Summary

Introduction

In December 2022, the heads of state and governments of the Group of Seven leading economies (G7) agreed to establish an international Climate Club to pursue an ambitious climate policy to support the implementation of the Paris Agreement (G7 Germany, 2022a). The aim is to achieve global net-zero greenhouse gas (GHG) emissions by or around mid-century. The terms of reference guiding the operations of the Climate Club frame it as an intergovernmental forum built on three pillars: advancing transparent commitment and ambitious climate change mitigation policies to reduce emissions, transforming industries to accelerate decarbonisation and boosting partnerships and cooperation to facilitate climate action (G7 Germany, 2022a; G7 Germany 2022b). The G7 Climate Club also invites “major emitters, G20 members, and other developing and emerging economies” to join the forum as long as their ambitions are in tandem with the Paris Agreement. The G7 has asked the Organisation for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA) to jointly host an interim secretariat for the Climate Club.

African countries are the most vulnerable to the effects of climate change, and they are already experiencing the devastating impacts of climate change, such as droughts, floods and other extreme weather events (Chow et al., 2022; Brown et al., 2007). They are also struggling to provide their citizens with reliable energy sources, with an estimated 600 million people lacking access to electricity (Adair-Rohani et al., 2013; Bazilian et al., 2012; Hafner et al., 2018). Given African countries' interests in global and intergovernmental climate actions, the setup and membership of the Climate Club could have implications for African countries, which are trying to mitigate and adapt to the effects of climate change.

This report explores the implications of the G7 Climate Club on African countries’ efforts at tackling the climate crisis and promoting sustainable development. The paper provides an overview of the technical details, as currently structured, of the G7 Climate Club and then examines the ways through which the proposed Climate Club may or may not support African countries’ climate and development priorities. It also highlights that, while the Club may have good intentions, some of its design features are likely to have negative implications for African economies and their climate change mitigation agendas. We conclude with a set of recommendations on how the G7 members can design the Club to better support African countries in achieving their climate change mitigation goals.

What is the G7 Climate Club proposal?

The concept of a climate club, rooted in club theory, aims to address the issue of free-riding in international agreements by combining target carbon prices and trade sanctions (Nordhaus, 2015; 2020; 2021; Overland and Huda, 2022). German Chancellor Scholz initially proposed the idea of a 'G7-led Climate Club' initiative in 2020, during his tenure as finance minister of Germany. In June 2022, the G7 Summit released a Statement on Climate Club and a Communique, affirming its agreement to establish an intergovernmental forum for the Climate Club, with the goal of accelerating climate action (G7 Germany 2022a; G7 Germany 2022b; G7 Germany 2022c). This announcement built upon Germany's white paper from August 2021, which advocated for a climate club as an "alliance for climate, competitiveness, and industry". The G7 leaders emphasised the urgent need to reduce global GHG emissions by approximately 43% by 2030 compared to 2019 levels, providing the primary motivation for establishing the Climate Club. In December 2022, a four-page "terms of reference" document was approved, which laid the groundwork for a potential launch of the Climate Club during the COP28 Climate Summit in December 2023.

Detailed information on the Climate Club and how it intends to effectively achieve its aims is currently scanty as the architecture is still being built. However, the terms of reference, the G7 June 2022 Communique and the Statement on Climate Club suggest that the main aim for the formation of the Climate Club is to “advance ambitious and transparent climate change mitigation policies towards climate neutrality”. According to these statements, the Climate Club is being built on three main pillars to which members of the Club will have to commit:

Although clubs are exclusive by nature, the G7 statement has clarified that the Climate Club is envisaged as an inclusive, open and cooperative arrangement that acts in a manner consistent with international rules. The Club would promote principles of ambition, inclusiveness and respect for rules, which are expected to significantly shape the technical details and architecture of the Club. The key components and characteristics of the proposed Climate Club, as outlined in the G7 Statement on the Climate Club and the Communique of the June 2022 Summit, are outlined below (Table 1).

Table 1: Key Design Features of the Climate Club

Source: Author’s construct, adapted from “G7 Statement on Climate Club” and “Terms of reference for the Climate Club” issued by the G7 Germany (2022).

The G7, Africa and the proposed Climate Club

The G7 countries, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, have a long footprint in Africa. These countries have various long-term engagements and bilateral relations with several African countries. Indeed, the G7’s industrial revolutions, which, in part, contributed to the countries’ growth, have been linked to long-term exploitation of resources from Africa for years. However, the G7, as a collective, has a litany of failed promises in Africa. For example, the G7 committed in 2021 to reallocating US$100bn of Special Drawing Rights from US$650bn to help International Monetary Fund member countries facing economic crises (Smith, 2021). However, by 2022, African countries had received roughly US$33bn, and the US$100bn, which African countries desperately needed, has yet to be reallocated. Also, G7 leaders pledged to allocate 0.7% of their respective country’s gross national income to international aid to support Africa and other continents in need in the early 2000s (Oxfam International, 2005). Yet, Global Citizen reports that, by 2021, G7 countries had provided half of that and collectively provided only 0.32% (Rowling, 2021).

One of the most significant promises of the G7 in recent years has been its pledge of US$10 billion support to the Africa Renewable Energy Initiative (AREI), which was launched in 2015 (AREI, 2018). The initiative was aimed at helping Africa reach its goal of producing 300 gigawatts of renewable energy by 2030. However, progress towards meeting this goal has been slow and, as of 2022, it remained to be seen how much of the pledged funding from G7 had actually been disbursed to support AREI and Africa's transition to renewable energy.

G7 leaders also launched the G7 Partnership for Infrastructure and Investment (PII) in December 2021 with the aim of narrowing the infrastructure investment gap in developing countries (United Kingdom Prime Minister’s Office, 2021). They stated that “low- and middle-income countries need to expand clean energy investment sevenfold, to over $1 trillion per year, to address climate change”, and the G7 declared in the PII an "ambition to scale up from billions to trillions in finance from our economies". Yet, not long after, the G7 2021 May Ministerial Communiques showed scant outputs on how the G7 was actually going to mobilise financing to the order of trillions to support this initiative.

African countries also have fresh memories of the failure of the 2009 promise from developed countries, many of them G7 members, to scale up climate finance for developing countries towards a collective goal of US$100 billion per year by 2020. At COP26, the governments of South Africa, France, Germany, the United Kingdom and the United States of America, along with the European Union, also announced a long-term Just Energy Transition Partnership to support South Africa's decarbonisation efforts. Such support is deemed critical as African countries prepare to transition and leapfrog to newer sources of energy (European Commission, 2021). As African countries disproportionately bear the impact of climate change, they expect genuine partnership from the G7 countries. This partnership is essential to the G7 countries keeping their commitments and investing in a global financial and trade architecture that enables African countries to build resilience and produce their own food and energy to meet their domestic needs and facilitate technological transfer.

Aligning the proposed G7 Climate Club with the climate and development priorities of African countries

To understand some of the priorities of African countries' climate change agendas and how the proposed Climate Club might support these, this research reviewed Nationally Determined Contributions (NDCs), climate change policies and national economic development frameworks of several African countries. Although the countries’ various needs and priorities differ, five main themes stood out. These were:: (i) better partnership and international cooperation to unlock climate finance; (ii) effective adaptation and access to renewable energy sources; (iii) institutional strengthening; (iv) support for broader socio-economic developments and (v) technological transfer and capacity building. These needs and priorities are among the fundamental success factors that could enhance the achievements of the NDCs. Table 2 summarises these key priorities.

Table 2: Summary of Key Priorities Highlighted in NDCs of African Countries

Source: Author’s construct, with additional information from “Gap Analysis Report: African Nationally Determined Contributions (NDCs)” by Nwamarah, Dunham and Hinojosa (2018).

Potential pathways through which the G7 Climate Club may impact Africa countries

Participation in the Climate Club indicates members' commitments to:

While the G7 Climate Club has the potential to support climate change mitigation efforts, there are concerns that some of its design features could have negative impacts on African countries. A central objective of the Climate Club is to boost international climate ambition through cooperation with partners beyond the G7, including with developing economies. The G7 seeks to promote the Club as an inclusive forum being proposed to implement “Just Transition Partnerships” with developing countries to support them in decarbonising their economies through technological transfer and financial and technical capacity support.

Whether climate clubs will be beneficial in inclusive ways or not is still a matter of debate. However, the G7 Climate Club emanates from a group of wealthy countries that are setting the agenda on climate change without the full participation of other countries, particularly those from Africa and the Global South. There is a strong indication, therefore, that the G7 Climate Club could perpetuate global inequalities and exacerbate the climate impacts felt by vulnerable communities in the Global South. It is important for G7 leaders to consider some of the potential impacts of the Club and work with African governments to design policies that promote sustainable economic growth while reducing GHG emissions. Four main implications emerge from this study in relation to how the Climate Club may affect African economies:

a. Potential drop in export revenues

The G7 Climate Club's goals of accelerating actions to achieve a net-zero emissions global economy by 2050 and limiting the global temperature rise to 1.5° C are certainly aligned with the Paris Agreement. Nevertheless, many African countries are heavily reliant on carbon-intensive industries, such as oil and gas, for their economic growth. While some African countries are beginning to diversify their economies and invest in renewable energy, the transition away from carbon-intensive industries is likely to be slow and difficult. Recognising this issue, a fifth of the African economies, which represent over 40% of the continent’s total CO2 emissions, have committed to reach net-zero emissions by around mid-century. However, leaders of the continent have requested more time, at least in the short term, to enable their countries to transition properly as they would need revenues from exploiting their oil and gas reserves to tackle poverty and energy shortages (Saba and Jalabi, 2021). This need arises from approximately 50% of the export revenues generated by the African countries being made up of hydrocarbon products (Holtz and Heitzig, 2021). For example, Nigeria, which is Africa’s largest oil producer, generates 57% of its government revenues and more than 94% of export earnings from petrodollars. Angola generates over US$30 billion a year from crude oil exports (Statistica, 2023).

b. Slowing climate-resilient infrastructural development

Climate-resilient infrastructural development to minimise the vulnerability faced by Africa to climate change is particularly likely to be constrained as a result of the G7 Climate Club. Nearly two-thirds of the population in Africa lack access to electricity, and public and private spending on basic services has historically been constrained. The African Development Bank also estimates that between US$130 and US$170 billion a year will be needed until 2025 to close the infrastructure gap across the continent. The discovery of natural gas and other natural resources remains a key development pathway to tackle structural development challenges and transform countries into thriving middle-income economies.

A significant proportion of the development needs and infrastructure agenda of the African population is met through revenues from exploiting hydrocarbon products. Countries such as Ghana, Nigeria, Mozambique and Senegal have invested considerably in developing significant natural gas resources, often in partnership with the US and other members of the G7 countries. Asking these countries to leave this resource in the ground and forego revenues at a time when African countries emit about four times less CO2 than, for example, the US seems unfair. Some analysts even suggest that the continent’s low energy use means that, if Sub-Saharan Africa tripled its consumption of electricity overnight using only natural gas, the additional CO2 would be equivalent to just around 1% of global emissions (Thurber and Moss, 2020). Despite its good intentions, the Climate Club will, in the short term, severely limit best opportunities for Africa to advance its socio-economic development. Hurriedly pushing African countries to limit financing for key industries and gas investments would slow poverty reduction efforts, suppress incomes and job creation and raise energy costs for poor and vulnerable people.

c. Technology constraints a potential hinderance for the growth of key industries

A key pillar of the Climate Club is to foster industrial decarbonisation through common initiatives such as the Industrial Decarbonisation Agenda and the Hydrogen Action Pact (G7 Germany, 2022a). This pillar is expected to allow Club members to join forces in boosting the development and roll-out of low-carbon technologies. Several industrial products and sectors such as steel, cement, aluminium and plastics, which are fundamental to the industrialisation of African economies, contribute highly to GHG emissions. Because half of the continent’s potential 2050 GHG-emitting industries are still under construction, the opportunity to leapfrog more developed nations and build a low-carbon manufacturing sector from the ground is highly recommended. It must be emphasised, however, that the transition to low-carbon industrial processes, as envisaged under the G7 Climate Club, would involve significant investments in new technologies and equipment, which could result in increased production costs for African industries (Bouchene et al., 2020). Adopting low-carbon industrial processes could even lead to job losses in industries that rely heavily on fossil fuels, such as the oil and gas sector, and could have negative implications for the livelihoods of workers and communities dependent on those industries.

It is in this context that African countries have reiterated the calls for a just transition. The commitments on decarbonisation of industrial sectors expected under the G7 Climate Club require significant investment in technological transfer to enable African economies to transition smoothly to low-carbon industrial processes. The cost of purchasing and installing new technologies could be prohibitively high, especially for small and medium-sized producers engaged in key sectors affected by the decarbonisation agendas. However, given the historical failure of G7 countries in Africa, there is little faith that such technological transfer will become a priority for G7 countries in their dealings with African economies. There are concerns that the G7 Climate Club may not provide adequate support for this transition as a previous promise towards investment to meet less carbon-intensive energy needs remains unfulfilled.

d. Trade impacts

While reducing carbon emissions is a global goal that African countries are also committed to, implementing carbon-leakage reduction policies in G7 countries may negatively impact African economies in several ways. The G7 Climate Club’s intention to limit carbon leakages potentially entails introducing various trade restrictions that could have negative consequences for African economies (Parker and Blodgett, 2008). For example, any tariffs the Club might impose on goods deemed to have high GHG emissions could disproportionately affect countries dependent on exporting those goods. Already, the synergies between the Climate Club and the EU-led carbon border adjustment mechanisms (CBAM) are being advocated for. Some analysts also show that levying tax on products from carbon-intensive sectors such as steel and cement could slow down the transfer and benefits of the low-carbon technology needed to contain global warming to 1.5° C (The World Bank, 2020). African countries also export at least US$4 billion goods to several G7 countries annually (Vickers et al., 2021).

The trade protectionism that may have to be triggered due to carbon-leakage reduction measures risks hurting exports of African countries because most do not yet have carbon pricing mechanisms. This protectionism would damage the export revenues of African economies and constrain their growth. The absence of carbon pricing mechanisms in several African countries creates an uneven playing field within the Climate Club. African nations without carbon pricing mechanisms may face trade disadvantages compared to countries that have implemented such measures. This imbalance could impact their competitiveness and hinder their ability to participate fully in the global market.

Other studies also stress welfare losses as a potential effect of placing faith in trade-based taxes aimed at reducing carbon leakage. For example, welfare losses related to implementing carbon-leakage reduction trade mechanisms such as CBAM in developing countries such as Egypt and Mozambique have been estimated at between US$1 billion and US$5 billion, significant sums relative to those countries’ gross domestic products. Mozambique’s economy, for example, could shrink by 2.5% due to decreased demand (Overland and Huda, 2022; UNCTAD, 2021). Implementing trade measures could impose significant compliance costs, even for large enterprises. At the same time, due to the protectionism tendencies likely to be associated with design of the Club, the transaction costs to achieve compliance with World Trade Organisation rules at the same speed as other Club members may not be the same and would require African countries to slow down investments in other hard-to-abate areas.

The lack of climate-related regulations in Africa could further make the region more conducive to carbon leakage, which could increase global emissions rather than reduce them. Due to the less stringent environmental standards in various sectors in Africa, such as energy and manufacturing, it may be difficult to limit fully the risks of carbon leakage. Thus, the Climate Club has the potential to make it easier for industries to relocate to countries with weaker environmental regulations. African countries may lack the institutional capacity to effectively enforce climate-related regulations such as monitoring and enforcing emission standards. This lack could create a situation where companies could bypass regulations and continue to emit GHGs without consequences.

Suggested ways through which the Climate Club may be designed to support the climate and development agendas of African countries

The Climate Club, as currently structured, may have a role to play in climate change mitigation efforts in other jurisdictions. However, based on the available level of detail, it is unlikely to support African countries' climate and development agendas unless it critically factors in the following elements.

a. African countries should be engaged fully and earlier, not later, in discussions on the design of the Climate Club

Many of the Climate Club’s technical details and design elements are yet to be developed. However, a key feature of the Club as currently portrayed is that it is an intergovernmental forum, and not necessarily an exclusive club, open to all interested countries. The Climate Club must respect its own provisions on an open and cooperative international club and ensure that the finer details of the Club’s structure are co-designed through bottom-up engagement with African and other developing countries early, and not later when the decisions have already been made. Such a co-design approach could create a common pathway for partnerships and actions around finance, capacity-building and technology, which are the critical means for delivering Africa’s emission-reduction actions. The limited space and seats for African countries to engage with the various design elements of the Club may mean that decisions might not reflect the continent’s interests.

b. G7 countries should back actions with their words on climate finance to support the just transition efforts of African countries

African countries have huge funding gaps in their climate change mitigation and adaptation efforts, with significant implications on the world’s ability to reach net-zero emissions by 2050. It is also important that the ambition of developing countries to ‘develop’ are balanced with their future carbon emissions. As such, African countries want true commitments that are backed by actions. In line with Pillar 3 of the Climate Club, G7 countries need to perform the actions that back up their words and commitments on financing, technology transfer and partnerships.

As a club dedicated towards mitigation, G7 countries could provide dedicated finance to accelerate the transition processes of countries. Such financing will be key in African countries’ just transition from coal or natural gas to renewables. This key role results from the availability of resources that are already developed in the G7 countries. In particular, the G7 should support African countries with financing to aid the continent’s long-term energy transition process, a process dedicated to reducing the continent’s carbon intensity even as access to and demands for energy increase. Over the last decade, investment in renewable energy has increased tenfold in Africa, from US$5 billion in 2009 to approximately US$55 billion in 2020. The Just Energy Transition Partnership with South Africa typifies such an approach.

c. G7 countries should carefully design the Climate Club to balance its carbon-emission reduction goal and concerns about climate justice

The G7 Climate Club expects member countries to commit seriously to reducing emission intensities and accelerating decarbonisation. To avoid deepening inequality among countries, this expectation needs to acknowledge that present climate agreements to address climate change are fully calibrated. The G7 countries have a special responsibility to contribute more to emission reductions than the global average. The Paris Agreement's principle of "Common but Differentiated Responsibilities" expects African countries to bear less responsibility for climate action due to their low historical total carbon emissions. It is an established fact that Africa, a continent of more than 1 billion people, has contributed less than 4% to the global climate change emissions.

The structure of the Climate Club and the agenda on decarbonisation expressed in its current form will put a heavy requirement and enormous burden on any African country that chooses to join the Club, and it will challenge the common but differentiated responsibilities principle. As such, a careful design and balance of the Climate Club’s carbon neutrality goal, the strictness of "Club Rules” and concerns about climate justice are critical if the G7 really intends to extend membership to African and other developing economies. For example, many African economies, such as Nigeria, are adjusting their carbon neutrality plans to 2060, which is a departure from the 2050 target set by G7 countries. G7 countries need to accommodate and integrate these differential pathways and policy mixes in the design of the Club’s final architecture. This design will require a careful selection of exemptions and special treatment for African countries that may have a different development pathway.

d. G7 countries should further prioritise technological transfer and technical assistance to broader areas of need than just carbon accounting to enable African countries to implement many of their climate change mitigation strategies.

Many African countries do not have the capacity to undertake the strenuous carbon accounting measurement and reporting that would be expected under the Climate Club. Countries stress that technology development, transfer and support are central and integral elements for successfully implementing their NDCs. Consistent with the Club’s intention to boost partnerships and cooperation (Pillar 3) and learning best practices from each other, the final shape, form and structure of the Club should prominently prioritise technological transfer and technical assistance to broader areas of need, rather than narrowly focusing on just carbon accounting, to enable African countries to implement many of their climate change mitigation strategies.

The Club’s architecture could further be designed with other elements in mind: boosting partnerships with African universities and public agencies for sectoral and technical cooperation, dedicating investments to joint research and development, diffusing technology to enable leapfrogging in climate-friendly development pathways, developing and demonstrating projects, jointly investing in clean energy and other technology-specific solutions. These elements could position the Club as truly an inclusive and open forum designed to accelerate climate actions.

e. In reducing carbon leakage, the G7 proposed arrangements should shed off ideas on CBAM-like arrangements under the Climate Club

Reducing carbon leakage at the international level is one of the fundamental ambitions of the Climate Club. While many of the technical details of implementation strategies are still being developed, some proposals for addressing leakage are currently being favoured in climate policy circles. These proposals include carbon pricing and trade-based mechanisms that will prevent industries from transferring polluting production to non-club member countries— e.g., CBAM. These proposals, as argued here, need to be embraced by the Club’s architecture with caution due to the welfare losses and impact on economic growth and key sectors.

It is already known that placing faith in carbon pricing alone would not necessarily guarantee the Club’s own ambition to drive down carbon emissions equitably. This inability arises from only about one-fifth of global emissions being covered by carbon pricing and the average global carbon price per ton of US$3 being far less than the estimates of US$75 per ton needed to truly limit global warming below 2° C (Gaspar and Parry, 2021; UNCTAD 2020). Thus, though carbon pricing and CBAM could help accelerate climate change mitigation, growing evidence has shown that they could significantly harm African and other developing economies that the G7 countries are inviting to join the Club. Ideas on CBAM-like arrangements, therefore, need to be shed from the Club’s architecture or significantly revised to ensure that African countries are exempted from their implementation (UNCTAD, 2021).

Conclusion

There is currently an urgent need for climate actions. The G7 countries have set out to establish the Climate Club to accelerate their decarbonisation efforts. According to the G7, such a club will be an alliance open to all countries that set high ambitions to reduce carbon emissions. This policy brief has argued that, if the Climate Club is to make a meaningful contribution to supporting the climate objectives of African countries, then it must be designed to include five priorities. It recommends that African countries should be engaged fully and earlier, not later, in discussions on the design of the Climate Club and that G7 countries should carefully design the Climate Club to balance the Club’s carbon neutrality goal and concerns about climate justice. It further stresses that G7 countries should back their words on climate finance to support just transition with actions. They should also prioritise technological transfer and technical assistance to broader areas of need, rather than just carbon accounting, to enable African countries to implement many of their climate change mitigation strategies. At the same time, policy tools such as carbon pricing and CBAM, which can have detrimental effects on African economies, should be dropped from the mix of strategies and actions to drive the Club’s ambitions. Considering these proposals will be an important first step towards attracting African and other developing countries into the Club and to making it truly inclusive.

Albert Arhin

Dr. Albert Arhin is a sustainability expert with more than fifteen years of experience in research, technical support and strategic planning in climate change, REDD+ and land restoration policies, green economy and sustainable development. He previously worked as a Research and Policy Manager for Oxfam in Ghana. He has also worked on multi-disciplinary projects designed to generate evidence to inform policy, practice and academic discourse. He was also a Research Fellow with the Bureau of Integrated Rural Development (BIRD) of the Kwame Nkrumah University of Science and Technology (KNUST), Ghana and a lecturer at the Department of Planning, KNUST, Ghana. He holds a PhD in Geography from the University of Cambridge, UK.

Felix Kanungwe Kalaba

Prof. Felix Kanungwe Kalaba is an Associate Professor of Environment and Development. He holds a Bachelor of Science Degree in Forestry (Copperbelt University), a Master of Science Degree in Forest Science (Stellenbosch University) and a PhD in Environment (University of Leeds, UK). He has over 19 years’ experience in the forestry and environment sector. Prof. Kalaba was awarded the Environment and Climate Change Award for leadership in Research in 2021. He is Dean of the School of Natural Resources at the Copperbelt University in Zambia. Prof. Kalaba was a Lead Author for the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report for Working group II, which addressed impacts, adaptation and vulnerability to climate change.