The World Meteorological Organization (WMO) announced last year that the average global temperature has risen by more than 1.5°C compared to the late 1800s, the pre-industrial era. This exceeds the 1.5°C target set by the 2015 Paris Agreement. Adding to these concerns, the Korea Hydrographic and Oceanographic Agency reported that the average sea level along the Korean coast has risen by approximately 3.03 mm per year over the past 30 years, with the pace accelerating in recent years. This faster-than-expected progression of climate change makes it one of the most urgent global challenges, requiring international cooperation.

Its impacts are widespread, from driving extreme weather events to creating significant risks for economic stability and growth. Moreover, climate change is increasingly shaping global trade patterns, as environmental regulations and policies begin to influence the movement of goods and services. In response, international organizations such as the WTO, OECD, UNCTAD, and APEC are making significant multilateral efforts to promote the production and trade of green technologies—such as by reducing tariffs on environmental goods and establishing relevant trade rules.

At the bilateral level, various types of green economy agreements are emerging as complementary tools to support the green economy transition. These bilateral agreements align with multilateral efforts on environmental issues—particularly in achieving carbon neutrality—while also addressing other key areas such as the circular economy and biodiversity conservation. A prominent example is the Green Economy Agreement (GEA) signed between Singapore and Australia in 2022. More recently, in December 2024, Korea and Australia signed the Korea–Australia Green Economy Partnership Arrangement on Climate and Energy, aiming to strengthen cooperation on climate action and clean energy development.

At the same time, the environmental industry is increasingly being recognized as a high-tech sector and a key driver of future economic growth. In response, many countries are adopting strategic policies to secure leadership in green technologies and industries. However, the growing presence of protectionist elements within these policies is creating new challenges for international cooperation. For example, while the European Union’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Inflation Reduction Act (IRA) aim to accelerate decarbonization or promote domestic green industries, they are also perceived as trade barriers.

The CBAM was introduced as part of the EU’s climate policy to impose additional costs on imported goods based on their carbon emissions. Its primary objective is to prevent carbon leakage—a phenomenon in which carbon-intensive industries relocate from countries with strict emissions regulations to those with more lenient standards. By leveling the carbon cost between domestic and imported goods, CBAM seeks to maintain the competitiveness of EU industries that are already investing in low-carbon technologies and bearing the financial burden of emissions reductions. However, CBAM also presents significant challenges for exporters from countries that rely heavily on carbon-intensive production and have less developed green technologies. For these countries, accessing the European market may become increasingly difficult, raising concerns about fairness and inclusivity in global climate policy.

The IRA, enacted under the Biden administration, offers subsidies, tax credits, and other incentives to accelerate the transition to a green economy. While the primary goal is to foster the growth of green industries within the U.S., its emphasis on supporting domestically produced goods has drawn criticism for its protectionist overtones. By giving U.S. firms a substantial competitive advantage, the IRA risks disadvantaging foreign firms and potentially slowing the international diffusion of green technologies that are crucial for addressing climate change collectively.

The direction of U.S. climate policy has shifted sharply under the second Trump administration, which has taken a skeptical stance on climate change. The president signed an executive order to withdraw from the Paris Agreement and has expressed intentions to repeal the IRA. The Trump administration’s policy agenda prioritizes economic growth in traditional energy sectors, signaling a departure from climate-focused initiatives and multilateral environmental cooperation.

This policy reversal by the United States—given its influential role in the global trade and economic system—may temporarily deprioritize environmental issues. However, as climate change accelerates and the environmental sector becomes more closely linked with emerging high-tech industries, global competition over green technology is expected to intensify. Early dominance in environmental industries such as electric vehicles (EVs) and batteries is critical. These industries involve high fixed costs and benefit significantly from economies of scale. Countries that secure an early lead can lower production costs, influence international standard-setting, and embed themselves within global value chains. This, in turn, offers a major competitive advantage in exports and helps establish long-term dominance in the fast-growing green economy.

Environmental industries already play a central role in Korea’s economy. According to the list of 372 environmental goods identified under the Singapore-Australia Green Economy Agreement (GEA), these products account for approximately 40% of Korea’s total exports—highlighting the importance of the environmental sector for Korea’s economic future. Korea must therefore continue to actively engage in global efforts toward carbon neutrality, while also striving to maintain its global competitiveness and secure a leading position in the environmental industry.

To this end, firms should take a long-term view, prioritizing continuous investment in R&D and innovation to improve product performance and efficiency, rather than focusing solely on short-term profits. On the policy side, the government needs to develop an integrated strategy that combines industrial policy with climate policy, as exemplified by the U.S. IRA and the EU’s CBAM. Given rising uncertainty in the global trade environment, Korea also needs a strategic trade policy. One effective tool in this context is the Green Economy Agreement. Unlike traditional free trade agreements that primarily focus on tariff reductions or trade liberalization, GEAs emphasize industrial cooperation and the creation of market opportunities in key areas such as low-carbon supply chains and green technologies. Establishing a global green network through such agreements will help Korean firms secure stable supply chains for critical inputs and improve access to global markets. Ultimately, these efforts will position Korea to lead the global green transition.

Moonhee Cho ✉️

Ph.D., Research Fellow, Trade Agreement Team, 

Department of International Trade, Investment and Economic Security