Officials talk to their German counterparts about a new climate alliance to align trade settings with emissions reductions, Marc Daalder reports

New Zealand has expressed interest in joining a German climate initiative to collaborate on decarbonising industry and harmonise carbon prices across borders, according to Climate Change Minister James Shaw.

Foreign affairs officials reported to Shaw in April on the idea, after it was mentioned to the Prime Minister on a call with German Chancellor Olaf Scholz, according to a briefing released to Newsroom under the Official Information Act. Two other meetings on the proposal were held at officials level with the Germans and the Americans.

Since then, the G7 endorsed the concept and pledged to establish the alliance by the end of the year.

“Without being specific about the climate club that Germany is proposing, we are very interested in initiatives like the climate club. We are interested in the climate club itself and then we’re interested in other things like it,” Shaw said on Tuesday.

“We’re maintaining a positive and open stance to it. But I think any kind of decision on that is still a wee way away. We’d want to see how it evolves.”

In the briefing, officials from the Ministry of Foreign Affairs and Trade said they had met with the German embassy to discuss two “non-papers” received on the climate club. One of those “non-papers” was also released to Newsroom.

Officials at the New Zealand embassy in Washington, D.C. also met with the office of the US Trade Representative to sound out the Biden administration’s view on the climate club. The American response was redacted from the briefing.

In the provided “non-paper”, the Germans sketch out the reasons to assemble a new climate alliance.

“While many countries are ramping up their efforts at the national (or European) level, we still lack a protective international framework – despite a large number of established initiatives and coordination forums – that would keep climate policy pioneers from being at a disadvantage in the international marketplace, especially when it comes to energy-intensive industries,” the document stated.

“As a result, the only option for pioneers is to take measures at the national or regional level to protect themselves from carbon leakage, which can hamper the efficiency of the transformation and make it harder to reach targets.”

Shaw made a similar point in his comments to Newsroom.

“As Paris evolves, you’ve got countries that are steaming ahead and others that are dragging the chain quite a lot. After a while, the countries that are steaming ahead are going to look sideways at the countries that are dragging the chain and say, why are we doing all the heavy-lifting here?” he said.

“I think that you will start to see trade advantage accrue to those countries that are in the vanguard.”

The climate club would aim to rectify the unfair situation by creating a trading bloc of ambitious countries who could freely exchange goods without concerns about emissions leakage. Meanwhile, non-members would face carbon tariffs when trying to trade in emissions-intensive goods with any members of the bloc.

Members would be required to commit to emissions targets in line with limiting global warming to 1.5C above preindustrial levels, including a net zero target by 2050 and interim targets.

In return, they would be able to mutually agree to timelines for the decarbonisation of high-emitting industries like steel and chemicals and jointly fund research and development.

“The members could create joint lead markets for climate-neutral materials and products and could together promote the market ramp-up of key technologies. In the medium-term, they could agree on the same product standards for carbon intensities.”

Pilot sectors could include steel, chemicals and cement.

Members would also work together on a hydrogen pact to create a global supply chain for green hydrogen.

On carbon pricing, members would in the medium term assign a uniform minimum carbon price for emissions, at least in industry and energy sectors. They would also agree to a path for that minimum price to rise over time.

To protect industries within the bloc that are subjected to this carbon price, members could create a joint carbon border adjustment mechanism – a tariff on high-emitting goods from outside the climate club which aren’t exposed to the same carbon pricing.

Shaw said this was the sort of thing he expected to see as the trade system comes face to face with the global need to decarbonise.

“Countries that are at the leading edge of climate action should work together to make sure that the adoption of low-carbon technologies, goods, services and so on is as frictionless as possible,” he said.

Adrian Macey is a former diplomat and climate change negotiator who now lectures on climate policy and trade at Victoria University of Wellington. He agreed that this was the clear next step for trade.

“I’m not surprised. The fact is, given that we’ve only got the lowest common denominator each year at the annual COP, climate clubs are the obvious way that things will advance amongst groups of countries that actually want to do stuff,” he said.

“We should welcome cooperation with a high technology country like Germany. If they see it as some advantage of us being part of that, good, there’s no downside I don’t think.”

There are no ongoing talks on joining the club at this stage, Shaw said, but officials would update his office as more details of the proposal became clear.

“The Germans are quite well aware of our active interest and we’re keeping an eye on how the club evolves.”

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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