Is it possible for two contrasts – developing India and developed United States – sharing a common climate change characteristic – the large countries with differing carbon emissions per capita responsibilities — to recalibrate their trade policies to collaborate on green trade? Yes, says a new report.
A report released in October by the Center for American Progress, a nonpartisan policy institute, titled, Climate Is the Future of the US-India Trade Relationship, argues that as the United States and India seek to turn climate action into economic opportunities, the case for a deeper trade partnership has never been stronger.
The report is a collaboration between the Center for American Progress and the Council on Energy, Environment, and Water, an Indian think-tank.
It notes the policy shifts in India and the US in recent years which it thinks will support the collaboration.
On India, the report observes, “Despite the United States being one of India’s largest trading partners, trade has historically been an irritant in US-India relations rather than a constructive area of cooperation. That is changing as Prime Minister Narendra Modi’s administration has made trade diplomacy a core element of its economic strategy to attract overseas investment, support its industrial policies, integrate into global supply chains, and lessen dependence on Chinese imports in key sectors.”
About the United States, the report’s assessment is: “…the United States in recent years has sought to build strategic trade partnerships outside the usual channels of conventional free trade agreements (FTAs), with greater emphasis on using trade to support climate ambition, onshoring of jobs and manufacturing, and addressing Chinese nonmarket practices. These shifts have allowed New Delhi and Washington to settle seven World Trade Organization (WTO) cases between the two countries and to conduct high-level meetings around trade and technology issues.”
On the basis of these two premises, the report says the rapprochement and growing alignment on trade and industrial policy questions creates opportunities for a more sustained and consequential trade partnership between the United States and India than seen to date. Among those opportunities, the most promising is an enhanced US-India green trade partnership.
The observations of the report are not different from what the Modi government has been suggesting on the emissions mitigation front. The collaboration for a green trade tie-up can work if the two countries commit to the following:
*Pursue interoperability of sustainability standards, carbon accounting, customs nomenclature, and green procurement
*Develop shared principles around green subsidies
*Agree on endorsing clean energy subsidies along with joint investment
*Enhance transparency and information exchange to build supply chains based on complementary strengths
*Consider a green goods and services list
*Pursue a bilateral sectoral agreement that ties market access to carbon intensity
*Explore a climate peace clause
*Deepen cooperation around critical minerals
*Host constructive discussions around border carbon adjustments
*Promote diffusion of next-generation climate technologies
Such a partnership would contribute to both countries’ economic, climate, and national security objectives by magnifying ongoing investments by Washington and New Delhi to decarbonize their economies and build resilient and interdependent supply chains for clean technology products. Just as importantly, such a partnership would provide a much-needed example for the rest of the world of how cooperative trade policy can build energy security and address climate change.
Security cooperation, animated primarily by concerns about Chinese assertiveness in the Indo-Pacific, has anchored this revitalized partnership, but the rapprochement has extended to domains including trade.
On the climate front, the report says: “Over the past year, Washington and New Delhi settled all outstanding WTO disputes between them, which covered traded goods ranging from steel to solar panels to poultry—a sharp turnabout from the mini-trade wars of the Trump administration. On the affirmative side of the agenda, India has joined all three of the pillars of the US-championed IPEF that concluded, and in 2023, US and Indian officials held an inaugural Strategic Trade Dialogue focused on cooperation around advanced technologies. These new trade arrangements and convenings build on other, more established channels of communication such as the US-India Commercial Dialogue.”
The report recommends a constructive, trust-building first step in strengthening US-India cooperation around green trade is pursuing more robust forms of the kind of “soft” cooperation that has been the main focus of US trade diplomacy in recent years. Priority areas for soft cooperation between New Delhi and Washington, the report says, include:
*Developing joint approaches to carbon accounting for use in product standards, border carbon measures, and public procurement
*Updating customs nomenclature to better reflect reverse supply chains and the circular economy and distinguish between low- and high-carbon versions of the same good
*Harmonizing standards and regulatory definitions for clean technologies, such as green hydrogen and carbon capture and storage, for maximal emissions-reduction performance
*Sharing best practices around green public procurement
Both the United States and India are using targeted financial support schemes, including domestic content requirements, to boost domestic manufacturing, create jobs, and reduce dependence on Chinese imports in a range of clean technology goods such as solar panels, wind turbines, and EV batteries. New Delhi and Washington would be well-served by mutually recognizing the legitimacy of such subsidy schemes and by developing shared principles and best practices relating to their design, implementation, and duration.
Another recommendation relates to the lack of awareness and data about global decarbonization projects, investments, technologies, and resources is a major obstacle to building new clean energy supply chains. To address this challenge, the United States and India should collaboratively develop a mechanism to track such information and share it with investors, firms, and other private-sector actors to identify and mobilize finance around new clean energy supply chain relationships.
The report elaborates: “The focus of such collaboration should be on leveraging U.S. and Indian respective comparative advantages—for example, India’s strong tradition of technical education and comparatively low labor costs and expansive US public investment in innovation in clean technologies.”
Other recommendations include considering a green goods and services list; pursuing a bilateral sectoral agreement that ties market access to carbon intensity; exploring a climate peace clause in trade dispute settlements; deepening cooperation around critical minerals for joint investment in new technologies to explore and mine critical minerals; and promoting diffusion of next-generation climate technologies.