products.
Companies that are already taking climate action will have a competitive edge when the carbon border tax finally hits. In fact, companies that trade or plan to trade with EU countries need to be ramping up, or at the very least, beginning their climate action efforts. They need to develop resiliency measures to protect their profits and the planet.
Policies based on the circular economy will tighten rules
Achieving the EU’s climate and wider environmental goals also requires a new industrial policy based on the circular economy. This will focus on resource-intensive sectors such as textiles, construction, electronics, and plastics. For exporters from New Zealand, the proposed measure that all packaging in the EU is reusable or recyclable by 2030 is of specific relevance. This requirement will be for all goods placed on the EU market and will apply to all food exporters to the EU.
The Circular Economy Action Plan also foresees “that companies substantiate their environmental claims using Product and Organisation Environmental Footprint methods.” Product Environmental Footprinting (PEF) was developed to provide a standardised methodology and support product comparisons in the jungle of existing green labels. It is built on Life Cycle Assessment, a useful tool for quantifying the environmental impact of a product across environmental indicators, including carbon footprint, water, and resource use. Pilot projects of the PEF methodology have already been completed, some with input from New Zealand food producers.
Farm to Fork strategies will help consumers make informed decisions
Photo by Tim Mossholder on Unsplash
The Farm to Fork Strategy strives for a fair, healthy, and environmentally-friendly food system. This strategy was presented in May 2020 and will be of particular relevance for New Zealand food exporters.
The EU, as the number one importer of food products worldwide and the largest seafood market, aims to promote a global transition to sustainability. This will be achieved in cooperation with partners through trade agreements and a sustainable food labelling framework, which will allow consumers to choose healthy and sustainable diets. The proposed mandatory labelling will cover nutritional, climate, environmental, and social aspects of food products.
While specific targets are currently planned for EU countries, such as a 50 percent reduction in the use of pesticides, and a reduction of at least 20 percent in the use of fertilisers, we can expect that these targets will become the norm for all products placed on the EU market.
The Agreement on Climate Change, Trade and Sustainability (ACCTS) aims to remove barriers to trade
While the European Green Deal will add requirements to trade partners, the Agreement on Climate Change, Trade and Sustainability (ACCTS) is designed to generate momentum towards wider solutions to environmental challenges that are agreed on globally. A central aim is to remove barriers to trade in environmental goods and services, such as products related to clean energy generation like wind turbines and solar photovoltaic cells.
Similar to the EU, ACCTS pushes for eco-labels that are fair and not based on arbitrary choices, such as recycled content. Eco-labels need to consider the product’s full life cycle, including its production, packaging, and method of transport — not just for the distance between production and consumption, often referred to as “food miles”.
Sustainability is savvy for New Zealand exporters
New Zealand may be in a good position in its ongoing trade negotiations with the EU with the Zero Carbon Act and the New Zealand Emissions Trading Scheme (NZ ETS) in place.
Photo by Aneta Foubíková on Unsplash
For the success of future trade, it is essential that exporters have:
- a good understanding of the carbon footprint of exported goods
- clear sustainability labelling
- sustainable food production.
There will also be demand for innovative technologies that support clean energy and circular economy solutions. In a nutshell: There is a clear business case for sustainability, especially for exporters.
By Barbara Nebel
This article has been modified and was first published by the German-New Zealand Chamber of Commerce Inc.