G7 leaders recently committed to establishing a “Climate Club” by the end of 2022. As a signal of leading by example and decarbonising their industries, this is a welcome development. However, the idea currently lacks focus, clarity and a vision for a way forward.
This briefing sets out a vision for operationalising the three pillars in the G7’s proposal, within the framing of a more inclusive climate “alliance”. It aims to address the gaps and risks in the international industrial decarbonisation landscape today, including:
- First-mover countries’ concerns about carbon leakage.
- Tendencies towards protectionism in green industrial policy
The climate alliance has the potential to be the political vehicle that addresses these issues, enabling member countries to implement the necessary ambitious policies to accelerate industrial decarbonisation globally. To live up to this potential, the climate alliance should seek to:
- Converge on average emissions intensity milestones for industrial sectors, ultimately paving the way for the adoption of common minimum CO2 performance requirements.
- Promote the adoption of national policies to facilitate the ramp-up of demand for and supply of green industrial products, including low-carbon technology deployment in industrialised developing economies.
- Establish principles of “fair play” on industrial decarbonisation (such as for carbon leakage measures, green subsidies and market access).
- Reflect the voices, different starting points and circumstances of ambitious developing countries across all activities.
- Adopt a governance structure that strengthens and complements, rather than duplicates, the existing landscape of industrial initiatives.
A climate club vision for kickstarting action under each of the G7’s three pillars for the climate alliance
Pillar 1: Incentivising high ambition and mitigating carbon leakage
The climate alliance should:
- Seek convergence on milestones for reducing average emissions intensity in key industrial sectors in each member country (short to medium term).
- Reduce and ultimately mitigate the risk of carbon leakage more broadly through the adoption of common CO2 performance standards for industrial products (medium to long term).
- Drive forward a process to set principles of “fair play” on industrial decarbonisation, such as for carbon leakage measures, green subsidies and market access (short to medium term).
Pillar 2: Sectoral cooperation
To ramp up the market for green industrial products, climate alliance members should:
- Commit to establish common definitions of near zero and low-carbon materials and embedded carbon reporting standards.
- Adopt ambitious national policies to create demand for near zero emissions products.
To meet this market demand, climate alliance members should:
- Adopt pledges and accompanying national policies to push near zero emissions technologies into the market.
- Announce funding opportunities and economic instruments, such as tax credits or carbon contracts for difference to stimulate the production of low-carbon products.
Pillar 3: Inclusivity and engagement with developing countries
Inclusivity and support for developing countries should not be seen as a separate pillar or “add-on” to the alliance, but as an integral element of the entire agenda. To do so, the climate alliance should:
- Seek to include ambitious developing countries, especially the largest industrial producers and those already involved in industrial decarbonisation initiatives.
- Support clean technology deployment in developing country members by creating “clean product buyer” alliances or projects.
- Support pragmatic and proven capacity building activities to accelerate industrial decarbonisation, working through appropriately skilled international organisations.