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New German leader proposes climate club of leading economies, which would punish Australia’s free riders

New German leader proposes climate club of leading economies, which would punish Australia’s free riders

coal plant at sunset

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 president of the G7 – a key forum for wealthy democracies to discuss solutions to global challenges.

New German Chancellor Olaf Scholz, who replaced long-time leader Angela Merkel in December last year, wants the G7 nations to become founding members of an international “carbon club”. This alliance of countries would coordinate shared climate policy standards and impose costs on countries that don’t meet them.

This proposal should alarm Canberra. It will likely result in Australia being isolated as a climate laggard and economic and diplomatic losses. Australia should pledge to reduce greenhouse gas emissions by at least half its current level of ambition, in order to avoid this.

coal plant at sunset
The proposed alliance would impose costs on countries that don’t meet climate policy standards.
Ronald Wittek/EPA

What is a climate club?

The “climate club” concept was developed by Nobel-prize winning economist William Nordhaus 2015, and has continued to do so. Gained groundIn international policy circles.

United Nations climate agreements – such as the 1997 Kyoto Protocol and the 2015 Paris Agreement – are voluntary. Nordhaus claims that this gives nations an incentive to reduce their share of the global climate change costs.

So while responsible nations bear the cost of switching to new, cleaner technologies, the “free-riding” nations benefit from those technologies and a potentially safer climate while failing to make adequate cuts their own domestic emissions.

To address this problem, Nordhaus proposes a “club” model for climate cooperation. Club members – those countries who move first to take climate action – would be both rewarded, and protected from competitive disadvantage.

Members would coordinate their plans to reduce greenhouse gas emission and work towards a common goal. Nations that fail to meet their global obligations will be subject to penalties, including a levy on exports from member countries.




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man speaks at lectern
Nobel-prize winning economist William Nordhaus proposed the ‘climate club’ idea.
Craig Ruttle/AP

How the G7 could be a climate club

The G7 is comprised of the United States and the United Kingdom, France, Italy. Japan, Canada and Canada.

Olaf Scholz was elected German chancellor just one month after being elected. AnnouncementAt the January World Economic Forum, Germany announced that it intends to transform the G7 into an international climate club.

Scholz has been a long-time supporter of the climate club idea. Last August, as Germany’s finance minister, he Proposed an “A-B-C” model that would be:

  • Ambitious: All members will commit to climate neutrality no later than 2050 and set strong interim goals

  • Bold: The member states would agree to a minimum carbon price, and coordinate measures to prevent production from being transferred to countries with lower emission rules.

  • Cooperative: All countries with adequate climate action goals and measures would be eligible for club membership

A G7 climate club could be built on the European Union’s experiences. The EU already has an internal carbon marketplace and will soon start imposing border levies for imported goods based on the amount of carbon they produce. The highest costs will be borne by exporters from countries that don’t have a carbon price or meaningful climate policy.

Scholz SuggestionsG7 countries may be able to negotiate similar arrangements to the EU. The G7 countries will consider Germany’s proposal at ministerial meetingsThis year.

Climate policy is a priority for the Biden Administration in the US and provides a window of opportunity to positive negotiations.

Already, there are efforts to set common standards across the Atlantic. In October last year, the EU & the US agreed to share standards across the Atlantic. AnnouncementThey were working towards a first-of-its-kind deal to restrict access for high-carbon steel to their markets.

cargo ship docked at port
The EU will begin imposing carbon border levies.
David Chang/EPA

What does this mean to Australia

Australia is widely seen to be a free-rider on global climate efforts. While the G7 member states have pledged to reduce their emissions by About 50% Australia has pledged to reduce its emissions by 22-28% from 2005 levels in this decade.

At last year’s COP26 climate conference in Glasgow, Australia was the only major developed country that refused to set a stronger 2030 emissions target. It’s also the only country in the world to have repealed a carbon price.

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What’s more, the Morrison government is promoting a “gas-fired” economic recovery from the COVID pandemic. It continues to promote coal and gas exports, and derides the EU’s carbon border levies as protectionism.

It is safe to say that Australia would not be invited if a G7-led club on climate change was formed in the near future.

Australia should take Germany’s climate club proposal seriously, and move quickly to implement climate policies that bring us in line with G7 nations.

Australia is at risk of economic harm. This would not only be in the form potential carbon border leviesHowever, this can lead to a loss in investment capital as well as economic gains from being a first-mover in clean industries.




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wind farm on green grass against mountains
Australia should act quickly to implement climate policy that aligns with G7 nations.
Granville Harbour Wind Farm

Staying in this race

There are many critics to the climate club concept. Some climate negotiators and academics warn that it could be dangerous. undermineMultilateral cooperation in UN Climate Talks, while others warn that such agreements can be dangerous. ExacerbationEquity issues between poorer and richer countries

Germany has suggested that climate finance could help developing countries to become club members. The club members could also make a gradual transition in their policy.

The G7 climate club proposal marks a major shift worldwide in efforts to address climate change. Major powers now see climate action as a race to gain competitive advantage. The new industrial revolution’s first and second movers will win the first, second, and third prizes.

Australia must have a more ambitious federal climate policy if it wants to remain in the race.




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