Trade policy must incentivise and facilitate low-carbon trade. Increasingly, it also sanctions and penalises trade that is not considered environmentally friendly. Over the coming years, new green trade measures will cover an increasing share of global trade. These measures are influencing demand and supply for different inputs and capabilities as well as increasing demand for new services (e.g. for counting carbon or proving compliance). This is raising trade costs and will potentially reshape value chain and supply networks.

In view of these developments, the term ‘green squeeze’ refers to both the direct effects of new green trade measures, for example related to increased complexity and costs (in the absence of new support measures), and the indirect effects, which result from changes in prices and broader economic dynamics. Our analysis suggests greater consideration of both aspects are needed, especially for the Least Developed Countries, in view of global commitments to support trade and development.

Report by the Overseas Development Institute