G-7 Launches Climate Club to Try and Avoid Green Trade Wars

Published
6th Jul, 2022

Context

Leaders of the world’s most advanced economies have agreed to start a Climate Club where members agree on joint rules and standards in the fight against global warming with the hope that it will avoid spats over green tariffs.

About

What is a climate club?

Nobel-prizewinning economist William Nordhaus proposed the climate-club idea in 2015.

The Climate Club is an intergovernmental forum of high ambition.
It will be inclusive in nature and open to countries that are committed to the full implementation of the Paris Agreement and the decisions thereunder, in particular the Glasgow Climate Pact, and to accelerate their action to this end.

United Nations climate agreements such as the 1997 Kyoto Protocol and the 2015 Paris Agreement are voluntary.

What are the major pillars?

The Climate Club is to be built on three pillars:

Advancing ambitious and transparent climate mitigation policies to reduce emissions intensities of participating economies
Transforming industries jointly to accelerate decarbonisation and expanding markets for green industrial products.
Boosting international ambition through partnerships and cooperation to encourage and facilitate climate action

Aligned interests:

The Organisation for Economic Co-operation and Development, the International Monetary Fund and the World Bank are supportive of the effort.
Currently, the members of the club only include the G-7, leaving out major polluters including China, India, Indonesia and South Africa.

Key Terms:

Carbon price: A cost applied to greenhouse gases produced as a result of human activity. It aims to reduce emissions by penalizing polluting activities. It can be a tax, or a requirement to purchase emission permits.
Carbon leakage: When producers offshore the production of carbon-intensive goods to nations with lower carbon taxes to save costs, then import the products from there.
Carbon border adjustment: A tariff on imported goods based on the amount of greenhouse gases emitted during their manufacture. Aims to reduce and prevent carbon leakage. The size of this tariff would be equivalent to explicit or implicit domestic carbon prices, such as carbon taxes and environmental regulations.