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Sustainable trade

Air pollution's impact on sustainable trade is unmistakable: How should we proceed?

Published 09 May 2023

Economic activities, in particular the production and global exchange of goods, have contributed to environmental degradation with significant impact on the planet. This connection between trade and pollution is highlighted in the Hinrich-IMD Sustainable Trade Index. The US Association of Foreign Press Correspondents spoke with Christos Cabolis, chief economist at the IMD World Competitiveness Center, for his insights on the subject.

The Hinrich-IMD Sustainable Trade Index 2022 highlights a crucial link between trade and environmental pollution. As global economies continue to grow, the degradation of the environment, including air pollution, has become a significant concern. The pandemic's early stages saw a 31 percent year-on-year reduction in air pollution due to lockdowns worldwide, according to the Proceedings of the National Academy of Sciences. Visual Capitalist's ranking of 30 global economies on trade-related indicators, including air pollution, reveals a potential link between economic output per capita and air pollution. The AFPC-USA spoke with Christos Cabolis, chief economist and Head of Operations at the IMD World Competitiveness Center, to gain insights into the impact of economic activity on the environment and ways to reconfigure our relationship with trade.

Cabolis's expertise is crucial in understanding how economic activity affects the environment. He provides valuable insight into sustainable trade and how we can move forward in building a more sustainable future.

Cabolis's interview with the AFPC-USA covers the connection between air pollution and sustainable trade, highlighting the need for a reconfiguration of our current economic practices. By understanding the link between trade and environmental pollution, we can make more informed decisions and take steps towards a cleaner, more sustainable future.

Cabolis’s interview with is within the scope of AFPC-USA’s partnership with the Hinrich Foundation. The AFPC-USA is solely responsible for the content of this interview.

The following conversation has been condensed and edited for clarity.

Which economic activities present the greatest trade-related impact on the environment?

Economic activities associated with the production and trade of goods that contribute to environmental degradation, such as high levels of air and water pollution, deforestation, and habitat destruction, can have significant impacts on the planet. Among these activities are the production of energy from fossil fuels, extraction and trade of minerals and metals, manufacturing of goods such as electronics or textiles, and production of agricultural products including crops and livestock. The international trade of such goods can further exacerbate these negative impacts by promoting unsustainable production methods and resource depletion in the exporting economy.

Related Article

Sustainable Trade Index 2022

According to the 2022 Sustainable Trade Index (STI), which covers 30 countries, air pollution is a major concern for several nations. For example, India's significant export of refined petroleum has contributed to high levels of air pollution, while Pakistan and Bangladesh face environmental challenges due to their agricultural practices and industrial emissions in their rapidly growing economies.

How is air pollution connected to sustainability and how is it a threat to sustainable development?

Air pollution has far-reaching implications for all the pillars of the Sustainable Trade Index (STI). Not only does it contribute to climate change, but it also damages soil, water, and vegetation, reducing biodiversity and posing a threat to the environment. In addition, air pollution has a disruptive impact on the societal pillar by adversely affecting human health, particularly for vulnerable populations such as low-income communities. Respiratory and cardiovascular diseases are just some of the health concerns associated with air pollution.

Furthermore, the negative externality of poor air quality also has economic implications. Healthcare expenses and reduced productivity of resources, such as agricultural land, are just a few examples of the costs that must be considered. Ultimately, air pollution undermines the foundations of sustainable development, including sustainable economic growth, societal development, and environmental protection.

What is the link between air pollution and economic output per capita?

The relationship between air pollution and economic output per capita is a complex and multifaceted one. In many cases, rapid economic growth and industrialization have been accompanied by an increase in energy consumption, transportation, and industrial activities, which often lead to higher levels of air pollution. This is particularly true for emerging economies, where air pollution levels can be especially high. As we noted earlier, air pollution can have negative effects on economic growth, potentially reducing labor productivity and increasing healthcare costs.

However, the relationship between air pollution and economic output per capita is not straightforward. In some cases, economic growth and industrialization can lead to investments in cleaner technologies and practices that help mitigate the impacts of air pollution. In certain emerging economies, rapid economic growth has led to improved environmental regulations and increased access to healthcare, which have in turn helped reduce the effects of air pollution on economic output per capita.

In the end, the relationship between air pollution and economic output per capita is dependent on a range of factors, including the level of economic development, the quality of environmental regulations, and the availability of clean technologies and practices.

How do lower-income economies bear the brunt of environmental hazards like air pollution?

Lower-income economies are disproportionately affected by environmental hazards, such as air pollution, due to a variety of social, economic, and environmental factors. Inadequate environmental regulations and enforcement mechanisms, particularly in the industrial and transportation sectors, can result in higher pollution levels. Furthermore, the use of traditional fuels like oil, wood, and charcoal is more common in these economies than clean energy sources, further contributing to pollution. Limited access to healthcare and resources to deal with the health consequences of air pollution is also a challenge. Climate change is another factor, as lower-income economies are more vulnerable to the effects of natural disasters like wildfires and dust storms, which can worsen air pollution.

How are trade and environmental sustainability compatible?

Trade and environmental sustainability can, in principle, be compatible. However, achieving this requires a comprehensive approach that takes into account the environmental impacts of trade while promoting sustainable trade practices.

One way to align trade and sustainability is through the development of sustainable supply chains, where renewable energy, waste and emissions reduction, and sustainable agriculture and forestry practices are supported. Examples of such initiatives include the Rainforest Alliance, which promotes sustainable coffee production and trade while protecting the environment and supporting farmers and their communities, and the Ethical Tea Partnership, which works to improve the sustainability of the tea industry.

Trade policies can also be used to promote sustainable development, such as the "Indo-Pacific Economic Framework," an economic initiative that aims to promote fair and resilient trade, as well as clean energy and decarbonization.

Ultimately, achieving compatibility between trade and environmental sustainability requires collaboration among all stakeholders, including governments, businesses, and civil society organizations.

We tend to hear only the negatives: What are the positive environmental impacts of trade?

Trade can have positive environmental impacts that are often overlooked. By increasing the available choices for goods and services to both consumers and producers, trade can enhance efficiency, productivity, job creation and innovation, ultimately leading to growth and development. One of the key ways trade can support environmental sustainability is through certification schemes such as Rainforest Alliance or Fairtrade, which promote the production of sustainable agricultural goods.

Furthermore, trade can encourage the transfer of environmental technologies and expertise between countries, leading to the reduction of greenhouse gas emissions and the improvement of air and water quality. For example, the UN Clean Development Mechanism (CDM) facilitates the transfer of clean energy technologies from developed to developing countries.

Finally, trade can drive green innovation. The increasing demand for renewable energy technologies has led to the growth of the renewable energy industry, with countries like China becoming major exporters of solar panels and other renewable energy technologies. Meanwhile, countries such as Germany and Denmark have developed significant expertise in wind power technology. In all these areas, trade can have positive environmental impacts that are crucial for sustainable development.

How can developed countries lead the way to ensure global trade has a lower impact on the environment?

Developed economies have a crucial role to play in mitigating the impact of global trade on the environment by championing sustainable trade practices and providing much-needed support to countries striving to adopt sustainable development and consumption practices.

One way in which developed economies can help is by providing funding, technical assistance, and other forms of support. For example, the UN Green Climate Fund (GCF) is financed by developed countries and supports developing countries in their efforts to mitigate and adapt to climate change. The Global Environment Facility (GEF) provides grants for projects and programs that promote sustainable development and protect the environment. The United Nations Development Program (UNDP) provides technical assistance and financial support to help developing countries achieve sustainable development goals.

Developed economies can also promote sustainable consumption by providing technical assistance and capacity building to governments, civil society organizations, and the private sector. The UN Sustainable Lifestyles and Education (SLE) program promotes sustainable consumption and production practices, while the SWITCH-Asia Program provides funding and technical assistance for projects that support sustainable consumption and production practices such as eco-labeling, sustainable supply chain management, and green public procurement.

Overall, developed economies can lead the way towards a more sustainable and environmentally responsible global economy by implementing strong environmental regulations, promoting sustainable development and consumption, promoting sustainable trade agreements, and encouraging corporate sustainability. However, it is important that collaboration between developed and developing economies establishes meaningful and feasible objectives and requirements for such initiatives to be successful.


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Christos Cabolis is the Chief Economist at the IMD World Competitiveness Center. He is also the Head of Operations at IMD, and an Adjunct Professor of Economics and Competitiveness.

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