The EU-MERCOSUR trade agreement and its impact on CO2 emissions

Abstract

In 2019 the European Union (EU) and the Latin American countries that make up the Common Market of the South (Mercosur) reached a political agreement to sign, ratify and implement a trade agreement between the two blocs. This agreement is expected to bring trade and welfare benefits on both sides of the Atlantic. The impact estimated for the EU will be similar to that of other recent agreements, such as that entered into with Japan. However, the EU-Mercosur “agreement in principle” has raised concerns owing to its potential impact on the environment and climate, even though it includes strict provisions in these areas and entails very few changes to the tariff and non-tariff measures adopted for agricultural imports from Mercosur. This article focuses on a specific aspect of the EU-Mercosur agreement’s potential environmental impact, namely, the change envisaged in global CO2 emissions. Despite the uncertainty associated with such estimations, when using a standard general equilibrium model, the increase in CO2 emissions deriving from this agreement is found to be limited. Moreover, in certain plausible scenarios, application of the very stringent environmental standards provided for in the agreement in principle could even lower emissions in Mercosur countries.