Opinion Editorial TTIP and Climate Change: A Tale of Two Cities from Paris to Hannover

Joseph E. Stiglitz is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. A recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979), he is a former senior vice president and chief economist of the World Bank and a former chairman of the (US president's) Council of Economic Advisers.

(Foto: REUTERS)

Obama and Merkel were instrumental in securing the Paris Agreement on climate change. TTIP has the potential to undercut this achievement.

By Joseph E. Stiglitz

German Chancellor Angela Merkel and US President Barack Obama, who will meet next weekend in Hannover, are both profoundly aware of the importance of the climate crisis. Last year both were instrumental in securing the Paris Agreement on climate change.

Yet in Hannover they are poised to undermine their joint climate legacy by pushing forward the Transatlantic Trade and Investment Partnership (TTIP). Together with its sibling, the Trans-Pacific Partnership (TPP), TTIP has the potential to undercut urgently needed action on climate that the Paris agreement requires.

Meeting the targets set in Paris will require phasing out fossil fuels globally at an unprecedented speed, and leaving as much as eighty per cent of known global fossil fuel reserves underground. Global economic structures for production, investment, and trade will need to be retrofitted. Trillions of investment will need to be shifted from high carbon assets into the infrastructure for low or zero carbon society. New, zero carbon power generation, storage and distribution, and highly efficient housing, new factories and transport networks will need to be built.

The technologies are largely there, but the inertia of the incumbent structures will prevent their rapid implementation. Existing owners of coal, oil and gas assets—among the most powerful companies on earth—will defend their profits and fight needed change. The transformation will need strong leaders and coherent public policies.

Not paying for these large social costs delivers a hidden subsidy

Yet instead of promoting and supporting Merkel's and Obama's laudable efforts on climate, TTIP and TPP would strengthen the hand of the incumbency and cement in place a system that treats the environment as distinct from—and subordinate to—international trade and investment.

Though trade negotiators may treat commerce and climate as separate problems, the emissions driving climate change are in fact an unaccounted cost of the goods and services exchanged in our increasingly complex and globally integrated production and consumption chains. Not paying for these large social costs of pollution in production and global shipping delivers a hidden subsidy to the corporations polluting our global atmosphere.

Any good trade agreement would seek to eliminate distorting subsidies to producers. One cannot have fair trade if firms are not required to pay the environmental costs they impose on society—and in this case, an existential threat to life on the planet. TTIP does nothing to prohibit these hidden subsidies, or other fossil fuels subsidies buried within tax systems.

Under TTIP proposals now on the table, government policies to incentivize more environmentally sustainable goods and services—even with voluntary labeling—can be challenged as illegal "technical" trade barriers. Countries that lose such cases could face millions in sanctions unless they eliminate the regulations.

The investment provisions of recent agreements are worse still, creating the risk of lengthy lawsuits and sizable cash awards to investors if governments seek to reduce these hidden subsidies for greenhouse gas pollution, or ban or tax climate-imperiling products and production methods.