Germany assumes the presidency of the G7 today. The presidency is tasked with hosting the yearly G7 summit and setting the group’s agenda.
The German government plans to dedicate its presidency to the establishment of a “climate club,” a grouping of states that would tie their trade barriers to environmental standards—the G7 will be the launching point for this initiative. The club would both incentivize greater environmental standards and protect G7 industries from competition against foreign countries without strict environmental regulations. A climate club would complement current EU proposals for carbon tariffs and broaden their use to non-EU nations.
The club’s success depends on the support of the non-EU G7 members (Japan, the US, and Canada). These countries are likely to endorse such a proposal given the protectionist advantages it offers as well as the penalties for non-participation. Negotiations will however be needed on the exact terms and industries affected. In the short-term, climate protectionist policies could hurt the club’s trade with heavily emitting economies, but in the medium-to-long term, the incentive to adopt environmental regulations in order to gain market access will likely create a larger grouping of nations with stricter environmental regulations.
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Cian is a Research Analyst and contributes to both Analysis and the Daily Brief. He specializes in Australian and European geopolitics with a particular interest in the strategic autonomy of the EU.