The U.S.-Canada-Mexico Agreement (USMCA) entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA) and establishing new rules of the road for trade and investment in the region. Along with including chapters on digital trade, environment, and labour, which did not feature in the original NAFTA, the new accord also features significant changes in relation to investor-state dispute settlement (ISDS). Parties have to a large extent abandoned this controversial mechanism.

The USMCA will govern a multi-trillion dollar market and is expected to face heavy scrutiny within the three countries, especially during a U.S. election year.  Known as CUSMA in Canada and T-MEC in Mexico, the new agreement has been mired in debate for both substantive and political reasons since the idea was first floated years ago.

Indeed, in the months leading up to Donald Trump’s 2016 election win and in the early years of his administration, the U.S. leader repeatedly threatened a NAFTA withdrawal unless he could obtain a “fairer” deal for American workers. This was part of a wider effort to negotiate or renegotiate trade agreements with any country that allegedly did not provide the U.S. with “free, fair, and reciprocal” terms, fuelling tensions with many trading partners, including Canada and Mexico.

Now that the USMCA has taken effect, we unpack some of the new features of the agreement below and explain why they matter.

Labor rights and enforcement with the new USMCA

NAFTA did not have a labor chapter, which was instead dealt with in a separate agreement on labor cooperation. Notably, the new USMCA labor chapter brings labor into the trade agreement, including a section on cooperation, and is subject to the trade agreement's dispute settlement chapter.

This means that if a dispute panel finds that one of the parties is not complying with the labor provisions, the party raising the issue can “suspend benefits” under the agreement if the issue is not resolved. However, the USMCA parties must first undertake consultations under the labor chapter before resorting to that option.

While the labor chapter was included from the start, the USMCA ratification process hit a snag last year, after Democrats in the U.S. Congress questioned whether its labor provisions were sufficiently stringent and threatened not to approve the deal. This prompted trade negotiators to develop a “Protocol of Amendment”, which involves select revisions to the environment, labor, intellectual property, and dispute settlement chapters.

The USMCA will govern a multi-trillion dollar market and is expected to face heavy scrutiny within the three countries, especially during a U.S. election year.

Notably, the protocol establishes a “Facility-Specific, Rapid Response Labor Mechanism”. This process allows one USMCA party to request consultations with another party  if they fear that a “facility” – such as a car manufacturing plant – is not complying with “the right of free association and collective bargaining” for its workers under the relevant labor laws . The complaining party can also ask for a review of conditions and even impose “remedies” as a result.

The complaining party can ask for a panel of labor experts to evaluate the claims, though remedies can be imposed before a panel has completed its work. The mechanism has raised questions, however, over the prospect of labor inspectors being sent into one country from another USMCA party to “verify” compliance, which led to U.S. officials clarifying to Mexico that these would solely involve technical experts, not tasked with enforcement action.

ISDS not applicable to Canada, US and Mexico agree to limited version

The USMCA’s investment chapter contains significant modifications from its NAFTA version, known colloquially as “Chapter 11”, which has been heavily used over the past 25 years. While some of the substantive standards have seen changes in the USMCA, due partly to the language in the U.S. Model Bilateral Investment Treaties of 2004 and 2012, the most notable difference is how this new tripartite trade and investment agreement will handle investor-state dispute settlement.

ISDS is the mechanism that allows foreign investors to file for arbitration against host states, i.e. those countries where they have undertaken those investments, in front of a three-person tribunal. The mechanism has been included in many international investment agreements, as well as trade agreements with investment chapters. However, ISDS has faced sharp scrutiny over the past several years, prompting a strong push for reforming the mechanism or doing away with it entirely.

For example, one of the primary concerns is what ISDS means for a government’s right to regulate in the public interest and concerns over whether the prospects of an ISDS claim can lead to governments experiencing “regulatory chill”. The hefty legal fees involved in investor-state arbitration, as well as the often massive damages awards that can result from a case, are among ISDS’ many other criticisms.

According to the United Nations Conference on Trade and Development (UNCTAD), at least 67 ISDS cases have been filed under NAFTA since it took effect 26 years ago. How USMCA might handle ISDS going forward was therefore a major issue for trade and investment watchers in the negotiation process.

In a landmark shift, ISDS will now no longer apply to Canada under USMCA, and its consent to ISDS for “legacy investment claims” under NAFTA will expire three years after NAFTA’s termination.

In a landmark shift, ISDS will now no longer apply to Canada under USMCA, and its consent to ISDS for “legacy investment claims” under NAFTA will expire three years after NAFTA’s termination.

Meanwhile, USMCA Chapter 14 allows for some ISDS but significantly limits the access to US and Mexican investors. Both parties are bound by an annex, which provides for investment arbitration only for claims alleging violations of direct expropriation and non-discrimination, and only in certain conditions and limitations.

A further annex, also applicable to the U.S. and Mexico, contains a special regime for “Covered Government Contracts” in sectors such as oil and natural gas, power generation, telecommunications, transportation, and infrastructure. Here, investors who are parties to such contracts can bring ISDS claims with respect to other types of violations, such as fair and equitable treatment (FET).

Looking ahead: the U.K. and Kenya

Aside from the geopolitical issues that the USMCA process brought to the fore, these substantive elements could give useful signals of how the U.S and the other USMCA parties will aim to address these in other trade negotiations, including in the forthcoming talks between the U.S. and United Kingdom, as well as a planned U.S.-Kenya trade deal.

The latter would be the U.S.’ first with an African partner, with negotiations due to begin next week. Trump officials have long said that this agreement could serve as a “model FTA” for agreements with other African countries, making that process one to watch closely going forward.

*The authors would like to thank Nathalie Bernasconi-Osterwalder for her valuable insights and feedback on this piece.

Lost among the recent ubiquity of pandemic-related headlines was a critical chapter in President Trump’s sustained assault on key environmental regulations. This time, the issue was mercury, and the move will undoubtedly have knock-on effects for our respiratory health.

While cursory glances at the headlines may simply suggest yet another Trumpian rollback of U.S. Environmental Protection Agency (EPA) measures, a closer look at this recent ruling reveals much more about the nature of environmental protection and the need for a comprehensive understanding of how we regulate pollutants.

First, the science.

Mercury is a common by-product of power-plant activities and industrial mining processes. When ingested by humans (most commonly through the fish we eat) mercury poisoning (or Minamata disease, named after the Japanese town in which it was first documented) can lead to a host of medical conditions that include hair loss, muscle weakness/paralysis, organ damage, loss of senses, depression, and even death. 

(In fact, scientists at IISD Experimental Lakes Area, in a highly controlled experiment, intentionally added small amounts of traceable mercury to a lake to discover how it moved through the ecosystem and food web, and how it reached and accumulated in the fish that billions of people around the world consume daily.)

When it comes to mercury, the direct human health benefits of reductions were quantified at a maximum of USD 6.2 million. However, when you include the corollary benefits, the impact on human health in dollar figures shoots up to between USD 37 billion and USD 90 billion.

Back in 2011, the Obama administration finally recognized the evident need for the regulation of mercury emissions from coal- and oil-fired power plants. They decided to deem it "appropriate and necessary" for the U.S. EPA to introduce a series of thresholds and rules.

The administration determined, however, that when calculating the benefits of new mercury-emission regulations, "co-benefits" should also be counted. Co-benefits, put simply, are the ancillary effects of a set of regulations or practices that are also beneficial to the original intention. In this case, that intention was protecting public health.

When it comes to mercury, the direct human health benefits of reductions were quantified at a maximum of USD 6.2 million. However, when you include the corollary of particulate matter (including sulphur dioxide and nitrogen oxides) that is reduced due to the installation of the required mercury-control technology, the impact on human health in dollar figures shoots up to between USD 37 billion and USD 90 billion.

That calculation offers a clear justification for the USD 9.6 billion price tag industry spent in implementing the changes. But without that "co-benefits" line in the calculations, the benefits tumble back down to $6 million, making a less convincing financial case to industry.

And the originally intended health benefits? Had co-benefits been disregarded in the original U.S. EPA mercury calculations, it is estimated the United States would have suffered 11,000 more premature deaths, 4,700 more heart attacks, and 130,000 more asthma attacks every year.

Including co-benefits was a necessary step and should provide an aspirational blueprint for environmental policy.

But the Trump administration has now managed to axe the justification of the inclusion of co-benefits—when it comes to mercury, at least. The Mercury and Air Toxic Standards still stand but are now vulnerable to lawsuits and further rollbacks, due to their now supposed diminished value.

This is a highly disquieting move whose impacts could be experienced by hundreds of thousands of people in the United States and abroad, given that mercury emissions literally blow in the wind and pay no regard to international borders.

But what should worry us more is the precedent that is being set. Now that the devaluation of critical co-benefits has been officially sanctioned in the context of mercury, and with a head of the EPA that just happens to be a former coal lobbyist, the scene is now set for a docket of pollutants emitted from the burning of fossil fuels to have their regulations loosened.

Including co-benefits was a necessary step and should provide an aspirational blueprint for environmental policy. And in the context of this current pandemic, protecting air quality and its impact on our citizens’ health is at the forefront of our minds.

As the months pass, we cannot forget the critical role that the valuation of co-benefits plays in safeguarding public health and must ensure that this recent ruling proves to be a blip and not the signal of a new normal.

Want to learn more about what IISD Experimental Lakes Area has discovered about the impact of mercury on fresh water and fish? Click here.

It might appear opportunistic to link the climate and racial justice movements at a time when race is shaping the conversation in the media, in our workplaces, and in our homes. But as Dr. Ayana Elizabeth Johnson has recently explained, on the air and in her recent Washington Post op-ed, "Our racial inequality crisis is intertwined with our climate crisis. If we don’t work on both, we will succeed at neither."

She's right. These are deeply connected issues, so drawing these parallels can help expand the meaning of justice: because it is about race, about gender, about the climate, about food, about everything that matters.

What has become clear now is where all the overlap lies. Social injustices, for instance, are driven by economies, politics, and institutions that generate prosperity for some and poverty and disenfranchisement for many. These systems of power and oppression are also evident in the way climate change impacts low-income countries hardest, as well as poorer individuals, minorities, and women anywhere in the world.

The ‘father of environmental justice,’ Dr. Robert Bullard, urges us to see all forms of justice as a single, deeply connected set of principles based on fairness and equity. “It’s all one book”, he said during a recent interview for the Climate 2020 podcast. Although he is deeply concerned about the present time, Dr. Bullard takes the long view and understands that the struggle carries on. “It’s a marathon,” he explains, best approached through a 30- or 50-year strategy, not a four-year plan, until the baton is passed to the next generation.

Unfortunately, when it comes to the climate, we don't have this kind of time. The situation is only getting worse: as a result of human-caused climate change, by 2070 up to 3 billion people will need to move to escape temperatures too hot for humans to withstand and thrive in.

Righting these deep-rooted wrongs requires active, unrelenting support for movements that fight for justice in all its permutations. And if we are aiming to rewrite development pathways created by unfair systems, we must first break these systems down.

“I can't breathe: Those words are incredibly important to the climate and environmental movement," said Liv Havstad, executive director of Hip Hop Caucus, during an interview for the climate newsletter Heated. "How do we make sure this movement is responding to all the ways people can’t breathe, particularly black people?"

Indeed, the essential act of breathing has become a terrifying uncertainty for billions of us, as police brutality continues, unfairly funded healthcare systems break down, anxiety and depression rates soar, air pollution levels rise, and extreme heat becomes the norm.

Righting these deep-rooted wrongs requires active, unrelenting support for movements that fight for justice in all its permutations. It's why, as Leah Thomas argues, every environmentalist should be anti-racist. And if we are aiming to rewrite development pathways created by unfair systems, we must first break these systems down.

Instances of “slow violence” have been ignored for too long

Even though racism and the unequal impacts of climate change cause immeasurable damage every day, and have been doing so for a long time, this harm is often concealed from sight or ignored by those who don't suffer them directly. The process is something akin to what Rob Nixon coined "slow violence": "a violence that occurs gradually and out of sight, a violence of delayed destruction that is dispersed across time and space, an attritional violence that is typically not viewed as violence at all."

Slow violences of injustice, racism, and inaction have crossed a threshold, becoming urgent and acute ... existential questions we have long been asking ourselves are imbued with a renewed energy.

We are living in a historical moment, but not because anything new is happening: tragically, pandemics have come and gone; people have suffered racial abuse and oppression for generations; and we have seen evidence of the climate and environmental emergency for decades now. But the slow violence of injustice, racism, and inaction have crossed a threshold, becoming urgent and acute. That makes this moment feel different. The existential questions we have long been asking ourselves are imbued with a renewed energy, which must be applied to confronting all forms of injustice.

It's broken, so let's fix it—starting now

Tackling injustice, however, means clashing head-on with systems that have been put into place and upheld by those in power. Consider this: the creation of an institution and its raison d''tre is shaped by the values of its creators—what they consider to be right and wrong. These values will ultimately determine the trajectory of the institution—for example, a nation that moves toward green growth or toward fossil fuels; a city that moves toward inclusive urban planning or toward neighbourhood redlining. The longer a society adheres to the values of its creators, the more woven into the fabric of day-to-day life they become, and the more difficult it can be to challenge the status quo.

One country that has managed to challenge dominant narratives and development models is Costa Rica. Andrea Meza Murillo, Director of the Climate Change Division in Costa Rica's Ministry of Environment and Energy, explained during a recent interview with IISD that the government decided to maintain fuel prices at their higher, pre-pandemic levels and use the extra revenue to fund unemployment support schemes, which are now historically stretched. Such a decision in the current global context reflects the nation's sustained commitment to decarbonization and greener growth, while also reaffirming Costa Rica’s rejection of outdated models of development that put the economy before well-being.

But such inspiring examples as this one remain uncommon, as most institutions are self-serving and resist change. In the wake of George Floyd’s death, the mayor of Minneapolis, Jacob Frey, admitted that reforming public institutions to address their embedded biases is almost impossible: "This is not just about the eight minutes of time where our officer had his knee on George Floyd’s neck," he told the New York Times. "This is about the previous 400 years. This is about a hundred years’ worth of intentional segregation and institutionalized racism." Though Mr. Frey was referring to racism in the local police force, the same discrimination exists in all kinds of systems.

The labelling of Indigenous Peoples as stewards of their ancestral lands, for example, has been used to limit their influence strictly to local issues and exclude them from bigger, nationally relevant conversations.

The narratives that institutions build for themselves will sometimes seek to disguise racist or post-colonial mentalities and pigeon-hole people in order to perpetuate carefully crafted status quos. The labelling of Indigenous Peoples as stewards of their ancestral lands, for example, has been used to limit their influence strictly to local issues and exclude them from bigger, nationally relevant conversations.

Even when in pursuit of noble causes, like ensuring the survival of humanity in the face of a climate emergency, the interests and competing priorities that come into play in constructing a narrative of resilience and progress will carry conflicting values and visions.

Is an ambitious climate narrative aligned with the principles of justice?

The narrative in climate discussions, widely supported by science, posits that a global temperature increase must be limited to 1.5°C above pre-industrial levels to avoid the catastrophic impacts of climate change. We fully support this ambition as the responsible and just thing to do; however, we need to match the enormous mitigation efforts needed to meet this target with massively scaled-up adaptation planning to prepare for a world in which the 1.5°C goal is not met, a world in which the lives and livelihoods of billions of people—especially those who are marginalized, living in poverty, and largely under-represented in global and national decision-making processes—are at risk.

This doesn't mean we should give up on the 1.5°C target; on the contrary, the focus must be on a transformational approach to climate action that is more radical in reducing greenhouse gas emissions and, at the same time, sets mechanisms, funding, and actions in place to urgently address the needs of people in a world that is 2°C or 3°C warmer. Although it may sound subtle, this would represent a huge departure from the existing climate narrative and bring justice closer to the centre of climate action.

Let's start acting for the future we want—one for the planet and its people

We may soon look back to find that one of the great legacies of 2020 was planting a stronger sense of responsibility and activism in all of us to drive change—whether it manifests through protesting, changing our habits and values, or being more open to opinions we have previously shunned.

(…) This time
nothing, no one forgotten. We are here for the storm
that’s storming because what’s taken matters.

The words above, written by Claudia Rankine, eloquently point to the tragedies, injustices, and uprisings that are challenging us today, which will hopefully bring us closer together in the long run. As the world spins out of orbit, we’re seeing the racial justice movement courageously laying the foundation for a new order—it’s our shared responsibility to help build it, but we must pick up the tools and get to work.

The new U.K. Global Tariff will liberalize trade in dozens of environmental goods. It's a great start, but should it go further?

The United Kingdom’s (U.K.) departure from the European Union (EU) at the end of January presented its government with a number of choices about how it would operate outside the Single Market and Customs Union. Chief among these choices was the countries’ new external tariff regime, released May 19. This schedule determines which imported products will face duties, and how high those duties will be.

Applying from the end of the transition period (currently December 2020), this new regime will replace the EU’s Common External Tariff (EU CET) and shape the competitiveness of thousands of foreign and domestic goods, including hundreds of goods of critical importance to sustainability and the greening of the economy. Ensuring such goods and components can be imported tariff-free increases their competitiveness, encourages uptake by consumers and businesses, and helps level the playing field between investments in low-carbon energy sources and fossil fuels on which tariffs are uniformly zero-rated. (Eliminating tax preferences favouring fossil fuels would help also.)

What's different about the new U.K. Global Tariff?

Assessing the new U.K. Global Tariff (UKGT) against the EU CET is complicated by the absence of consensus on what constitutes an “environmental good.” While some products like solar panels or wind turbines are uncontroversial, others—especially goods with both environmental and non-environmental uses, such as acrylic polymers or superheated water boilers—are more contestable.

One benchmark is the list produced by the co-chairs of the plurilateral Environmental Goods Agreement (EGA) negotiations. This list built on the 54 products itemized in the earlier Environmental Goods initiative of the Asia-Pacific Economic Cooperation (APEC), bringing the total to 265 tariff lines. As part of the British government’s consultations on the UKGT, a group of trade experts, business groups, and civil society organizations formally recommended liberalizing the roughly three quarters of the EGA product list that faces tariffs under the EU CET.

The UKGT did not quite meet that challenge in full, but still made meaningful progress over the EU CET in liberalizing EGA-list products. The UKGT:

• Maintains existing tariff-free access for all 67 products from the EGA list that were already zero-rated under the EU CET; this category includes products such as photovoltaic cells and modules; machines and apparatus for the manufacture of boules or wafers (which are used in the manufacture of photovoltaic wafers); light-emitting diodes (LEDs); and various instruments and apparatus for measuring or checking the flow, level, or pressure of liquids or gases.
   
• Removes tariffs on an additional 133 product categories listed in the EGA list and their sub-categories; tariffs on most of these products under the EU CET range between 1.5% and 4%.
   
• Reduces tariffs on another 57 product categories, albeit generally by 1 percentage point or less as part of a rounding exercise.
   
• Ultimately leaves only five EU CET tariff lines from the EGA list at their previous levels.

Notably not lowered were tariffs on electric or hybrid-electric passenger vehicles, which remain at 10%, nor on bicycles, which remain at 14%. The complete set of tariff changes can be found here and those corresponding to the EGA list here.

Meaningful changes

Among the environmental goods on which tariffs won’t apply at the end of the U.K.’s Brexit transition period are the following lines covering equipment used to generate heat or electric power from renewable energy sources.

Other environmental goods on which tariffs will be set to zero include thermostats, glass wool insulation products, fluorescent lamps, LED lamps, waterless urinals, composting toilets, and heat pumps.

A start, but what next?

The products liberalized are a subset of the EGA list, which in turn represents only a portion of all goods that can reasonably be considered environmental. However, it is highly likely that we will continue to see many new environmental technologies invented. Once they are, how will they be dealt with in the U.K.’s tariff schedule? It’s reasonable to expect that, in time, the government will review and update its tariff settings as technologies evolve, market realities shift, and new versions of the Harmonized Commodity Description and Coding System (HS) are designed and implemented.

Wider implications

Beyond the domestic benefits of lowering tariffs on so many goods important for environmental sustainability, it’s hoped that the U.K.’s unilateral liberalization could eventually encourage a restart to the EGA negotiations at the World Trade Organization.

As convener of the 26th session of the Conference of the Parties of the United Nations Framework Convention on Climate Change (COP 26) in Glasgow (November 1–12, 2021), the U.K. will have the opportunity to highlight the importance of expanding the number of countries liberalizing their trade in environmental goods.

As the convener of COP 26, the U.K. will have the opportunity to highlight the importance of expanding the number of countries liberalizing their trade in environmental goods.

That the U.K. has offered these reduced tariffs on a most-favoured-nation basis—i.e., accessible to all World Trade Organization members equally—bolsters the approach taken by the six countries currently negotiating an Agreement on Climate Change, Trade and Sustainability (ACCTS), of which the elimination of tariffs on an agreed list of environmental goods will form a part.

By COP 26, the initial parties to the ACCTS negotiations are likely to have concluded an agreement and will have opened it to new adherents. Announcing the U.K.’s intention to join ACCTS at that event would send a signal of its commitment to multilateral progress on trade, the environment, and climate change.

Dmitry Grozoubinski is the founder of ExplainTrade and a Visiting Professor at the University of Strathclyde. George Riddell is Director of Trade Strategy at EY UK&I. Ronald P. Steenblik is a Senior Fellow at the International Institute for Sustainable Development.

The COVID-19 pandemic could have severe impacts on the environment in fragile states, compounding the challenges faced by their governments and their populations. But it doesn’t have to be that way.

For fragile states, the social and economic impacts of the COVID-19 pandemic are immediate and potentially devastating. The virus threatens to overwhelm already overstretched and under-resourced health systems. When it is compounded with the loss of jobs, the collapse of capital and remittance flows, and disruptions to commodity supply chains and food systems, among other knock-on impacts, there are serious concerns for the stability of these countries and the well-being of their citizens. For those countries most in need of progress toward achieving the Sustainable Development Goals (SDGs), the pandemic threatens to stall or reverse any tenuous gains that have been made.

Less well discussed is what the pandemic might mean for the environment in fragile states, and how these impacts—on watersheds, forests, wildlife, fisheries, and ecosystems—could undermine peacebuilding efforts, further driving instability.

Food systems and the biodiversity connection

Most immediately, disruptions to both domestic and international food systems could increase food insecurity for the poorest and most vulnerable. In most fragile states, agriculture remains the dominant source of livelihoods. Cutting farmers off from their markets and even from their fields due to lockdowns could threaten local food supplies, with restricted supply potentially leading to a spike in prices just as incomes are contracting. The shutdown of fisheries could further compound food security risks. A repeat of the 2008 food price crisis—and the social instability that resulted—is a growing concern. In response, there could be rapid increases in the conversion of land to agriculture; local subsistence hunting; and illegal, unreported, and unregulated fishing. If not sustainably managed and controlled, these actions could have a significant impacts on local biodiversity and, consequently, ecosystem and community health.

Mining, conflict, and land rights

Beyond food, the mining sector is a key pillar of many fragile state economies. The pandemic has led to the shutting down of a number of mining operations, both by government decree and by corporate policy. This could push thousands into the informal, already crowded artisanal and small-scale mining (ASM) sector at large-scale mines. With governments increasingly unable to enforce what few regulations may exist for these remote operations, the high environmental and social costs could include deforestation, water pollution, and the increased use of cheap mercury in processing; elevated health and safety risks relating to the influx of untrained miners; and the expanded use of child labour as schools close and incomes are reduced. Women will bear many of the impacts. Should these ASM operations spring up in close proximity to large-scale mines, tensions and conflicts could also emerge between miners and companies.

With governments increasingly unable to enforce what few regulations may exist for these remote operations, the high environmental and social costs could include deforestation, water pollution, and the increased use of cheap mercury in processing.

Finally, as governments retreat from more rural areas and direct their resources and attention at the fight against COVID-19, they could leave a vacuum easily filled by non-state armed groups or criminal organizations seeking to exploit the situation for revenues or territorial control. As an example, with the imposition of lockdown measures in Colombia, community and land rights activists were quickly targeted by groups involved in illegal mining.

Fewer tourists means less revenue to help protect nature

Not many tourists travelled to fragile states prior to the pandemic; however, the sector was an important source of jobs, investment, and revenue for many of these countries. What tourism existed has often been closely tied to nature, including visits to expansive national parks, mountains, and waterfalls. Many of these biodiversity hotspots were home to significant conservation programming, funded in part by tourism receipts.

The collapse of these revenues and the halted flow of visitors for the foreseeable future put these critical ecosystems under considerable strain and significantly impairs the ability of governments and conservation managers to monitor and protect habitats and wildlife. Given the high correlation between biodiversity and conflict, reduced oversight of protected areas and critical ecosystems could lead to increased competition for and exploitation of the valuable natural resources found within their boundaries, including timber, charcoal, bushmeat, and minerals. Conservation International reports that illegal poaching has increased since the pandemic began, while deforestation has surged in Brazil and Cambodia. Global Witness notes that, in the latter, environmental defenders are increasingly finding themselves under threat. In the absence of effective state intervention, increasing tensions and grievances within and among stakeholder groups could turn violent.

What tourism existed has often been closely tied to nature, including visits to expansive national parks, mountains, and waterfalls. Many of these biodiversity hotspots were home to significant conservation programming, funded in part by tourism receipts.

In the longer term, once economies start to open up again, cash-strapped governments in fragile states may rapidly increase their focus on extractives and natural resource-based industries, such as forestry, fisheries, and mining, to generate quick revenues. This could happen at the expense of strong environmental, fiscal, and socioeconomic considerations. It could also lead to increased competition for resources among interest groups, the capture of resource rents by governments, rapid environmental degradation, and fraying of the social contract between citizens and the state.

Environmental degradation and competition over natural resources

Should environmental degradation and competition over natural resources increase as a result of the pandemic, it will not inevitably lead to conflict. However, when both increase in a context of state fragility and weak governance—to say nothing of a changing climate—and where the COVID-19 pandemic has led to increased unemployment and economic collapse, the likelihood of violence increases.

Unfortunately, in many fragile states, we are already seeing increasingly draconian responses to the pandemic from governments known for their corruption and authoritarianism. By further eroding the trust citizens have in public institutions—if there was any trust to begin with—these responses are making it harder for communities and governments to cope with the pandemic and its economic, social, and environmental consequences.

What can be done to avoid this and support fragile states?

All hope is not lost, however. There is much that can be done—by communities, civil society, governments, donors, and international organizations—to stave off this possible future and instead move toward one of good governance and sustainability. Fragile state governments must, of course, be held accountable for their actions by the international community, and efforts must continue to strengthen governance—that’s nothing new. But the broader focus must remain on supporting and building the resilience of communities, ecosystems, and governments, to ensure that they have the capacity to respond to and recover from future shocks. This includes support not only for health systems, but also for climate-resilient infrastructure, improved water management, more sustainable food systems, alternative livelihoods, and robust climate adaptation planning and implementation.

Support from the international community will be necessary and must continue to grow.

Within the extractive and agricultural industries, governments must be supported in their efforts to enforce and improve resource management regulations. Alongside companies and consumers, they can also redouble their efforts to ensure the responsible sourcing of timber, fish, agricultural products, minerals and metals, both through voluntary initiatives and regulatory mechanisms. It is important that the gains achieved in this area pre-COVID-19 be maintained and that these commodities be extracted, processed, and traded in a way that respects human rights, protects the environment, and promotes peace. Support services must be offered to artisanal and small-scale producers specifically, to ensure that they are protected from COVID-19 while also being able to generate the incomes they need to support their families and communities. These communities can be made a central part of recovery efforts, through employment in infrastructure projects and programs to support livelihood diversification.

The shrinking coffers of fragile state governments will not be able to cover all of this; support from the international community will be necessary and must continue to grow. And while support for fragile state communities through tourism may still be a ways off, conservation practitioners working to protect critical ecosystems can still be supported from afar.   

Achieving the transition toward sustainability and stability will require considerable energy, commitment, and resourcing—all of which are admittedly in short supply as countries wrestle with domestic health challenges and budgetary shortfalls. However, the pandemic has underscored that, in a highly globalized world, countries ignore the needs of fragile states at their peril.

As Canada navigates the COVID-19 pandemic from immediate response to short-term relief and, finally, long-term recovery, its leaders will face increasing scrutiny as to how much stimulus money is going where, and to what extent it will help us build back better.

If this all feels vaguely familiar, it’s because we’ve seen it before. When the global financial crisis of 2008 hit, governments around the world began structuring similar stimulus plans. We can learn a lot by looking back at how effective these turned out to be, both in terms of revitalizing economies and forging a path toward a low-carbon, sustainable future.

In the aftermath of the 2008 crisis, many countries implemented two kinds of policies: those that met urgent needs to support vulnerable sectors and people, saving industries and creating jobs; and those that aimed at longer-term recovery.

Taking the long road to recovery

In the latter category, countries such as the U.S. came out of the financial crisis with policies aimed at transitioning the energy system toward renewables, rolling out mass broadband, revolutionizing education and health care, investing in research and development, and renewing infrastructure.

While these kinds of long-term policies don’t fill the immediate need for jobs, they build a foundation for future growth and prosperity (the central tenet of building back better) by deliberately reshaping the economy.

While long-term policies don’t fill the immediate need for jobs, they build a foundation for future growth and prosperity (the central tenet of building back better) by reshaping the economy.

To do this, you need to have some idea of what you’re driving toward. Post-2008, countries including the U.S., Korea, Australia, Japan, and China used stimulus to support and nurture sectors that were poised to drive green recovery, which meant that economic rebuilding went hand in hand with immediate and lasting environmental improvements.

They put people to work retrofitting buildings to high energy-efficiency standards. China launched into its drive for global leadership on wind and solar power manufacturing. The U.S. forced its troubled auto manufacturing sector to reorient and start building fuel-efficient cars that would serve future markets.

It became clear that, in recovering from crisis, a nation could actively reshape its future to become at once greener and more prosperous.

The global financial crisis also taught us that bailouts of companies should be avoided, but if they are necessary taxpayers should be made whole at the end of the day, and conditions of bailouts should be onerous and tied to policy directives.

It became clear that, in recovering from crisis, a nation could actively reshape its future to become at once greener and more prosperous.

Because the auto bailouts in the U.S. were tied to improvements in vehicle efficiency, a lower emitting vehicle fleet was able to thrive, despite decades of resistance by the sector itself. The Canadian auto bailout came with daunting conditions; it forced restructuring and accelerated bankruptcy that wiped out shareholders, replaced senior management and took equity stakes. In the same vein, the present-day bailout of KLM-Air France was conditioned on limiting the airline’s ability to compete with France’s more environmentally friendly domestic rail services in cases where the journey by rail would be less than 2.5 hours.

Shovel-ready versus shovel-worthy

Investment in simple, ‘shovel-ready’ projects where finance was constrained also performed well after the 2008 crash, such as energy-efficiency funding for residential and municipal sectors. Areas where there was potential for a high number of standardized small projects, such as efficiency retrofitting, also performed better, and showed lower risk than large, complex infrastructure projects.

But governments must consider what’s shovel-worthy, too, applying the principles of smart industrial policy and targeting far-sighted support in areas where latent comparative advantage may take years to emerge. Many countries, notably Europe, made large investments in wind and solar power part of their post-2008 spending. For Europe, this led to a large wind-energy cluster, where countries like Germany held a mechanical engineering advantage.

The inevitable price of this kind of success is risk; the EU investments in solar energy did not create a similar cluster, in part because China already had an advantage in semiconductor electronics.

This is our chance to set Canada on a path of resilience and ensure we can compete in the low-carbon markets of the future.

Policy design is also crucial to avoid unintended consequences and rebound effects. In Australia, a home-insultation program was rapidly instituted, but failed because of a lack of consultation and poor design choices that traded safety, accountability, and effectiveness for speed of implementation. In Japan, subsidies to drive a massive shift toward more efficient, lower-emitting vehicles were a great success, but the decrease in greenhouse gases was largely offset by reductions in road tolls designed to boost tourism, which led people to drive more.

These kinds of pitfalls can be avoided by working across ministries, consulting with stakeholders, and carefully considering policy impacts (both intended and unintended).

We have an opportunity right now for a green transition, with an unprecedented global investment of public funds that will have decades-long repercussions. It’s our chance to set Canada on a path of resilience and ensure we can compete in the low-carbon markets of the future.

But in our rush to create policy solutions in these uncharted waters, let’s not forget that we can draw on rich experience to help us navigate toward this goal.

This op-ed originally appeared in the Hill Times on June 8, 2020. It has been republished with permission.

In an opinion piece for the Ottawa Citizen, Executive Director of IISD Experimental Lakes Area Matt McCandless argues that, in Canada, we often take fresh water for granted but that, as responsible citizens, there are critical steps we need to take to safeguard its health as water usage patterns change. 

"Buoyed by an increased prevalence of lockdown-related good-news stories, such as tales of clearer Vancouver skies and Venetian canals, our general assumption is that the current limitations on human movement will ultimately result in a significant net positive effect for our environment.

Well, that’s only part of the story. Notably absent from much of this discussion, perhaps because of its perceived perennial ubiquity, especially in Canada, is our supply of fresh water..."

You can read the rest on the Ottawa Citizen website.

Calls for green economic recovery plans are piling up, both here in Canada and around the world. Joining environmentalists in voicing their concerns are the International Monetary Fund, World Bank, leading economists, and some of the world’s biggest companies and investors.

Recent polling data shows Canadians agree; a majority believe we must keep up efforts to combat climate change regardless of the health and economic impacts of COVID.

Extreme weather events have not stopped while the world is on lockdown: just last week, the most powerful cyclone in 20 years hit eastern India and Bangladesh, with India now bracing for another; two dams in Michigan were breached in what is being called a “500-year flooding event”; and scientists warned of a grim outlook for Atlantic hurricane season.

The Task Force for a Resilient Recovery, of which IISD is a member, is currently formulating recommendations for how Canada can ensure our economic recovery supports the jobs, infrastructure, and growth needed to keep us competitive in a changing climate.

Our recovery efforts have started on the right foot, but we must do more

Canada has already made steps in the right direction by announcing the conditionality of COVID-19 loans to large businesses based on the disclosure of climate impacts and risks, a first-of-its-kind approach that has garnered international interest. Another welcome move was the federal government’s decision to put CAD 1.7 billion into helping clean up orphaned and abandoned oil and gas wells.

But Canada can and must do more or risk getting left behind while the rest of the world moves on. IISD’s research into stimulus packages in Europe and Asia, which will feed into the Task Force’s recommendations, shows four areas of opportunity:

• Buildings: Australia, New Zealand, South Korea, and the European Union (EU) through its Green Deal, are rolling out energy efficiency retrofits for low-income homeowners and for publicly owned buildings. Public investments vary between USD 7 and USD 750 per capita (in Denmark), with the aim of saving much more on energy bills and creating thousands of local jobs. The same rationale holds true for energy efficiency retrofits in Canada, where buildings are the third largest source of greenhouse gas (GHG) emissions (13% of the total in 2018).
   
• Mobility: France has committed EUR 8 billion (around USD 130 per capita) to “cash for clunkers” programs and subsidies for the purchase of electric vehicles (EVs). Iceland and China are investing in EV charging infrastructure, while the EU is considering a VAT exemption for “zero-emission” cars. In addition, the United Kingdom and many European cities have announced large investments in cycling and walking infrastructure, while China is planning more funding for high-speed rail. Mobility is the sector hardest hit by the COVID-19 crisis and the second largest source of Canada's GHG emissions (25% of the total in 2018). Using stimulus to green and electrify the Canadian mobility sector appears a viable solution, with the added benefit of preparing Canadian manufacturers to compete in export markets.
   
• Nature restoration: The EU, through its Biodiversity 2030 Strategy, has committed around USD 500 per capita to nature restoration; New Zealand has committed USD 140 per capita. Similar efforts are underway in Iceland and Pakistan, with locals employed to plant trees, improve waterways, promote organic agriculture, and restore wildlife habitats. Canada is world-famous for its vast outdoors, but those spaces also suffer from industrial and agricultural pollution requiring investments in natural infrastructure.
   
• Clean energy: Many countries have come up with investment plans for clean energy. Australia, Norway, and Portugal are backing hydrogen, while Denmark and Germany are building out additional wind investments. The EU has also pledged EUR 40 billion in a Just Transition Fund to support coal phase-outs, retrain workers, and decarbonize businesses. Energy is the largest source of Canada's GHG emissions—26% of the total came from oil and gas in 2018.

None of this is to suggest Canada should abandon its current climate efforts. Its existing commitment to phasing out coal, for example, is vital and needs to be complemented by investments in renewable energy, grids, and storage. Similarly, a federal carbon tax is necessary, but insufficient on its own. To meet the international commitments we have made to limit global warming by 2030, we need to use all the tools in the toolbox.

A federal carbon tax is necessary, but insufficient on its own. To meet the international commitments we have made to limit global warming by 2030, we need to use all the tools in the toolbox.

In fact, Canada was late in introducing carbon pricing and should learn from those who got there first. Europe, which has had carbon pricing for a long time, has also experienced problems with its implementation. As the above examples demonstrate, many countries in Europe have recognized carbon pricing alone is not enough and are rolling out sizable green stimulus plans now.

And, while some commentators have suggested there are risks in allowing governments to pick winners and losers in the marketplace, the history of innovation—from the Internet to the iPhone—demonstrates the critical role of direct government support in developing new technologies. Risks can and must be managed, including through private sector participation.

As we face a once-in-a-generation opportunity to shape our future, Canada also has an opening to not just keep up with international peers but show true leadership in the face of unprecedented adversity. To do any less would be a betrayal—of ourselves and future generations.

As the Task Force for a Resilient Recovery begins work on low-carbon, resilient pathways for post-COVID-19 recovery, it’s worth taking a step back to examine how stimulus spending is actually financed and what patterns are emerging from the design and implementation of such packages in Europe, Japan, South Korea, and Australia.

The majority of COVID-related stimulus financing comes from increased government borrowing. For example, the US Treasury has said that in order to roll out its new COVID stimulus package, it would need to borrow USD 3 trillion before the end of June. To put this number into perspective, it borrowed USD 1.28 trillion during the whole year of 2019.

The situation is similar in the European Union, especially with the EU’s Stability and Growth Pact de facto suspended. The Italian government is widening its budget deficit by EUR 55 billion. As a result, its public debt to GDP ratio is expected to jump to 155.6%.

The majority of COVID-related stimulus financing comes from increased government borrowing ... This raises bigger questions about debt sustainability. Can all this debt be paid back? Is it even meant to be paid back?

This raises bigger questions about debt sustainability. Can all this debt be paid back? Is it even meant to be paid back? As Angel Gurría, secretary-general of the OECD, points out: “The extra debt being taken on by already heavily indebted governments and companies to tackle the coronavirus crisis will come back to haunt us.”

Central banks and quantitative easing as sources for stimulus funding

The other major sources of financing for stimulus measures are central banks. With interest rates at historic lows, quantitative easing (QE) has become the dominant monetary policy tool to respond to COVID-19. Central banks, especially in developed economies, are significantly increasing the size of their existing asset purchases. In some cases, such as Japan and the United States, the central bank has even removed the upper limit for its QE operations.

In terms of asset classes, many central banks have moved beyond government bonds and scaled up purchases of commercial papers, corporate bonds, asset-backed securities, exchange-traded funds, and even real estate investment trusts. This has resulted in the ballooning of central bank balance sheets. For example, even before the pandemic, the Bank of Japan had a bigger balance sheet than the Japanese economy, owning 43% of all outstanding government debt.

The main purpose of all this QE is to push down long-term interest rates, alongside short-term rates, so businesses can have access to cheap financing. At the same time, it raises the question of whether central banks are directly financing their countries, which is illegal in most jurisdictions, and could potentially lead to runaway inflation. Indeed, this might be an opportune time to reopen the debate over the merits and downsides of modern monetary policy.

A new approach: COVID-19 bonds

COVID-19 bonds have emerged as a new way to tap capital markets to finance COVID stimulus measures. By the end of April 2020, about EUR 60 billion of bonds have been issued: 90% of it coming from sovereign supranational agency (SSA) issuers, and the remaining 10% from corporates. AXA Investment Managers expect the total issuance to reach EUR 100 billion by the end of 2020 if the current trend continues.

While in absolute numbers, COVID-19 bonds lag behind the monetary and fiscal measures discussed earlier, they can become a popular way to raise financing without increasing already high public debt levels. For example, Kookmin Bank in South Korea has recently issued a Covid-19 Response Sustainability Bond, where proceeds were used to extend loans to COVID-hit small and medium-sized enterprises (SMEs), home businesses, and small offices.

Another notable example is from the European Investment Bank. It has tweaked its existing Sustainable Awareness Bond program to make COVID-related interventions eligible for the use of proceeds. Its recent Euro-denominated COVID-19 bond was issued with a negative yield (issue price above par >100, no coupon), while seven times oversubscribed.

As the integration of environmental, social, and governance (ESG) factors are becoming mainstream in the financial sector, COVID-19 bonds are likely to generate significant interest.

This confirms the significant investor interest for high-investment grade, sustainable bond issues. As the integration of environmental, social, and governance (ESG) factors are becoming mainstream in the financial sector, COVID-19 bonds are likely to generate significant interest. This will translate into a low cost of financing for response measures while decreasing reliance on public resources.

Surprisingly, only a few countries are taking advantage of government loan guarantees as a response to COVID. Guarantees are a great way to leverage government balance sheets to decrease the cost of financing for businesses in COVID-hit sectors. Governments would do well to explore where these instruments could be used to address the financing bottlenecks in their economies.

What to watch for: sustainability targets for stimulus measures

Finally, the question arises whether governments are accompanying stimulus measures with conditionalities or targets on sustainability performance? As the pandemic ebbs and our focus on recovery takes precedence, this is indeed the space to watch in the weeks to come.

The reliance on government borrowing and quantitative easing as a source of financing for early stimulus measures is understandable given the urgency of implementation. At the same time, it is crucial that long-term recovery measures take advantage of alternative sources of financing. COVID-19 bonds should play a significant role here (alongside loan guarantees and other privately financed solutions) in helping avoid overloading government balance sheets. Indeed, this is the only way to ensure that inflation and high public debt levels do not come back to haunt us.

How governments are responding to COVID-19 was the focus at this year’s virtual World Health Assembly (WHA), which concluded on May 19. The premier annual event in the international public health community tackled not only medical issues such as drug patent rules and neglected tropical diseases but also the economic fallout of the worst pandemic in our lifetimes.

Throughout the weeks prior, officials engaged in intense horse-trading over the language of a resolution on COVID-19. Some of the main areas of contention, media reports said, were how to address things like the pandemic’s impact on vulnerable workers and poverty levels and how to use international treaties to protect emergency health measures from unnecessary legal hurdles, such as from intellectual property rules.

One issue that officials should consider as they prepare for the short- and medium-term aftermath of COVID-19 is the prospect that they may soon face massive arbitration targeting such measures, due to the investor–state dispute settlement (ISDS) mechanism embedded in a vast web of international investment treaties.

Potentially hundreds of claimants could bring suits in international arbitration as a result of COVID-related government measures.

These treaties allow foreign investors to sue host governments and demand damages on different grounds, including direct or regulatory expropriation, allegations that they have been treated “unfairly or inequitably,” or concerns that local investors enjoy better conditions. Potentially hundreds of claimants could bring suits in international arbitration as a result of COVID-related government measures. In fact, with the vast number of foreign investors impacted by these measures, it is only a matter of time before the first investor–state claims start being filed. Private law firms have already begun promoting advice on how foreign investors could go about it.

Under investor–state arbitration, each case is decided by an individual tribunal consisting of three arbitrators. This forces governments to fight cases on the same issue on multiple fronts, while running up hefty legal costs—not to mention the damages they could face if they lose, which can add up to hundreds of millions, or even billions, of dollars.

Many of the measures governments are taking or have taken to curb the spread of the virus—such as lockdowns, strict containment, privatizing hospitals, and banning exports of critical supplies and foods—have been vital for public health reasons. Looking at the longer term, though, these will have devastating economic impacts on both workers and companies, as public health officials have acknowledged at the WHA.

Governments worldwide need the policy space now, more than ever, to issue economic support packages and protect their public health systems, without worrying that their budgets could face even more strain from an all-consuming wave of arbitration.

Governments worldwide need the policy space now, more than ever, to issue economic support packages and protect their public health systems, without worrying that their budgets could face even more strain from an all-consuming wave of arbitration. This is crucial for all governments, but especially so for poorer countries, which already have limited public budgets and other fiscal pressures to contend with. As the economic impact of COVID-19 worsens, it is these countries that will be hit the hardest, and where we are likely to see levels of income inequality grow dramatically both within and between countries.

Working together, governments can avoid this arbitration risk by agreeing to suspend treaty-based investor–state arbitration for all COVID-19-related measures. A political declaration could be a valuable first step, and there are forums where such declarations could be made, such as the G20. But political declarations on their own will be insufficient, as private parties will be able to use the vast web of investment treaties to launch legal claims regardless of the statements of leaders.

Governments can address this by reaching out to their investment treaty partners bilaterally, as a group or multilaterally, to agree on a suspension of ISDS on such measures, ensuring that such a response is adapted to governments’ economic and health priorities. There are legal options for doing so, drawing from public international law principles. Taking this approach is not only important from a practical perspective: it will also be a valuable sign of solidarity in the face of this crisis, especially as the strain of the pandemic continues to wear on individuals, communities, governments, and international organizations.

Understanding the interlinkages between public health and economic impact is vital, and the WHA resolution agreed on Tuesday was right to consider it and call for a “whole-of-government” and “whole-of-society” response.

Understanding the interlinkages between public health and economic impact is vital, and the WHA resolution agreed on Tuesday was right to consider it and call for a “whole-of-government” and “whole-of-society” response. Indeed, the WHA has already sent an important signal supporting the use of flexibilities built into international economic legal frameworks, including by naming outright those built into World Trade Organization rules and declarations on intellectual property rights and public health.

It also showed that, even if not all governments agree, a concerted response is still possible. The United States dissociated itself from the intellectual property language of that final resolution, for example, along with paragraphs that made references to sexual and reproductive health. Even so, that did not bar others from moving ahead with a statement that they viewed as vital for the health system response, and that was backed in international law. The investment community would do well to learn from the WHA example.