A G7 Climate Club to Booster Transatlantic Relations?

Charlotte Unger

Research Institute for Sustainability Helmholtz Centre Potsdam (RIFS)

Charlotte Unger is an AGI/DAAD Research Fellow from May to July 2023.

Dr. Unger is a Senior Research Associate at the Research Institute for Sustainability Helmholtz Centre Potsdam (RIFS). She holds a PhD in political sciences from the Technical University of Munich (TUM). Her work focuses on global climate governance, innovative climate alliances, carbon markets, and climate policy in Germany, the EU, and the United States. She also managed the scientific groundwork for the Berlin Climate Citizens Assembly and represents the RIFS in national and international climate fora, e.g., the United Nations Framework Convention on Climate Change (UNFCCC). Charlotte draws from many years of experience in the field of environmental policy, gained in civil society, governmental, and scientific institutions.

Her current research is motivated by the state of international climate politics: As countries’ national pledges are not ambitious enough to achieve the Paris Agreement’s climate goals, an increasing number of additional global climate initiatives, pledges, and clubs have emerged. These innovative initiatives are often transnational and usually focus on a specific sector (e.g., the Global Methane Pledge) or group of actors. Also, initiatives which originally were aimed at other issue areas, such as trade, economics, and security, are increasingly active in climate policy (e.g., G7). Dr. Unger researches these initiatives from a comparative, case studies perspective to discover their contributions to the global climate regime. Further, she is interested in what drives countries to launch and be active in these alliances, specifically the United States, EU, and Germany, but also countries from the Global South.

During her stay at the American-German Institute, she will look at innovative climate initiatives in which the United States, Germany, and the EU have a leading role, such as the Global Methane Pledge and an emerging alliance on steel. For the latter, several initiatives were announced from different sides: The United States announced a “Global Arrangement on Steel” at the end of 2022 together with the EU. Germany pushed the launch of a climate club under the G7, which will also focus on the steel sector. Dr. Unger will particularly look at the differences between the United States and Germany (and the EU); e.g., why, the Global Methane Pledge seems to have gained much importance in the United States, whereas in Germany the topic has hardly gotten any political attention. For the steel initiative, she asks how governments will make sure to create an effective alliance that coordinates rather than competes with parallel similar proposals. An overall question to be tackled is: What effect do these initiatives have on transatlantic relations—i.e., are they also aimed at building a block against supposedly climate policy laggards or otherwise market competitors like China?

Sonja Thielges

German Institute for International and Security Affairs (SWP)

Sonja Thielges is a Geoeconomics Non-Resident Fellow. She was a DAAD/AGI Research Fellow from mid-March to mid-May 2019 and explored foreign policy interests in Germany and the United States related to the countries’ energy transitions. In Germany, she is a researcher at the Research Cluster Climate Policy and Politics at the German Institute for International and Security Affairs (SWP) in Berlin. Her research interests include climate foreign policy, the global energy transition and industrial decarbonization. Her research has been published in studies, policy papers, online blogs, and academic publications.

Prior to SWP, Sonja was head of the Industrial Decarbonization research group at the Research Institute for Sustainability (RIFS, formerly Institute for Advanced Sustainability Studies, IASS) in Potsdam. She was a visiting researcher at the University of Michigan’s Center for Local, State, and Urban Policy in Ann Arbor in 2014 and previously also worked on projects at the Environmental Policy Research Centre (FFU), the Institut für Europäische Politik (IEP) Berlin, and the Centre International de Formation Européenne (CIFE). In 2017/2018, Sonja was a participant in the AGI project “A German-American Dialogue of the Next Generation: Global Responsibility, Joint Engagement,” sponsored by the Transatlantik-Programm der Bundesrepublik Deutschland aus Mitteln des European Recovery Program (ERP) des Bundesministeriums für Wirtschaft und Energie (BMWi). She completed an MA in North American Studies, Political Science, and Modern History at Freie Universität Berlin and Indiana University Bloomington and holds a PhD in political science from Freie Universität Berlin. Her PhD thesis studied climate policy discourses in the U.S. Rust Belt states.

Since January, Germany has held the presidency of the Group of 7 (G7). In line with its own national priorities, the German government announced ambitious climate policy goals for its G7 presidency. They included accelerating the global coal phase-out and enhancing sectoral decarbonization. The G7 presidency also introduced the concept of a G7-based climate club, which represents an opportunity to intensify transatlantic climate and energy relations.

The German climate club proposal: A new spin on an old idea

Broadly speaking, a climate club is a small or select group of actors who cooperate to accelerate progress on a particular climate issue beyond the scope of targets agreed in larger contexts such as the United Nations Framework Convention on Climate Change (UNFCCC). As early as the 1960s, James M. Buchanan described clubs as economic communities and a particularly expedient form of cooperation. Nobel laureate William Nordhaus famously argued that in climate clubs, decision-making processes are faster and laggards/non-compliance can be punished more easily.

Academic research identifies two extreme types of clubs. At one extreme lie what can be termed as “Nordhaus Clubs”: exclusive, small groups that grant their members economic and political benefits. Nordhaus framed them as an alternative form of cooperation to the UNFCCC. At the other extreme are voluntary, rather loose and less exclusive alliances, referred to by Jessica Green and others as “pseudo – or voluntary clubs.” They focus on technical collaboration and knowledge development and sharing.

Today, a large variety of climate initiatives exist that could be described as clubs. We have studied a selection of them in our recent paper Preparing the playing field: climate club governance of the G20, Climate and Clean Air Coalition, and Under2 Coalition. Examples of club-like initiatives that tackle climate issues range from the G20 to large alliances such as the Climate and Clean Air Coalition or the Under 2 Coalition, each of which has over 150 members. In the past, these clubs served primarily to forge close cooperation and strong networks. They raise awareness for a specific (climate) topic and build capacities to support the implementation of climate policy measures but refrain from setting numeric reduction targets for their members.

The German climate club proposal originally entailed elements from both club types. It envisioned that its members would agree on a common carbon price and potentially apply a common carbon border tax to those outside the club to address carbon leakage. Members would commit to achieving net-zero emissions by 2050. Yet, contrary to this very exclusive approach, the German government also planned to focus on technical cooperation and advertised an inclusive membership that would allow countries of the Global South to join and get financial support.

Challenges to the German G7 climate agenda

The German agenda was challenged on various fronts: It was soon overshadowed by the Russian invasion of Ukraine with its humanitarian implications but also its implications for energy security in Germany and the European Union (EU) as a whole. Highly dependent on imports of fossil fuels from Russia and amidst quickly rising energy prices, Germany has been forced to find alternative sources, including the United States, to secure its fossil fuel supply for the coming winter.

Further, several conceptual aspects seemed to be in conflict from the start. Its ambition to establish a joint carbon price is problematic even among the G7 members, as only the EU countries and the United Kingdom operate a carbon pricing system at the national level. Also, agreeing on a common carbon price level without a cap-and-trade or tax system in place is an extremely difficult endeavour, where domestic politics and geopolitical sensitivities play a decisive role.

The G7 meetings ended up diluting Germany’s ambitious plans. The G7 environment and energy ministers were unable to agree on a date and merely sought to phase out coal-fired power generation “as soon as possible.” They committed to “predominantly” decarbonizing their electricity supply by 2035 and to decarbonizing transportation “to a large extent” by 2030. The long-overdue public financing of the G7 for unabated international fossil fuel projects is scheduled to end in 2022. Yet, as a glimmer of hope for climate protection, the G7 members agreed at the Leaders’ Summit in June in Elmau to launch a climate club together by the end of 2022. The new proposal abandons the carbon price as a prerequisite for membership and consists of three pillars.

Even though introducing a common carbon price to date seems a long way from becoming reality, collaborating on common metrics and standards with a more long-term perspective is not without merit

First, members would pursue ambitious and transparent climate mitigation policies and achieve carbon neutrality by mid-century. They strive for increased comparability among their efforts, e. g. in terms of their effectiveness and impacts. Here, carbon pricing could function as a benchmark for comparison. Second, members would accelerate industrial decarbonization and expand markets for green industrial products, for instance via already existing G7 initiatives such as the Industrial Decarbonization Agenda and the Hydrogen Action Pact. Third, the club aims at making use of international partnerships to facilitate climate action and capacity building in developing countries.

The overall political goal of this climate club clearly complements and supports the achievement of the Paris Agreement’s objectives, first and foremost keeping global warming at 1.5°C. The main activities planned now seem to come closer to an open, voluntary, technical forum, where the focus is set on decarbonizing the industrial sector.

The United States as part of a climate club?

Any club-like initiative that includes carbon pricing would have been bound to cause friction with the United States. The Biden administration has ambitious climate goals, but it has not been able to introduce a national carbon price in the United States. In Congress, climate policy efforts are once again stalled. A group of Democratic Senators recently introduced the Clean Competition Act, an effort to introduce a carbon price for carbon-intensive industries alongside a carbon border adjustment mechanism. Carbon pricing is thus, once again, on the Congressional agenda. But so far there is little indication of the necessary Republican support for such measures.

The shift towards technical cooperation, finding common standards, and increasing the comparability of climate measures is therefore good news for transatlantic relations. It ties in well with existing efforts such as the Global Methane Pledge or the U.S.-EU trade agreement on steel and aluminium, which promotes “green steel” with a low-carbon intensity, or the German-American Climate and Energy Partnership, officially launched in May 2022. The Partnership’s working groups focus on offshore wind development, green hydrogen-related issues such as regulation and certification, zero-emission vehicle promotion and cooperation, and capacity building in emerging and developing economies. If these efforts are advanced at the G7-level, this could become a valuable starting point for the new climate club.

Even though introducing a common carbon price to date seems a long way from becoming reality, collaborating on common metrics and standards with a more long-term perspective is not without merit. It might, for example, help in managing trade tensions and supporting the discussions on unilateral border tax mechanisms, such as the Carbon Border Adjustment Mechanism (CBAM) the EU is planning to introduce. The mechanism is regarded with scepticism by other countries, including the United States and China, as it would raise the costs for exports to the EU through a fee on carbon emissions. It remains to be seen what progress can be made on the club proposal in the second half of the German G7 presidency, but with the looming cold winter and shortage of Russian gas supply, strengthening partnerships with the United States and the G7 must be a priority on the German agenda.