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.

In 2021, then finance minister Olaf Scholz put forward his ambition to form a club of “ambitious, bold and cooperative” countries. The initiative’s targets were countries “with large amounts of emissions, especially China and the US,” important EU trade partners, countries with a price on CO2 emissions, and those with a large industrial sector.

Now chancellor, he has managed to wrangle the G7 countries into agreeing. 

“We need more ambition, more ambition to achieve our climate goals. With the Climate Club, we are helping to ensure that we can also meet this commitment,” explained Scholz during his final remarks at the G7 summit in Elmau, Germany, on 28 June. 

In the final statement of some of the world’s largest industrial countries, they highlight that the G7 “aim to establish a climate club” with a “particular focus on the industry sector” by the end of 2022.

It will be built on three policies. Firstly, ambitious climate “mitigation” policies to reduce emission intensities of participating economies where members share best practices and work towards a common understanding of the economic impacts of “mitigation” policies, such as through explicit carbon pricing.

A second pillar will be the joint transformation of industry through the industrial decarbonisation agenda, the hydrogen action pact and by expanding markets for green industrial products, which often struggle to compete on price with their more polluting fossil competitors.

The climate club’s third pillar will be partnerships and cooperation, with the statement highlighting the “Just Energy Transition Partnerships” (JETPs), which are schemes tailored to countries like South Africa or India. Countries will receive financial support and technology transfers depending on their level of climate ambition through these JETPs.

With Germany, France and Italy being some of the only large countries in the world to have a carbon pricing system via the EU’s emission trading scheme (ETS), the climate club has moved away from its initial emphasis on carbon pricing.

“Today’s announcement on climate clubs puts the decarbonisation of industry at the heart of the initiative. While the idea to focus on carbon pricing has lost steam, the pivot to heavy industry has the potential to accelerate the development of global green markets through cooperation,” explained Domien Vangenechten, policy advisor at climate think-tank E3G.

Scholz’s credibility on climate action had previously been bruised by media reports that Germany would seek to back peddle on a 2021 commitment to end fossil fuel financing abroad.

What about the EU’s carbon border tax?

While G7 leaders met in Elmau, EU ministers convened in Luxembourg to discuss when the EU should begin penalising third-country imports not subject to the EU’s strict climate protection regime.

The EU’s carbon border adjustment mechanism (CBAM), usually referred to as the EU’s carbon border tax, has German industry worried. That, in turn, worries leaders in Berlin.

Germany’s Robert Habeck, minister for economy and climate action, warned of CBAM triggering a “new trade war as a hidden tariff” in December 2021.

At the very least, Scholz’s climate club is seen as highly compatible with the EU’s CBAM, as countries with sufficient levels of climate protection would be exempt if not a way of bypassing it entirely.

The chancellor has been rather frank about this to concerned African countries, some of which are heavy industrial exporters to the EU and stand to lose a significant share of their GDP once the carbon border tax is in place.

“As the current G7 Chair, I have particularly advocated that our African partners also decide in favour of an open climate club and want to participate in it,” Scholz said in February following an EU-Africa summit.

This push for a climate club in lieu of CBAM, which had been a top priority for the outgoing French Council presidency, is underpinned by anti-CBAM sentiments expressed by senior German officials.

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 Alice Taylor]