Germany’s new leader proposes ‘climate club’ of major economies that would punish free-riders like Australia

Germany has announced plans for a new climate alliance between the world’s advanced economies – a move that promises to transform international climate action.

This year Germany is the chair of the G7 – a key forum for wealthy democracies to discuss solutions to global challenges.

Germany’s new chancellor Olaf Scholz, who replaced longtime leader Angela Merkel last December, wants the G7 countries to become founding members of an international “carbon club”. This alliance of countries would coordinate common climate policy standards and impose costs on countries that do not meet them.

The proposal should sound alarm bells in Canberra. This will likely incur economic and diplomatic costs for Australia and further isolate this nation as a climate laggard on the world stage. To avoid this, Australia should at least match the climate ambition of the G7 countries, pledging to halve greenhouse gas emissions this decade.

The proposed alliance would impose costs on countries that fail to meet climate policy standards.
Ronald Wittek/EPA

What is a climate club?

The concept of the “climate club” was developed by Nobel Prize-winning economist William Nordhaus in 2015 and has since gained traction in international policy circles.

UN climate agreements – such as the 1997 Kyoto Protocol and the 2015 Paris Agreement – ​​are voluntary. Nordhaus argues that this incentivizes some nations, too focused on their own national interests, to seek to minimize their share of the global costs of climate action.

So while responsible nations bear the cost of switching to new, cleaner technologies, free-riding nations benefit from these technologies and a potentially safer climate while not reducing their own national emissions enough.

To solve this problem, Nordhaus proposes a “club” model for climate cooperation. Members of the club – the countries that act first in climate action – would be both rewarded and protected from competitive disadvantages.

Members would align their plans to reduce greenhouse gas emissions and work towards a common goal. And countries that fail to meet their global obligations would face penalties, such as a levy on exports to club member countries.

Read more: Japan wants to burn ammonia to produce clean energy – but it could be a Pyrrhic victory for the climate

the man speaks at the desk
Nobel Prize-winning economist William Nordhaus has proposed the idea of ​​the “climate club”.
Craig Ruttle/AP

How the G7 could become a climate club

In addition to Germany, the G7 includes the United States, United Kingdom, France, Italy, Japan and Canada.

Just a month after being elected German Chancellor, Olaf Scholz announced at the World Economic Forum in January that Germany intended to make the G7 the nucleus of an international climate club.

Scholz has been passionate about the idea of ​​the climate club for some time. Last August, as German finance minister, he proposed an “ABC” model that would be:

  • ambitious: all members would commit to climate neutrality by 2050 at the latest and set strong interim targets

  • bold: member states would set a minimum price for shared carbon and coordinate measures to prevent production from being moved to countries with weaker emission rules

  • cooperative: membership of the club would be open to all countries that introduce adequate climate action targets and measures.

A G7 climate club could draw on the experience of the European Union. The EU already has an internal carbon market and next year will start imposing border taxes on imported goods, based on the emissions generated during their production. The highest costs will be borne by exporters from countries that do not have a carbon price or meaningful climate policy.

Scholz suggests that the G7 countries could negotiate agreements similar to those of the EU. G7 countries will consider Germany’s proposal at ministerial meetings this year.

Climate policy is a key priority for the Biden administration in the United States, providing a window of opportunity for positive negotiations.

And there are already initiatives to establish shared standards across the Atlantic. In October last year, the EU and the United States announced that they were working on a first global agreement to restrict access to their markets for high carbon steel.

freighter moored at the port
The EU will start imposing carbon taxes at borders.
David Chang/EPA

What this means for Australia

Australia is widely seen as a free rider in global climate efforts. While G7 member states have pledged to cut their emissions by around 50% over this decade, Australia has pledged to cut emissions by only 26-28% below 2005 levels.

At last year’s COP26 climate conference in Glasgow, Australia was the only major developed country to refuse to set a tougher emissions target for 2030. It is also the only country in the world to having repealed a carbon price.

Additionally, the Morrison government is promoting a “gas-powered” economic recovery from the COVID pandemic. He continues to promote coal and gas exports and mocks carbon levies at EU borders as protectionism.

Safe to say that if a G7-led climate club were to form in the near future, Australia would not be invited to join.

Australia should take Germany’s climate club proposal seriously and move quickly to implement climate policies that align us with the G7 countries.

Otherwise, Australia faces the prospect of economic harm. This would not only take the form of possible border carbon taxes, but also the loss of investment capital and economic gains that come from being a frontrunner in clean industries.

Read more: Labour’s 2030 climate target outperforms Morrison government, but Australia needs to go much further, much faster

wind farm on green grass against mountains
Australia should move quickly to implement climate policies that align us with the G7 countries.
Port of Granville wind farm

stay in the race

The climate club concept is not without its detractors. Some academics and climate negotiators warn this could undermine multilateral cooperation in the UN climate talks, while others warn that such deals can exacerbate equity issues between rich countries and countries. poor.

For its part, Germany suggested that climate finance could be provided to help developing countries become members of the club, and club members could make a gradual political transition.

The climate club proposed by the G7 marks a major turning point in global efforts on climate change. Major powers now view climate action as a race for competitive advantage. The pioneers of the new industrial revolution will win first, second and third prizes.

If Australia is to stay in the race, a much more ambitious federal climate policy is urgently needed.

Read more: What drove Perth’s record-breaking heat wave – and why it’s a taste of things to come

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