Green industry: G7 sets out terms for global ‘climate club’ 

German Chancellor Olaf Scholz presented the long-awaited terms for his ‘climate club’, a platform for countries wishing to protect the climate. However, it may be overshadowed by similar initiatives recently announced.

Scholz first proposed a ‘climate club’ initiative in 2020, during his time as finance minister. Gathering “ambitious, bold and cooperative” countries, the concept seeks to unify large states in their climate schemes, such as carbon pricing.

On Monday (12 December), Scholz approved a concrete text on the project with the G7, the world’s wealthiest industrial nations.

Simultaneously, key talks to agree the EU’s carbon border levy (CBAM) are being held in Brussels – and news of a US-EU “steel club” broke on Wednesday.

“We have worked intensively on the idea since then and today have agreed on initial terms of reference, thus establishing the Climate Club,” he explained in Berlin. Germany holds the rotating G7 presidency in 2022.

The club’s four-page “terms of reference” – a constitution of sorts – describes it as a “high-ambition intergovernmental forum for discussion”.

“Its aim is to contribute to raising climate action globally by facilitating a near zero emission industrial production transition,” it adds.

German Economy and Climate Action Minister, Robert Habeck, put the focus on “climate-friendly commodities, such as green steel,” urging that they enter the market more quickly.

Yet, the launch of the club is far from complete. While the initial agreement was found in June, at the G7 Elmau summit, the club’s ‘real’ launch will be at COP28 in December 2023, nine months later than expected.

For proponents of the G7 climate club, it is not the only piece of bad news. 

“Today’s terms of reference for the climate club fall short of what’s needed to accelerate the decarbonisation of heavy industry internationally,” said Domien Vangenechten, an expert at the climate think-tank E3G.

His assessment of the outcome is damning.

“This proposal does not live up to its potential nor the stated ambition of the German presidency,” he stressed. The terms “remain vague” on the substance of the club and “expectations of its members”.

Germany’s Scholz rallies G7 countries behind 'climate club' idea

G7 countries have put their weight behind German Chancellor Olaf Sholz’s idea to create a climate club of ambitious countries aiming to accelerate their efforts, which is seen as complementary to the EU’s carbon border tax.

Overshadowed

The week before Scholz announced that the G7 countries had agreed to the terms of “his” climate club, the Biden administration stole some of his thunder by proposing a similar agreement to the EU.

The proposal suggested the creation of a consortium to boost trade in metals whose production emitted less CO2 than elsewhere, while creating tariffs on steel that is less “green”, the New York Times reported.

To join the arrangement, countries would have to ensure that their steel and aluminium industries met certain emissions standards, according to the document. Governments would also have to commit to not overproduce steel and aluminum, requirements which likely will preclude China from joining.

Simultaneously, negotiations over the EU’s carbon border adjustment mechanism (CBAM) are finishing up in Brussels. The tool is designed to penalise commodities that are produced more cheaply and without adequately pricing their climate impact, than their EU counterparts.

This, too, may be circumvented by joining the climate club. 

For now, the climate club agreement commits to work “towards a common understanding through comparative analysis of the effectiveness and economic impact of such policies, including price-based and non-price-based climate change mitigation instruments”.

One possible outcome of such a common understanding would be that US rules, like those established by the contentious Inflation Reduction Act, could count towards the differential between EU and US production prices, effectively lowering the carbon border levy applied to US products.

The prospect of CBAM has concerned nations elsewhere too, including countries in Africa. 

Mozambique’s GDP, for example, would drop by about 1.5% due to the tariffs on aluminium exports alone, according to the Center for Global Development. Mauritania and Senegal would also be impacted, the think-tank warns.

Berlin has so far always been “trying to keep the discussions on climate clubs and CBAM inline” in Brussels, a high-ranking public official explained in February.

“Our argument is always that we can only accept CBAM if we simultaneously show the way to largely do without ‘border adjustments’ within a climate club,” they added.

EU aims for quick deal on carbon border levy

EU negotiators aim to reach an agreement during late-night negotiations on Monday (12 December) on a new levy that would put a price on carbon-intensive goods entering the EU.

Failure to support developing nations?

According to E3G’s Vangenechten, the text presented by Scholz falls short of this ambition.

“Support for developing countries” is rather vague, he explained. “Basically, the can is kicked down the road until COP28, and Germany has given itself another year to breathe life into its idea.”

Climate club members “may – on a voluntary basis – provide support to developing countries”, the text reads. Whether this will satisfy worried leaders of African nations is uncertain.

One expert, who asked not to be named, described the climate club framework a “talking shop” with little substantial action.

Scholz's master plan for Africa to bypass the EU's CO2-tariff

German Chancellor Olaf Scholz wants to address Africa’s concerns about the upcoming Carbon Border Adjustment Mechanism (CBAM) at the EU’s external borders by bringing the continent into his so-called “climate club”. EURACTIV Germany reports.

[Edited by Nathalie Weatherald]

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