Germany’s Scholz to officially inaugurate ‘climate club’ at COP28

Chancellor Olaf Scholz’s long-held plans to establish a “climate club” of ambitious countries will finally see the light at the COP28 summit in Dubai, with 33 members initially expected to join, including all G7 countries, Chile and Mozambique. 

On Friday (1 December), Scholz will travel to Dubai for the “full launch” of one of his long-held pet projects – establishing a so-called “climate club” bringing together countries with ambitious climate policies. 

“The Climate Club, which emerged from our G7 Council Presidency as an idea of the Chancellor, has now spread far and wide around the world,” said a senior German government official who spoke to journalists in Berlin ahead of the launch.

The club’s members must show commitment to the 1.5 °C target of the Paris Agreement and adopt concrete plans to quickly decarbonise their industry to hit net-zero emissions sometime around 2050.

In theory, climate clubs share common emission reduction targets and penalise countries outside the club that do not adopt sufficiently ambitious policies, according to American economist William Nordhaus, who developed the concept.

Scholz’s climate club, expected to bring together 33 countries, will not go that far.

In the initial phase, Germany and Chile will be jointly running the informal group from the OECD headquarters in Paris. All G7 countries, including the US, have joined.

But instead of slapping sanctions on less ambitious countries, Scholz’s climate club will rely on three incentive-based pillars: green steel, industrial decarbonisation, and international partnerships. No specific funding has been allocated at this stage.

Neither China nor India – the world’s largest steel producers – have joined the club, which nevertheless hopes to establish a global definition of “green steel.” 

Other initiatives include the creation of “lead markets” to boost demand for clean industrial production and a dialogue on “carbon leakage” – to avoid companies moving to countries with less rigorous climate policies.

In practice, the Climate Club amounts to little more than a forum for countries with self-proclaimed “ambitious” climate policies.

When Scholz pitched the idea to the G7, it was already criticised by experts. A climate club is “not a credible stand-alone option,” wrote Berlin think-tank Agora Energiewende. Others described it as a pet project of Scholz, who initiated the idea when he was finance minister under Angela Merkel’s last government.

As it launches, even less of that ambition remains. “It was quite clear that if we say we’re doing an open-ended, inclusive climate club, we can’t ban people from giving their say on how it is organised, otherwise few would join,” said a senior official.

Plans to focus the climate club on defining “green” hydrogen were quickly abandoned.

“It’s absolutely clear that with the expansion from the original seven to 33, requests, insights and questions come up,” the official added. And with that, the original ambition.

Germany's Scholz proposes ‘climate club’ to avoid trade friction

Germany wants the European Union to create a “climate club” with other countries like the United States, Japan and possibly even China to avoid trade friction linked to green tariffs such as a planned carbon border levy.

CBAM: The true climate club?

Europe’s CO2 tariff, the carbon border adjustment mechanism (CBAM), also looms over the climate club – the European Parliament’s think-tank even argued that the carbon tariff was the “real” climate club.

When Scholz first floated the idea, CBAM wasn’t set in stone yet. Senior officials in Berlin even went as far as pitching the climate club as a way for countries to escape the EU’s then-looming carbon tariff.

Unsurprisingly, countries like Mozambique – which risks a 1.5% drop in GDP due to EU carbon tariffs – were first to join.

But CBAM doesn’t provide for any exemptions, and the issue will not be brought up at the climate club meetings.

“Seeking exemptions from CBAM should not be made the focus area of the G7 Climate Club, even if such discussions may be underway at the bilateral level,” said the German think-tank EPICO.

Doing so would risk creating “missed opportunities for cooperation on other aspects in the steel value chain with the EU and also among the non-EU members,” it adds.

Scholz walks EU tightrope in push for 'international climate club'

German Chancellor Olaf Scholz has championed the creation of a “climate club” bringing together large economies pushing for more ambitious climate action. But as the EU pushes for a carbon tariff at its border, he is walking a diplomatic tightrope.

[Edited by Frédéric Simon/Alice Taylor]

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