Decarbonising industry: the G7 Climate Club goes global.

Proposed by Germany in June 2022, the idea of creating a Climate Club took shape with the official launch of a G7 Climate Club in December 2022. The first priority is to promote the decarbonisation of industry by avoiding carbon leakage and to ensure the success of the carbon tax at Europe’s borders. The International Energy Agency and the OECD have been appointed to facilitate the creation of a secretariat. The Climate Club was “fully” launched at COP 28. The scope and means of intervention of this new international cooperation body, which is supposed to facilitate the transition to action, have not been clearly defined. However, a work plan has been drawn up for 2024, organised around the Climate Club’s 3 pillars of action. The first insights will be shared at COP 29.

The idea of a climate club has its origins in club theory. Club theory postulates that a “club” mechanism is needed to overcome the tendency for international agreements to be free-ridden, i.e. to enjoy benefits without bearing a fair share of the costs. In 2015, Nobel laureate William Nordhaus developed the concept in the context of environmental policy, proposing climate clubs that combine target carbon prices with trade sanctions. At the political level, the idea of climate clubs has found promoters at G20 level (IMF and OECD Tax Policy and Climate Change for the G20 Finance Ministers and Central Bank Governors, September 2021), in Europe (vote in favour of the creation of the first border adjustment carbon tax, June 2022), and at G7 level (announcement of an open and cooperative “Climate Club” providing a crucial boost to international climate action”, June 2022).

The objective of the Climate Club, which is open, cooperative and inclusive, is to support the effective implementation of the Paris Agreement and the decisions that flow from it. It aims to support the acceleration of climate action and the increase in ambition to achieve zero net global greenhouse gas emissions by mid-century or thereabouts. It will focus particularly on the industrial sector, helping to support green growth and address, among other things, carbon leakage and other potential risks to mitigation efforts, while complying with international rules.

As a first step, the Climate Club will focus on unlocking the decarbonisation potential of hard-to-kill industrial sectors. Other sectors with substantial greenhouse gas mitigation potential may be included as agreed. Its aim is to help strengthen global climate action by facilitating the transition to near-zero emission industrial production. To this end, the Climate Club will provide an ambitious forum for intergovernmental discussion and a framework for enhanced cooperation, improved coordination and possible collective action.

The Climate Club is based on three thematic pillars, all of which will contribute to its overall objective. It will promote efficiency, encourage existing initiatives and avoid duplication of effort. The Climate Club will build on and complement existing initiatives and exchanges of best practice between its members, as well as the ongoing work of relevant international organisations and initiatives related to its activities.

• Pillar 1: Promoting ambitious and transparent climate change mitigation policies.
• Pillar 2: Transforming industries
• Pillar 3: boosting international cooperation and partnerships on climate issues

The announced priority was to promote the decarbonisation of industry by avoiding carbon leakage and to ensure that the carbon tax at Europe’s borders was a success. This new economic and political object is analysed by the European Parliament’s research department.

As recalled in the declaration of the Group of 7 held in Hiroshima on 21 May, the Club was intended to be inclusive and open, and therefore diverged from the concept developed in 2015 by William Nordhaus.

The International Energy Agency and the OECD were appointed to facilitate the creation of a secretariat.

The oil reserves of exporting countries account for 80% of potential future greenhouse gas emissions. The reluctance of these countries to reduce the revenues from oil extraction is undermining hopes of achieving the ambitions of the Paris climate agreement. At the G7 2022 meeting chaired by the German Chancellor, the richest countries took a further political step forward to support the creation of a system of constraints and incentives aimed at rallying oil-exporting states to their cause: reducing emissions at source (at the well).

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