Climate Clubs: Are Minilateral Trade Arrangements The Key To Climate Change Mitigation?

Abstract

Urgent global action is necessary to limit global warming to no more than 2°C above preindustrial levels and avoid irreversible damage to the environment and its inhabitants. However, current multilateral climate agreements are proving ineffective and are unlikely to achieve emission reduction targets. They incentivise free-riding, hinder bargaining efficiency, lead to uncoordinated efforts by states and are difficult to enforce. Climate clubs are a promising minilateral solution that may be more effective in incentivising emission reductions. Climate clubs use carbon pricing, trade sanctions and free trade incentives to encourage international emission reductions. In mid-2022, the Chancellor of Germany Olaf Scholz announced his intention to form a climate club with G7 members. This paper supports a G7 climate club. While climate clubs have been criticised for lacking political feasibility and legitimacy, and for risking retaliation by non-member states, there are methods to mitigate these concerns. Further, the worst-case scenario of the club being unsuccessful and disbanding is less serious than the threat of climate change. It is time to coordinate the trade and climate regimes to support emission reduction targets and strengthen multilateral efforts.