Germany's G7 Presidency Pushes for Climate Hub and Climate Club
German Chancellor Olaf Scholz, as part of Germany's G7 presidency, is advocating for the establishment of a climate hub and a climate club. Scholz's vision aims to create an international alliance to drive more ambitious climate policies, building on Germany's long-standing commitment to environmental sustainability.
While three EU states within the G7 are already committed to similar climate targets, Scholz's climate club primarily seeks to engage the remaining G7 members: Canada, Japan, the UK, and the US. Proponents of the initiative argue that trading within a climate club would ensure a level playing field by implementing similar carbon pricing rules. However, critics contend that this approach alone would be insufficient and would not provide a credible solution. Agora Energiewende, a Berlin-based think tank, has expressed skepticism about the likelihood of reaching a consensus on a uniform global carbon price by 2030 among the EU's key international partners.
As the European Commission works towards achieving the EU's net-zero emissions goal by 2050, free allowances for industries are gradually being phased out, with the proposed Carbon Border Adjustment Mechanism (CBAM) serving as an adjustment mechanism. CBAM aims to apply a carbon price to imports of carbon-intensive goods. However, unlike the current system of free allocations that covers the entire production of goods exported from Europe, CBAM does not compensate EU industries for their exported production. France has long advocated for the introduction of CBAM to protect its domestic industry, while Germany has expressed hesitation, citing potential impacts on the country's exports.
Concerns regarding the risk of trade wars have also been raised. Scholz's climate club could potentially replace CBAM if a sufficient number of states participate. Thus, the ambitions of Germany's G7 presidency and France's EU Council presidency may align to some extent. Scholz has also highlighted Germany's interest in combining the climate club with its emerging focus on hydrogen, particularly given the country's energy-intensive industrial base. Germany envisions itself as a natural buyer of green hydrogen, which can be produced in large volumes in developing countries using solar power. However, Germany's hydrogen diplomacy efforts have faced skepticism thus far, despite offers of technology sharing.
