When Olaf Scholz took the helm as German chancellor in December, he elevated one idea to the top of his climate agenda: the creation of an international coalition that would be united in its pursuit of curbing planet-warming pollution.
And though climate change has taken a back seat to energy security at this year’s Group of Seven leaders’ summit, Scholz hasn’t abandoned his pursuit of an international climate club — so much so that the idea remained on the agenda during a working lunch yesterday at the start of the conference in Germany (Climatewire, June 24).
“Germany will certainly try to go down in history as the country that started building an international climate club,” said Simone Tagliapietra, a senior fellow at Bruegel, a Brussels-based economic think tank.
The climate club idea was a key piece of Scholz’s political platform for chancellor, and much of its strength would come from the combined economic might of the countries that join it.
When Scholz first presented the concept in a paper last August, it hinged on the need to set comparable standards that would protect members’ domestic industries from competitors with less stringent climate policies.
The club’s members would coordinate how they measure and price carbon and work together to decarbonize their industrial sectors. Carbon border tariffs, which put a price on high-carbon imports — could create a level playing field and keep industries from moving to countries with lower climate ambition.
Proponents say a club could offer benefits — such as trade deals — to create incentives for countries to move faster to achieve the goals of the Paris Agreement, which aims to limit global temperature rise but doesn’t impose punishments on countries that fall short of their emissions-cutting targets.
Scholz sees G-7 as club ‘nucleus’
The creation of a climate club is in line with the belief that liberal democracies can change international behavior by flexing economic muscle in unison, said Kevin Book, managing director of ClearView Energy Partners.
That’s the case whether it’s “for the war in Ukraine or the war against climate change,” he said.
It also has a lot to do with protectionism, since the appetite in many industrialized nations for measures such as border adjustments has a lot more to do with ensuring economic competitiveness than climate change mitigation.
Those two things together — a united West countering autocracy and less emitting industrialized nations protecting national advantage — “set up a sweet spot” for the idea of a climate club, said Book.
But structuring a club around a common minimum-carbon price will be a challenge when the United States and Japan don’t currently put a price on carbon. And while carbon border tariffs are taking shape in Europe, they remain contentious (Climatewire, June 16).
Critics say climate clubs also operate by exclusion, and many of the countries feeling the greatest effects of climate change would not be granted access (Climatewire, Jan. 10).
Scholz sees the G-7 as the club’s “nucleus.” The world’s seven most powerful industrial democracies — the United States, United Kingdom, Canada, France, Germany, Italy, Japan plus the European Union — also include some of its biggest historical emitters.
His idea also acknowledges the need to provide money and support to less wealthy countries so they can become members in the future.
A statement from different groupings of G-7 ministers last month in the run-up to the leaders’ summit called for an “open, cooperative, international climate club” with participation beyond the G-7.
The idea is there would be economic advantages for following the rules of the climate club — and that it would be open to all who did, Book said.
As part of a push to bring other countries on board, Germany invited several emerging economies to the summit that the G-7 hopes to provide with funding to transition away from coal and toward renewables.
Part of Germany’s contribution to a new $600 billion infrastructure fund launched yesterday will include €300 million ($320 million) to the first of those so-called Just Energy Transition Partnership in South Africa.
But Book said the climate club rules may not make it easier to persuade them to join up.
“For a lot of developing nations, the idea of having to conform to stricter standards might be something that makes it harder to align with the West,” he said. And while there’s value in providing economic stimulus for developing nations through investments that can create jobs and build economies, there are limits.
“What’s not so well-received is the idea that the West hands down its rules to the developing world,” Book said.
Club details forthcoming
The outlines of the climate club’s shape may emerge over the coming days.
Experts who follow the concept say Germany likely will propose the creation of a secretariat or working group with a mandate to build out the idea. The secretariat could be based within existing institutions, such as the International Monetary Fund or the Organisation for Economic Co-operation and Development, said Tagliapietra from Bruegel.
Once the secretariat is established, there is a plan to provide scientific support and expertise on how to progress, said Susanne Dröge, a senior fellow at the German Institute for International and Security Affairs.
Sascha Müller-Kraenner, head of German environmental agency Environmental Action Germany, says the club’s outline is not likely to include specifics on carbon prices or border adjustments in part because those elements exclude other countries. Another step would be making sure that such measures, if included, aren’t viewed as a tax on less wealthy countries.
Shuffling some of the money from the tariffs collected by carbon border adjustments could help, said Tagliapietra. So could the Just Energy Transition Partnership.
The idea here is that if South Africa has to pay a carbon tax at the border of Europe because it is exporting something carbon-intensive, the revenues would be given back to South Africa together with additional climate finance to support the country’s efforts to decarbonize its industrial processes, he said.
Since the goal is to reduce emissions in line with the temperature goals of the Paris climate agreement, membership could be granted to countries that have ambitious emissions-cutting targets and policies in place to achieve them, said Müller-Kraenner. Another idea is to start with cooperation on certain industrial sectors, as is being done between the European Union and the United States on steel and aluminum, said Tagliapietra.
That could include rich countries in the G-7, but potentially also some middle-income and less-developed countries. Within the club, there might also be initiatives to develop carbon benchmarks for things such as hydrogen fuel.
“That would be something where you could say, ‘Well, this is a club of those that say the Paris Agreement provides the minimum standard, but there are some countries that want to go further ahead. That group includes rich countries, poor countries, countries from different parts of the world. And they do things together. They do things together that that are more advanced,” said Müller-Kraenner.
Dröge believes that if the Germans are ready to spend money to establish a secretariat, it’s likely to move forward.
“But feeding ambition and new initiatives and probably new ideas into it is still a political task,” she added.