India’s strong submission to UNFCCC’s Global Stocktake nudges developed countries towards their unfulfilled climate commitments. As COP28 nears, and climate reports, action plans submissions and statements heat up, the upcoming launch of the expanded G7 Climate Club is seeing definitive action.

Amidst the insurmountable climate challenge, climate clubs appear a workable solution for speed and ambition. On the sidelines of the UN General Assembly in the Climate Ambition Summit, German Chancellor Olaf Scholz declared the upcoming launch of a climate club at COP28 to make “decarbonised industry production our business model.” Likely to be announced on December 1, 2023, at COP28, this club will expand the announced G7 Climate Club.

Why the Climate Club?

The Terms of Reference of the proposed ‘inclusive’ club involve three main pillars: (a) ambitious and transparent mitigation policies, (b) transforming industry; and (c) climate cooperation and partnerships. The Climate Club will act to mitigate climate change, principally to reduce carbon emissions. The target of these actions will be manufacturing industry of members and more so, of non-members.

What could the climate club, focussed on mitigation of industrial emissions, entail? The G7 Climate Club currently appears to be an EU dominated affair. A recent EU Parliamentary research paper, exhorts the G7 to quickly move on the Climate Club, and signals the directions the Climate Club can take.

Carbon-leakage, aka loss of competitiveness in international markets, which resulted into the much-opposed CBAM (Carbon Border Adjustment Mechanism) remains a key concern for the current members of the Climate Club as well. Are we then looking at a geographically enlarged CBAM, with all member countries joining the bandwagon? Imports from non-members could face carbon taxes at the Club’s borders.

Internal carbon leakage seems to be another key concern for the Climate Club proponents. What if some members impose lower carbon prices than the high-priced EU ETS (Emissions Trading System)? The EU industry will still suffer lack of competitiveness and manufacturing could shift to those members. The answer then seems to be all members imposing the highest carbon price, domestically and on imports. As of now the EU ETS price is hovering short of €100. This model of exclusivity and protectionism-based Climate Club would further splinter the trade rules fabric. Secondly, it could impact the member countries’ adaptation or mitigation actions as per their own NDCs (Nationally Determined Contributions).

The Climate Club narrative has so far focussed only on a common carbon tax. But there is a glimmer of hope for developing countries in the more realistic lens that is also on the table. It acknowledges CBDR-RC (Common but Differentiated Responsibilities and Respective Capabilities) as an underlying principle, and that developing countries have little contribution in the current climate mess.

It goes beyond the standard ‘carbon-leakage’ and competitiveness paradigm and brings in much needed aspects of cooperation, climate finance deliberations, knowledge sharing which at some point must reach the level of technology transfer.

This approach speaks to a framework based on equal decision-making power, leading to transfer of finance, technology, and capacity building. The need to make the Club more broad-based and increase its legitimacy may spur this flexible version.

A facilitative Climate Club respecting domestic policy space may not be easy to implement, but that is the only one that can give the desired climate results.

Growing participation

Which countries are joining this Climate-Club-in-the-making? Australia is reported to have negotiated an entry into the club. Switzerland has also agreed to join the club provided it has no financial consequences. Additionally, several other countries have reportedly agreed to join the Climate Club. Apart from the G7, Argentina, Chile, Colombia, Denmark, Indonesia, Kenya, Luxembourg, the Netherlands, Singapore and Uruguay are slated to participate.

However, for a club which is established to decarbonise global industrial production, major industrial producers such as China and India are missing. Many commentators say that without India and China — the two large current emitters — any climate club is bound to be ineffective in lowering industrial emissions.

An interest in the G7 Climate Club was sparked in India, during the visit of Chancellor Scholz in May 2022. India is one of the few countries (including developed and developing) that has fulfilled its Nationally Determined Contributions under the Paris Agreement.

Although least responsible for the current climate mess, India has taken aggressive steps and punched way above its weight in climate action. On both counts, India must not find itself outside this negotiating room which could be the new rule-maker for climate action.

India must use its presence in the climate club to assert the principle of Common but Differentiated Responsibility. It must use its weight to be part of a climate club which is created with mutual respect and a single-minded focus on climate action.

Left to themselves, the G7 may just push through a larger CBAM-like beast, further destabilising the already fragile rules-based global trading order.

The writer is a former IRS officer. Her research interests lie in the trade and environment intersection