The story so far: Leaders of the Group of Seven most developed economies, who met in Germany for the 48th G7 Summit this month, have agreed to set up an international “climate club” for nations that want to take more decisive climate action and combat global warming. The G7, a group of developed nations that gets together every year to discuss global challenges, is made up of the US, the UK, Canada, France, Germany, Italy and Japan.
The club, expected to be established by the end of this year, will be “open and inclusive in nature” to those committed to follow the 2015 Paris climate agreement.
In a statement the G7 leaders acknowledged that the current global climate ambition and implementation are insufficient to achieve the goals of the Paris Agreement, and added, “We aim to establish a Climate Club to support the effective implementation of the Paris Agreement by accelerating climate action and increasing ambition, with a particular focus on the industry sector, thereby addressing risks of carbon leakage for emission-intensive goods, while complying with international rules.”
In a separate statement, German Chancellor Olaf Scholz said the club will aim to promote collaboration, help maintain competitiveness and make climate protection a competitive advantage.
What is a climate club?
The concept of a climate club was developed by Yale economist William Nordhaus in 2015 and has since gained popularity in policy circles. Mr. Nordhaus also won the 2018 Nobel Prize in economics for his work on climate change.
In his work, the economist argued that existing climate agreements such as the 1997 Kyoto Protocol and the 2015 Paris climate accord are flawed due to their voluntary nature, which he said induces free-riding while responsible nations bear the cost of switching to cleaner technologies. To address this issue, Mr. Nordhaus proposed a club for countries to boost climate action. This club, the economist said, would exempt its members from climate-related trade tariffs to which non-members will be subjected.
Germany’s Olaf Scholz has been a staunch supporter of the concept of an international climate club. He has been spearheading efforts to push world leaders to establish a group on these lines for some time.
Mr. Scholz first expressed his ambitions last year when as the Finance Minister under the previous Angela Merkel Government, he presented a paper to the Cabinet on the concept.
“What is needed is implementation. But one thing is clear: it is not possible to tackle climate change successfully at the level of individual countries or of the EU. This is why we want to create an international climate club for everyone who is moving forward with ambitious climate goals. This open, collaborative club will set joint minimum standards, drive climate action that is internationally coordinated and ensure that climate action makes a country more competitive at the international level,” he told the cabinet.
He also proposed the idea of the European Union setting up a climate club to avoid trade friction linked to green tariffs. Later, after he was elected as the chancellor, Mr. Scholz announced at the World Economic Forum Germany’s intentions to turn the G7 into the nucleus of an international climate club.
Most recently, Germany put the formation of an “ambitious” climate club on top of the agenda ahead of the G7 summit. The summit was hosted by Germany this year.
What will the climate club do?
The Group of Seven finally reached a deal at the end of the three-day summit on June 28 as they agreed to establish a new club to coordinate climate actions. The G-7 leaders said the club will be open to countries committed to implementing the 2015 Paris Climate Accord which aims to limit global warming to below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels, as per the United Nations.
“The Climate Club, as an intergovernmental forum of high ambition, will be inclusive in nature and open to countries that are committed to the full implementation of the Paris Agreement and the decisions thereunder, in particular the Glasgow Climate Pact, and to accelerate their action to this end. We invite partners, including major emitters, G20 members and other developing and emerging economies, to intensify discussions and consultations with us on this matter,” stated the G7 statement on the climate club. Member nations would also work together to coordinate on policies and ensure transparency so that they don’t impose climate-related tariffs on each other’s imports.
As per the statement, the climate club will be built on three pillars — focus on advancing transparent policies to achieve climate neutrality (reducing all greenhouse gases as much as possible), transforming industries to accelerate decarbonisation, and facilitating partnerships and cooperation to encourage climate action and unlock socio-economic benefits of climate cooperation.
The G7 leaders added that further details of the climate club will be finalised by the end of 2022. “We will each designate relevant Ministers to develop comprehensive terms of reference while reaching out to interested and ambitious partners, and to report back to Leaders for approval of next steps to the establishment by the end of 2022,” the statement read.
Will China join the club?
Though the club will be open to all, experts say the idea will take some time to take off, especially with China, which is the world’s biggest emitter of greenhouse gas. The superpower has been clear on its opposition to climate-related tariffs. It has also tried to get the support of other developing countries on the matter.
For instance, Beijing has tried to get South Africa and Indonesia on its side against the European Union’s carbon border adjustment mechanism, which entails tariffs for those who don’t follow the bloc’s rules. As per experts, this was one reason why the two countries were invited to the G7 summit in Germany as guests— to clear their doubts, if any.