Aid For Trade Essential For Developing Economies In Clean Energy Shift, Says WTO

A World Trade Organisation (WTO) Secretariat report launched on 28th June at the Global Review of Aid for Trade highlights significant trade opportunities for developing economies and least-developed countries (LDCs) as the world shifts to cleaner energy sources. The report, titled "Aid for Trade in Action: Supporting the transition to clean energy," underscores the importance of development finance in helping these economies seize emerging opportunities in global value chains related to clean energy.

The report notes that clean energy adoption is increasing rapidly, with sources like wind, solar, hydropower, hydrogen, and nuclear power now generating nearly 40 percent of global electricity. This share is expected to grow quickly as technology costs decrease and economies intensify efforts to meet net-zero greenhouse gas emission targets. The transition to clean energy offers developing economies and LDCs a chance to expand trade volumes and diversify exports.

Approximately US$60 billion, or 30 percent of all Aid for Trade commitments with climate objectives between 2011 and 2021, was directed towards the energy sector. However, this amount remains insufficient compared to overall climate finance flows. Developing economies and LDCs currently receive less than one-fifth of global clean energy investments, limiting their ability to fully capitalise on trade opportunities and achieve their nationally determined contributions (NDCs).

The report identifies three key segments where developing economies could integrate more fully into global trade: minerals and metals, machinery and equipment manufacturing, and services. It also explores development opportunities related to carbon credits and the benefits of using carbon capture and storage systems to reduce the carbon intensity of existing export baskets.

In terms of minerals and metals, more support could help developing economies with significant resources attract investments in safe and sustainable extraction facilities. Additionally, the manufacture of clean energy equipment is expected to exceed $1 trillion by 2050. This presents opportunities for these economies to become hubs in manufacturing value chains.

Specific Opportunities in Clean Energy

The report examines specific opportunities in five clean energy value chains: wind, solar photovoltaic (PV), green hydrogen, hydropower, and nuclear power. It provides examples and case studies of how Aid for Trade is helping developing economies realise opportunities in each area while addressing challenges that impede greater value chain participation.

The authors Michael Roberts and Vishvanathan Subramaniam from the WTO's Aid for Trade Unit emphasised at the launch event the importance of greening the energy sector for climate action and unlocking trading opportunities for developing economies. "The energy sector is absolutely critical for a net-zero transition: it accounts for 75 percent of greenhouse gas emissions," Roberts said.

Role of Aid for Trade

Subramaniam added that realising these opportunities requires financing, with Aid for Trade playing an integral role in helping developing economies secure this financing. Dr Roberta Boscolo from the World Meteorological Organisation (WMO) noted that global warming causes fluctuations in renewable energy supply. "All these variabilities can be addressed with cross-border energy trade," she said.

Asian Development Bank (ADB) economist Pramila Crivelli highlighted areas where Aid for Trade can play a key role based on recommendations from ADB's report on sustainable trade competitiveness. These include aligning trade and climate strategies, technology transfer, and supply chain transparency.

Future Prospects

Countries are scheduled to submit revised NDCs next year to reduce national emissions per the Paris Agreement's climate targets. Beatriz Fernandez from United Nations Environment Programme (UNEP) mentioned that there is significant interest in reviewing NDCs next year. "The finance community will become a more active stakeholder," she said.

The report concludes by recommending further alignment of Aid for Trade with clean energy opportunities. By mobilising financial resources, building trade capacity, and fostering international cooperation, the global community can ensure a just transition to a cleaner future for all.

With inputs from WAM