The accelerating global convergence of trade and climate policy is reshaping the architecture of global economic governance. Climate action is no longer restricted to environmental regulation, it is increasingly functioning through trade instruments, industrial policies, standards, and investment rules. At the core of climate strategy are measures such as carbon border adjustments, deforestation-free supply chain regulations, localization strategies, and clean technology subsidies. Nonetheless, the global systems governing these measures remain fragmented, asymmetric and ill-equipped to respond to their developmental implications. 

At the core of this problem are a set of systemic policy, governance, and knowledge gaps that shape how the trade-climate nexus is governed today. Notably, these gaps are not technical anomalies, rather, they reflect structural tensions between regimes built on different principles and power distributions. In the absence of deliberate reforms, these gaps risk entrenching disparities and locking developing countries into subordinate roles in the low-carbon transition. 

This is when developing countries face significantly higher costs of capital, limited fiscal space, weak industrial bases, and commodity dependence, which constrain their ability to respond to these emerging trade-climate measures.

Policy gaps arise from the mismatch between trade rules and climate objectives, particularly in areas such as emissions-based measures, technology access, and industrial policy tools. A core issue here is that the multilateral trading system does not recognize emissions as a core organizing criterion. Increasingly, climate policies are based on how goods are produced—embedded emissions, energy sources, and supply sources—yet the existing World Trade Organization (WTO) rules were built to regulate “like products” without adequately accounting for differences based on how products are produced—i.e. process and production methods based distinction.

This distinction causes tensions because climate-linked trade measures rely on principles such as embedded emissions or decarbonization benchmarks that sit awkwardly with established trade principles. The long-standing debates over process and production methods have never really been resolved under the WTO. As such, climate-linked trade measures expose the unsuitability of WTO rules for a carbon-constrained world.

This policy gap extends beyond border measures. The intellectual property laws under the WTO inhibit the diffusion of climate technologies and green industrialization, particularly in developing countries. Climate policies require the rapid deployment of clean technologies, yet the intellectual property rights regime prioritizes monopoly protections. The Agreement Trade-related Aspects of Intellectual Property Rights (TRIPS Agreement) (such as Article 66.2) obliges developed countries to promote technology transfer to developing countries, yet implementation has remained weak due to non-enforceability and lack of clarity. 

Similarly, industrial policy tools that are essential for the green transition—subsidies, localization, export controls, and public procurement—are at loggerheads with WTO disciplines aimed at reducing trade distortions. While advanced economies including China have relied on these measures to build clean energy technology manufacturing capacity, many developing countries face legal uncertainties alongside other constraints. This has resulted in an uneven playing field with early movers consolidating their dominance while late bloomers struggle to escape extractive or low-value-added roles. 

These policy gaps are further magnified by a governance gap. There is an absence of a unified multilateral space to address climate measures that have trade effects. Currently, neither of the two regimes is equipped to deal with the full set of issues at stake. Primarily, this is because the two regimes operate under different logics. The WTO focuses on trade liberalization and market access. It is legally binding and enforceable, non-discriminatory and generally restrictive towards subsidies, local content requirements, and industrial policy tools. Differentiation exists, though exceptional and temporary.

Equally, the United Nations Framework Convention on Climate Change (UNFCCC) regime focuses on climate action and emissions reduction. It is voluntary and consensus-based, supportive of public finance, subsidies, and state power for climate action. Differentiation is foundational (common but differentiated responsibilities).

As climate measures increasingly affect trade competitiveness, market access, and industrial strategy, they fall into the cracks between the two regimes. While the WTO provides a forum to address trade, it is not designed to engage with development transitions, equity, or differentiated responsibilities. Conversely, the UNFCCC does not address issues such as carbon market access, competitiveness impacts, or trade retaliation arising from climate policies.

This dilemma is illustrated through unilateral measures such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which are labelled as climate measures but carry trade and competitiveness implications and effects, which are difficult to contest in existing multilateral spaces. Without a viable multilateral platform, countries are forced towards bilateral bargaining, fragmented responses, and retaliatory logic. These approaches weaken trust and cooperation. 

A third systemic gap lies in knowledge and evidence. The knowledge gap in the convergence of trade and climate policies reflects the absence of a shared understanding of how these agendas interact in practice and how their impacts are distributed across countries. These impacts are also unevenly distributed across stakeholders within countries, including firms, workers, and financial actors, each of whom experience trade-climate measures differently.

This gap shows up in the limited understanding of the impact of climate-related measures on countries. These vary widely across sectors and value chains, depending on the production structures, levels of industrialization, and the countries’ position in global markets. However, there is a scarcity of granular data on the distributional consequences of these measures and how they affect least developed countries, commodity-dependent countries, and MSMEs. However, policy narratives rely on aggregations that obscure these differences. 

This problem is compounded by technical uncertainties. There is no agreed methodology for measuring emissions across different production methods and jurisdictions, or comparing heterogeneous emission profiles. In African countries, for instance, emissions are linked primarily to land use and agriculture, sectors where greenhouse gas measurements are difficult and uncertain. There is a risk that these uncertainties will be resolved by rule-making states, further marginalizing those with limited technical and administrative capacity.

These knowledge gaps also extend to industrial policy tools, which are seen as necessary to scale up infant industries. Green subsidies and supply controls are often criticized as trade-distorting. However, there is insufficient analysis on whether such measures, when used strategically, can fast-track global decarbonization and technology diffusion in ways that outweigh static efficiency losses. These debates remain incomplete without a development lens.

The convergence of trade and climate agendas is no longer peripheral, it is reshaping production, competitiveness, and development. Whether it deepens existing inequities or enables equitable, low-carbon pathways for developing countries depends on how global rules are reoriented.

Multilateral regimes must therefore actively shape outcomes that support sustainable development, value addition, and just transitions. In this context, the newly established trade and climate dialogues at COP30 under the UNFCCC, alongside discussions in other multilateral fora, present a critical opportunity to address these challenges.

An equitable trade-climate agenda must rest on a set of guiding principles:

• Placing development and structural transformation at the centre
• Operationalizing differentiation
• Preserving policy space for green industrialization
• Treating climate technologies as global public goods 
• Prioritizing multilateral, cooperative approaches over unilateral measures

Addressing the trade-climate nexus through these principles is essential to ensure that the global transition to a low-carbon economy is not only rapid, but also just and inclusive for developing countries.

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Shimukunku Manchishi is Senior Policy Officer: Trade, African Future Policies Hub.

Trishant Dev is Deputy Programme Manager Climate Change, Centre for Science and Environment.

Avantika Goswami is Programme Manager Climate Change, Centre for Science and Environment.

Rudrath Avinashi is Programme Officer Climate Change, Centre for Science and Environment.

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Synergies is an online platform featuring expert commentary and opinions curated by TESS. We foster dialogue and incubate ideas on how to shape a global trading system that effectively addresses global environmental crises and advances sustainable development. Synergies draws on perspectives from leading experts and practitioners across policy communities from around the world. We cultivate solutions-oriented policy analysis for a sustainable future.

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