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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Global carbon pricing is needed to prevent “difficult and problematic” disputes over environmental measures from disrupting trade, the head of the World Trade Organization has said.Ngozi Okonjo-Iweala told the Financial Times in an interview that the WTO was taking the lead in working for an international carbon pricing system with the IMF, OECD and UN. That effort comes in response to the EU’s carbon border adjustment mechanism, which came into force this year and requires exporters to the trade bloc to pay a levy linked to the EU carbon price for the emissions of certain carbon-intensive products including steel, cement and fertiliser. The measure, which comes into force in 2026, is meant to level the playing field between EU manufacturers, who have to pay for emissions under the bloc’s cap-and-trade system, and exporters in countries with lower or no carbon prices. It is expected to trigger a slew of complaints at the WTO from trading partners.India has already hinted it could bring a WTO case, while other developing countries have said the measure would price their goods out of EU markets.“Developing countries see it, rightly or wrongly, as a protectionist mechanism,” the WTO director-general said. “They have contributed very little to emissions. Africa is 3 per cent of [current] global emissions.” The EU has defended the measure and emphasised that it has sent officials around the world to help countries including China to develop their own carbon markets. In a document outlining political priorities for the next five-year mandate of the European Commission, its president Ursula von der Leyen said the bloc must “step up our green diplomacy and engage more with non-EU countries on external aspects of our policies”.Okonjo-Iweala said the EU was right to try to tackle climate change but its approach could fragment efficient trade routes at the cost of economic growth.“We see [litigation] coming. We think it will be quite difficult and problematic. So we’re trying to avoid that by saying why don’t we develop a global framework that is interoperable? So that we can limit the trade litigation frictions that would come here.”The Nigerian said there were 78 different carbon pricing and taxation mechanisms in the world.The intention of the working group was to find a way to set different carbon prices in different regions. The EU might pay $80 a tonne, and Africa $20. This would require a change to CBAM, which levies the difference between the EU carbon price and that paid by the source of the imports to the bloc.The proposed global system would also need safeguards against carbon arbitrage, where heavy emitters simply move to areas with lower prices, Okonjo-Iweala said.Okonjo-Iweala, who has been nominated for a second term at the WTO by African countries, said she wanted trade to help reduce carbon emissions.  “I’m really personally so excited about it because I think there’s really potential for trade to do more, for trade to be part of the answer. ”When she started in 2021 “trade was seen as part of the problem” because of transport emissions and commodities exported from deforested land. “I really wanted to turn that around.”She said she had encouraged countries signed up to an international procurement agreement to prioritise green purchasing. There are also WTO talks over a global environmental goods agreement that would drop tariffs on many items such as solar panels. However, the US especially has been raising tariffs to foster a domestic industry to compete with China.Okonjo-Iweala said countries should reroute environmentally damaging subsidies towards sustainable industry. There are $1.2tn of annual fossil fuel subsidies, $600bn of trade-distorting agricultural subsidies, $300bn of water subsidies and $22bn of harmful fisheries subsidies, she said.Her term expires next year, but she is expected to make an announcement on Monday about whether she will run for a second term.Okonjo-Iweala could be confirmed after a month if no rival emerges, which would prevent a re-elected Donald Trump from blocking her, as he did in 2020. He left office in January 2021, allowing her to take the job.Additional reporting by Alice Hancock in BrusselsVideo: The carbon capture question | FT Climate CapitalClimate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More

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BRASILIA (Reuters) – Brazil’s Supreme Court on Sunday authorized the government to exempt spending on wildfires and droughts in the Amazon (NASDAQ:AMZN) and Pantanal regions from this year’s fiscal target as the country grapples with the economic impacts of its worst drought on record.The decision by Justice Flavio Dino effectively clears the way for the government to take action if it submits an executive order to Congress requesting extraordinary measures to address the situation.According to the National Center for Monitoring and Early Warning of Natural Disasters (Cemaden), the current drought is the most intense and widespread in Brazil since records began in 1950, exacerbated by a weak rainy season in the north-central region, rising atmospheric temperatures, and land-use changes, with forest areas being replaced by pastures.Record wildfires have swept through the Amazon and Pantanal regions, as well as other parts of the country, while the severe drought has hindered navigation along the Amazon’s waterways, with low water levels isolating some communities and disrupting soybean and corn shipments from central-western states like Mato Grosso, Brazil’s top grain-producing area.Justice Dino also authorized the government to bypass a legally mandated waiting period for hiring temporary firefighters and ordered a federal police fund to allocate resources to prioritize investigations into wildfires.Earlier this year, the government had already exempted spending on unprecedented floods that hit the southern state of Rio Grande do Sul in May, highlighting the growing burden of climate events on public finances.Spending on Rio Grande do Sul has so far totaled 27 billion reais ($4.85 billion) and will not be considered when assessing the government’s target to eliminate this year’s primary deficit.While Dino’s ruling allows potential expenses to bypass a spending cap established by new fiscal rules and exempts them from the fiscal target calculation, they would still contribute to the growth of Brazil’s public debt, which is already considered high compared to other emerging markets.($1 = 5.5625 reais) More

Trading in Asia was slow, with markets in Japan, China and South Korea closed for holidays. The dollar was flat at 140.86 yen, near where it finished last week and close to the 140.285 end-December low it struck on Friday. It fell 1.3% on the yen last week.The Fed’s Sept. 17-18 meeting is the highlight of a busy week that also has the Bank of England and Bank of Japan announcing policy decisions on Thursday and Friday. Treasury yields have been falling in the run-up to the highly anticipated meeting, particularly as odds stack up for the Fed to get aggressive with a half-point rate cut. Benchmark 10-year yields were last at 3.65%, unchanged from Friday. Those yields are down 30 basis points in about two weeks. Two-year yields, more closely linked to monetary policy expectations, were at 3.57% and are down from roughly 3.94% two weeks ago.Selling the dollar for yen has been the cleanest trade for investors looking to play the drop in Treasury yields, said Chris Weston, head of research at Australian online broker Pepperstone.”While speculators are short and riding this lower, this trend is clearly one to align with,” and the December lows for the dollar-yen pair is one to watch, he said.A quarter-point reduction by the Fed as it kicks off its rate cuts is still seen as the slightly more likely outcome, but only marginally so. Fed speakers and data releases over the past month have had markets shifting the odds around the size of this week’s rate cut, debating whether the Fed will head off weakness in the labor market with aggressive cuts or take a slower wait-and-see approach.Fed fund futures reflect traders are pricing in a 52% chance of a 50-basis point cut at the September meeting, according to CME FedWatch. Futures price a total of 125 basis points in rate cuts in 2024. Investors are also looking to the Bank of Japan’s interest rate decision on Friday, when it is expected to keep its short-term policy rate target steady at 0.25%. BOJ board members have indicated they are keen to see rates higher, and the narrowing gap between rates in Japan and other major currencies has spurred the yen higher and caused billions of dollars worth yen-funded carry trades to be unwound.Japan is also due to see a change in political leadership, as the ruling Liberal Democratic Party is set to hold an election on Sept. 27 to pick a leader to replace Prime Minister Fumio Kishida. Sanae Takaichi, one of the leading contenders to replace Kishida, said on Friday the Bank of Japan should hold off on further interest rate hikes, to keep the country’s economic recovery intact.Sterling edged slightly higher by 0.05% to $1.3132, still weaker than its one-week highs struck on Friday. The euro was up 0.11% at $1.1088. The dollar index was 0.1% lower at 101. The European Central Bank cut interest rates by 25 bps last week, but ECB President Christine Lagarde dampened expectations for another reduction in borrowing costs next month. ECB chief economist Philip R. Lane and Vice President Luis de Guindos speak at events on Monday. The Bank of England is expected to hold its key interest rate at 5% next week, after kicking off its easing with a 25-bp reduction in August.Bank of Canada Governor Tiff Macklem meanwhile opened the door to stepping up the pace of interest rate cuts, the Financial Times reported on Sunday. The BoC, after keeping its key policy rate at 5%, a more than two-decade high, for a year, has trimmed it by a quarter point three times in a row since June. More

BEIJING (Reuters) -Beijing, as a vote on EU duties on China-made electric vehicles looms, employed a carrot-and-stick approach to deal with the 27-strong bloc, threatening trade retaliation while cajoling key EU states into one-on-one talks on deals and investments. The potential blow of counter-tariffs on EU goods will fall mostly on states such as Spain, France and Italy that have voiced support for the EV duties, with pork, dairy and brandy exports to the world’s second-biggest economy at stake. European Union members such as Germany, Finland and Sweden that have not pushed for the tariffs would feel less impact, with little exposure to the export items singled out by China. China’s tactics appear to be working. Spanish Prime Minister Pedro Sanchez wrapped up a China visit this week by sitting in a Chinese EV and saying it was an “honour”. He then unexpectedly urged the EU to reconsider its position. According to a Spanish government source, Sanchez’s delegation came away feeling “Spain is more important now”, and that an agreement over tariffs on its pork products was close. As a sweetener, a Chinese company agreed to build a $1 billion plant in Spain to make machinery used for hydrogen production, in apparent backing for Spain’s green ambitions. With pork and dairy, China maximises the “domestic political cost” to the countries voting to impose EV tariffs, said Beijing-based economist Mei Xinyu, with the agricultural sector often playing a role in EU politics. “These products count on China as one of their top export markets,” he said. Pork, dairy and brandy exports from the EU to China totalled about $10 billion in 2023, although not all products in those categories would be subject to tariffs. The bloc’s exports to China last year totalled over $280 billion. CRUNCH TIME Still feeling the pinch of U.S. tariffs imposed during the Trump era, China does not want a trade war with the EU. But Beijing has made it clear it would fight if Brussels imposes additional EV tariffs of up to 35.3%. China-made EVs exported to Europe rose 38% in 2023 to 656,000 units, including shipments non-EU countries. Europe accounted for more than 40% of EVs shipped out of China last year, according to Reuters calculations based on data from the China Passenger Car Association. Chinese Commerce Minister Wang Wentao will visit Europe next week and hold talks with EU trade chief, Valdis Dombrovskis. Wang will also visit Italy, which supports the EV tariffs while also seeking Chinese investment to build EV production capacity. China needs at least 15 EU members representing 65% of the EU population to oppose the tariffs at a vote in October. But positions within the EU remain diverse. Some smaller states are keeping their heads down. Others are prioritising ties closer to home. “Ireland’s exports to China are only a small fraction (of its exports), so Ireland will prioritise the EU market and relationship over China,” said an Irish trade representative in China, speaking on condition of anonymity. “China is still important, but business with China is hard and not growing as well as expected.” Ireland is the fifth most exposed EU producer in China’s dairy investigation and sixth worst off in its pork probe. ‘SHOCK AND AWE’ In contrast, China appears to allow no room for negotiations or concessions with Canada, hitting it on Monday with a probe into its rapeseed exports after Ottawa introduced a 100% tariff on Chinese EVs in August, accusing Beijing of unfair competition.Unlike with Brussels, Beijing gave Ottawa no public prior warning of how it might hit back, signals often conveyed in Chinese state media such as Global Times. He Yongqian, a Chinese commerce ministry spokesperson, said “evidence” showed Canada’s rapeseed exports to China had been dumped and had damaged domestic industry, when asked to explain the difference in approach. Canadian rapeseed producers play by a rules-based global trading order, a spokesperson for Global Affairs Canada told Reuters.”We are following this closely,” said the spokesperson.On the contrary, Beijing has clearly been open to negotiation with the EU, said Even Pay, an analyst at Beijing-based Trivium China who specialises in agriculture. “With Canada, they went straight for shock and awe,” Pay said.  More