Sustainable Trade and Sustainable Supply Chains

A global transition toward sustainable trade and supply chains is essential in the age of climate change and energy decarbonization. Low-carbon technologies (LCTs) and the related minerals are at the forefront of this transition, playing a critical role in reducing greenhouse gas emissions and promoting sustainable development. The international trade of LCTs is pivotal in accelerating the global adoption of climate friendly development, especially in the Global South. 

As the demand for LCTs surges globally, countries are increasingly recognizing the economic opportunities of a low carbon transition. These opportunities are particularly evident in international trade, where policy support and international cooperation significantly influence the diffusion and adoption of these technologies. In particular, China has emerged as a global leader in the production and export of LCTs, underscoring the shifting dynamics of the international LCT market. 

In a new special policy study by the China Council for International Cooperation on the Environment and Development (CCICED), a team of Chinese and international policy experts and researchers explore the development of global LCT trade over the past three decades to identify and analyze key economic factors that shape countries’ LCT trade with China. By compiling an original dataset using from sources such as the International Monetary Fund (IMF) and the United Nations Statistical Division’s Commodity Trade Statistics (Comtrade) database, the experts identify significant shifts in export and import patterns, trade balances and the evolving roles of high-income countries and emerging market and developing economies.

Consisting of senior Chinese and international officials and experts, and chaired by China’s Vice-Premier, CCICED serves as a high-level advisory body with a mandate to conduct comprehensive, cross-sectoral and multidisciplinary research that integrates the environment, the economy and the society. The special policy study is the result of international collaboration with dozens of experts from institutions around the world, including Kevin P. Gallagher, who served as one of two International Co-chairs of the project, Jiaqi Lu and Praveena Bandara, who served as Special Policy Study Members, as well as Rebecca Ray, who served as part of the Research Support Team.

The experts also employ gravity models to investigate the determinants of LCT and mineral trade with China and the impact of such trade on environmental outcomes, finding evidence of the importance of various factors such as economic development, trade openness and exchange rate stability. The report reveals the significant environmental benefits associated with LCT imports from China, particularly in reducing carbon emissions across different sectors. Human capital, political stability and foreign direct investment (FDI) are found to be important channels that facilitate the adoption of LCTs obtained from China. It also highlights how greater gender equality could contribute to countries’ competitiveness in the global LCT supply chains. 

Based on the analysis, the experts provide policy recommendations for Chinese policymakers to promote sustainable global LCT trade and a fast energy transition.

Policy recommendations:

• Boost research and development (R&D) subsidies for renewable energy to innovate and lead globally in energy security.
• ​​Stabilize export prices to foster steady trade and investment relationships with partners.
• Encourage outward FDI in renewable energy and LCTs to promote global cooperation.
• Advance trade liberalization to foster sustainable trade practices and interconnected supply chains globally.
• Improve external communication to correct misunderstandings regarding China’s overcapacity.