A more effective way to engage with China
First, engaging China could be more effective if the Climate Club proposal were embedded in or complemented existing formats. In parallel to pushing for a new framework for climate cooperation at the G7 summit, the idea could be brought forward at a UNFCCC event and linked more closely to that.
For domestic political reasons and distractions, such as focus on the upcoming party congress or the ongoing ministerial power struggle between the National Development and Reform Commission (NDRC) and the Ministry of Ecology and Environment (MEE), China will engage more effectively if the Climate Club is brought forward at COP27, for example. Institutional channels already exist, and no enormous political effort is needed to set up new structures. This could take the form of a more neutral alliance of the ambitious. The alliance could include all those countries whose NDCs are geared toward a path of 1.5 degrees Celsius (meaning also autocratic states like Morocco, for example).
Second, to have the prospect of engaging China in Climate Club discussions, careful club design is critical, and this includes the level of strictness of "club rules". The German proposal states firmly that “members will be committed to the 1.5- degree target of the Paris Agreement and accordingly to climate neutrality by 2050 at the latest (as a rule)”.
Given China's strong energy security drive, which it is currently pursuing vigorously and which must be taken into account in any kind of climate discussion, it is unlikely that it will adjust its 2060 carbon neutrality goal to be in line with the 1.5 degree target. Climate Club founding parties need to submit a comprehensive and inclusive proposal for categories of non-members. They need to carefully select exemptions and special treatment for emerging and developing countries including development pathways for non-members that do not yet comply with the rules.
Third, it will be important to manage prospective trade tensions introduced by a crucial element of the Climate Club: Border Adjustment Mechanisms. For example, in the framework of the EU CBAM, which is to be gradually phased in from 2023 onwards. This will involve a larger redesign of the international trading system for sustainable development. China will not be willing to pay unilaterally imposed tariffs introduced by CBAM at EU borders that soon.
While the EU seems determined to go ahead with the introduction of CBAM, it is noteworthy that the German proposal optimistically states, “if a border adjustment mechanism is even necessary”. There were already signs of potential counter-measures in China's Five-Year Plan for Foreign Trade, which introduced plans to set up a similar carbon footprint tracking system for foreign trade products. China is on its way but needs more time to develop its own carbon pricing system(s). It will be vital not to create further tensions, but to take advantage of synergies between EU and Chinese efforts.
Climate Club details to be defined
The current level of detail in Germany's proposal is still fairly low, with key decisions, like CBAM revenues, "to be made at a later date". With Chancellor Scholz's determined push to make the G7 a "nucleus of an international Climate Club", it will be incumbent on the German government to shape this coalition and design the modalities of openness of this Club.
Given the current situation of Russia’s war in Ukraine and the fact that climate debates have been replaced by discussions on energy security, just maintaining ambitious climate measures at current levels – rather than reducing them – already seems an acceptable, albeit unsatisfactory way forward. China's push for energy security in the current geopolitical context, the upcoming party congress, and the likely leadership reshuffle in November – including on the climate portfolio – are all factors that do not stand in favor of the country focusing on debates on a common carbon price and potentially joining a new Climate Club.
The success of the Climate Club's proposal will depend, in part, on whether the respective domestic debates on carbon pricing are sufficiently mature to allow for coordinated efforts. It will also depend on whether Germany can strike the right balance between providing carrots and sticks for initial non-members of the Climate Club. This means imposing costs to reduce carbon emissions and providing sufficient incentives for emerging economies such as China, among others, to participate.