Climate clubs, international institutions historically relegated to theory and academia, are set to become political reality by the end of 2022. At the most recent Group of Seven (G7) summit led by German Chancellor Olaf Scholz, member nations agreed that climate commitments made by countries pursuant to the Paris Agreement are not in line with a global transition to a 1.5 degrees C pathway or net-zero greenhouse gas emissions by 2050. In response, the G7 is working to quickly establish a club of high-ambition nations to accelerate and heighten international action against climate change.
As presented in the standalone G7 Statement on Climate Club, the club will be a new intergovernmental forum consisting of nations that are fully committed to implementing the goals outlined in the Paris Agreement and subsequent Conferences of Parties. The G7 Climate Club structures itself around three loosely defined pillars:
- The increase of ambition and transparency of climate mitigation policies to close the gap between climate neutrality goals and current policies. More concretely, the club seeks to strengthen reporting mechanisms, harmonize emissions measurements, counter carbon leakage, and explore ambitious options such as explicit carbon pricing.
- A focus on accelerating industrial decarbonization.
- An emphasis on international climate partnerships to ensure a just transition and “unlock socio-economic benefits of climate cooperation.”
While this club currently comprises only G7 nations, the statement stresses inclusivity. It explicitly invites “major emitters, G20 members, and other developing and emerging economies” so long as their ambitions are in line with the Paris Agreement. This openness, however, serves as a strong departure from the original formulation of a “climate club.” It also raises concerns about whether the club’s goal of increasing ambition will be realized.
There are various frameworks for a climate club. An iteration that encompassed nations such as Germany, India, and Morocco was the 2013 “Renewables Club”, which emphasized creating more rigorous action plans for nation-states. This since-discontinued organization was more so a high-level political alliance, but it promoted the concept of smaller intergovernmental organizations that push members to commit to stronger targets than those of the UNFCCC. Other scholars pushed for a “Club of Carbon Markets” to support the increased ambition of domestic carbon markets as well as harmonized, cross-border mechanisms for emissions trading. While many more club models have been proposed by academics, arguably the most common stems from William Nordhaus, a Nobel-prize-winning economist.
Responding to stagnant global action, Nordhaus first put forward the notion of the climate club in 2015. He is highly critical of the UNFCCC, arguing that there has been no global progress since COP1, despite milestones such as the implementation of Nationally Determined Contributions and finalization of the Paris rulebook at COP26. Nordhaus formulated the climate club as an exclusive group of countries that undertakes harmonized emission reductions to meet a clear and ambitious goal and penalizes non-members and members that break club rules through tariffs on imports. Leveraging gains from membership and economic penalties, Nordhaus believes that exclusive climate clubs can tip nation-states’ cost-benefit analyses so that it is more beneficial for them to join the club (and agree to more ambitious climate action) than it is for them to pay as non-members or for breaking club rules.
This rigorous vision differs greatly from the inclusive focus of the G7 Climate Club. Even within the G7, strong commitments backed by enforcement mechanisms are likely to be difficult to achieve. For instance, given the current political realities in the United States, it is hard to imagine alignment on carbon pricing among all Climate Club members at least in the near to medium term. In general, the G7 does not necessarily reflect the most climate-forward nations, and it’s unclear how ambitious the new Club will be. Seeking to grow membership beyond the G7 is only likely to compound the challenge of reaching agreement on effective actions. The G7 Climate Club also remains ambiguous about the severity of non-member penalties and how it will balance this with issues of equity and a just energy transition.
As countries increasingly turn to new mechanisms such as climate clubs to advance climate action, policymakers such as Chancellor Scholz will be forced to deal with a difficult coverage vs. commitment tradeoff. In order to best support the goals of the Paris Agreement, any formal climate club must distinguish itself from the near-universal coverage of the UNFCCC without being too narrow in membership so as to unjustly penalize nations. It must delicately balance ambitious goals (even if it means less coverage) with retention of key players such as those part of the G20.
It is almost certain that the club will fall somewhere between UNFCCC and the Nordhaus model in terms of coverage and commitment. Nordhaus’ theoretical climate club maximizes the strength of climate commitments by minimizing membership to the most ambitious nations and penalizing all others. It achieves results at the expense of widely accepted principles such as “Common but Differentiated Responsibilities and Respective Capabilities in light of different national circumstances,” or considerations of equity and justice. Conversely, the Paris Agreement maximizes the coverage of climate commitments by emphasizing that they are nationally determined. Boasting 196 Parties, when agreement is reached in the international climate negotiations, it is truly a global effort requiring strong consensus.
To be successful, the G7 Climate Club must strike the right balance between coverage and commitment. With a membership that is too inclusive, the climate club will result in weak commitments, and it will risk taking away from the institutional legitimacy of the UNFCCC. With climate commitments that are too demanding, however, the club will alienate ambitious countries from the rest of the world and could harm developing and emerging economies whose inclusion in the club is vital to its effectiveness and durability. With the inherently exclusive nature of a climate club, especially one limited to the world’s richest economies, the extent to which Germany and other G7 nations are committed to a truly just energy transition will be tested as this institution takes shape in late 2022.