Din his speech at World Economic Forum, German Chancellor Olaf Scholz confirmed that Germany wishes to make the G7 the “core of an international climate club” to accelerate international climate action. This is an important and promising initiative, the potential benefits of which could be greatly enhanced by redistributing international carbon dividends to poorer nations, to support their transition to a clean economy. The German-led G7 can boost decarbonization and climate justice.
But let’s go step by step. Climate clubs bring together the countries most committed to the climate, while implementing joint measures to guard against carbon leakage – a situation in which a company, to escape the costs linked to climate policies, moves its production to a another country, outside the club.
As climate clubs create important markets, they provide economic opportunities for companies that operate in a low-carbon environment. In short, a climate club would solve the problem of free riding and accelerate global emissions reductions while promoting green growth among club members.
Measure CO2 and set prices for carbon
Long discussed in economic circles, the idea of the climate club has recently gained momentum. A major push has come from the European Union, which is considering the idea of Carbon Border Adjustment Measures, or CBAMs. [en anglais, Carbon Border Adjustment Mechanism]. These measures could replace the trade sanctions foreseen in the original idea of the club, formulated by the economist William Nordhaus, which are difficult to implement within the framework of the World Trade Organization (WTO).
Climate clubs could revolve around such a border adjustment measure, avoiding a fundamental overhaul of the global trade regime. What it takes to form a climate club is leadership. In 2021, the UK pledged to put this at the heart of its G7 Presidency, but that vision ultimately failed to materialise.
In 2022, the time may have come. While Germany has just taken the lead in the G7, it is doing one “cooperative and open climate club” a key element of his presidency. The basic principles are the same: members work on a roadmap to measure CO2 and determining minimum carbon prices. They are also jointly introducing a carbon border adjustment mechanism to guard against the relocation of industry to regions with lower climate ambitions.
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