These multilateral deals are premised on cooperation between like-minded countries on industrial and climate policy, but are concerned with trade and economic supremacy at their core
The Union Ministry of Steel has reportedly shown a keen interest in India joining the G7 climate club. Photo for representation: iStock The Group of Seven (G7) group of advanced economies — consisting of the United States, the United Kingdom, Canada, France, Italy, Germany and Japan — announced a climate club in December last year under Germany’s G7 presidency.
Climate clubs are bilateral or multilateral arrangements between countries to take coordinated action in various sectors, such as renewable energy or industrial decarbonisation. Additionally, climate clubs also allow participating countries to avoid trade disputes over green tariffs.
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The idea for climate clubs was initially floated by economist William Nordhaus, who proposed these clubs as a solution to what he believes is the problem posed by the voluntary nature of climate agreements.
Nordhaus was of the view that with climate being a global commons, some countries could benefit from other countries making significant investments towards mitigating their domestic greenhouse gas (GHG) emissions.
This can be done without making any significant contribution to abating their own domestic emissions or contributing to the costs of global mitigation efforts. The economist called this problem “free riding”.
A 2021 paper by Robert Falkner, professor of international relations at the London School of Economics, attempted to identify a typology of climate clubs. He cited examples such as the Powering Past Coal Alliance or the Major Economies Forum, which make certain common commitments and have certain membership criteria.
Another recent example is the green steel club or Global Arrangement on Sustainable Steel and Aluminium (GSA) that the United States and European Union have been hashing out between them since last year.
Both have differing ideas of how such a club would be implemented, with the US proposing to “allow club members to set emissions standards and levy tariffs on those who do not meet them”, according to the British newspaper Financial Times. Meanwhile, the EU wants to hinge the deal on its Carbon Border Adjustment Mechanism (CBAM).
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Climate clubs can enable greater ambition by fostering commitment to collective climate goals, according to a report commissioned by the German Finance Ministry. German Chancellor Olaf Scholz argued that participating in climate clubs could help countries overcome the challenge posed by a “confusing patchwork of different national regulations”, which could result in trade conflicts.
However, this could also increase pressure on non-participating countries, particularly developing countries that export more carbon-intensive products, to adopt stricter climate measures.
“When you have divergent interests, the bigger your group, the harder it is to put together and hold together the deal”, said UC San Diego Professor David Victor in an interview with energy news website E&E News.
Victor said major powers like the US, EU and China “could build a club for battery or renewable energy deployment — areas where all three countries can see an upside”.
The objective of the G7 climate club is stated to be to “foster the implementation of the Paris Agreement, accelerate the transition towards net-zero emissions by 2050 and boost sectoral decarbonization”.
The G7 statement says that “the climate club’s initial focus will be on the decarbonisation of industry” and to ensure that ambitious companies “should not suffer any competitive disadvantages or be pressured into relocating production sites”.
But at its core, it could be read, to a large extent, as a favourable trade arrangement.
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A major concern with climate clubs is equity. Although the G7 climate club has called itself an “open, cooperative and inclusive climate club”, countries most affected by climate change are likely to be excluded owing to the nature of goods they export and a lack of fiscal space to align their industries with the club’s terms.
“The premise of climate clubs is the fear of ‘free riding’ if countries within a club are at different levels of development,” said Apratim Sahay, senior policy manager at the Green New Deal Network speaking to Down To Earth (DTE).
“The G7-promoted carbon club hangs together with a triplet of domestic policies — carbon prices at home, a CBAM to penalise imported goods, and subsidies for green industrial development. This is a game rigged for developing countries to lose,” Sahay said.
Developing countries face the political challenge of implementing carbon prices without the “carrots” of investment; they have a lack of fiscal space for subsidies and they produce more coal-fired higher carbon goods, he added.
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Falkner’s paper cited concerns about equity and legitimacy regarding climate clubs from a series of expert interviews. These concerns also tie in with literature that identifies the core climate problem not as one of free riding, but rather as one of unequal distribution of power and resources, the paper added.
Fundamentally, a climate club could be viewed as exclusionary and an idea built on secret handshakes and English gentleman’s clubs, as one report suggested.
“Issues of universal relevance should rather be addressed in bodies with universal membership, in this case the United Nations Framework Convention on Climate Change (UNFCCC),” said Bodo Ellmers, director of financing for the Sustainable Development Program at the Global Policy Forum, speaking to DTE.
“There is a risk that a few major economic powers may negotiate a deal among themselves and eventually try to impose it on the rest of the world. We have already seen this pattern in international tax negotiations such as the Organisation for Economic Co-operation and Development’s base erosion and profit sharing negotiations,” he added.
Climate clubs are quite far from the vision of multilateral climate cooperation that civil society has advocated for decades. It reflects the growing anxiety of wealthy, industrialised countries, like the G7 bloc, towards China’s rapid ascent as an industrial powerhouse.
The concept must be critically analysed within the larger picture of climate policy in the 2020s, which is playing out in an increasingly tense world where the goal of energy security has primacy, climate finance is not delivered and trade protectionism is advanced in the guise of climate action.
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Instead of convoluted individual deals, the delivery of climate finance as committed in 2009, in line with considerations of equity, could have enabled emerging economies to build out vast amounts of renewable power and lower-carbon manufacturing and avoided this altogether.
But the G7 and fellow wealthy allies have failed on this commitment. Domestically, G7 countries are continuing to use fossil-based energy and have failed to lead by example on climate action.
These countries have not yet set a deadline for the phaseout of coal and have cited energy security issues from the Russia-Ukraine conflict as a reason to continue investments in fossil gas, while calling on all Parties to the UNFCCC and especially “all major economies” to align their nationally determined contributions (NDC) to the 1.5 degrees Celsius pathway and peak their emissions by 2025.
Nevertheless, large and emerging economies are interested and may see benefits they can extract from such arrangements. In April 2023, Scholz said Indonesia, Southeast Asia’s biggest economy, would be joining the G7 Climate Club.
Germany also recently entered into agreements with Chile and Uruguay with a focus on decarbonising emissions-intensive industries. Indonesia and Chile are both sources of critical minerals, which will be vital for the green transition.
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Chile is set to co-chair the G7 climate club. India is also considering participating, with the Union Ministry of Environment, Forests and Climate Change (MoEF&CC) preparing to consult different ministries to discuss implications for different sectors as well as measures required to coordinate policies, strategy and technology with climate club goals.
The Union Ministry of External Affairs is said to have recently shared the terms of reference with the MoEF&CC for further assessment and discussion.
The Union Ministry of Steel has reportedly shown a keen interest in India joining the climate club, as the country’s domestic initiatives in hard-to-abate sectors like cement and steel, such as the Green Steel initiative, may stand to benefit.
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