Despite Positive Signals on Climate-Aligned Trade, G7 Ministerial a Partially Missed Opportunity

The Group of Seven (G7) Ministers’ agreement to phase out the use of coal for power generation by 2035 has garnered the most media attention from the group’s recent ministerial meeting and is obviously a very welcome development for achieving long-term climate goals. The communiqué released by the G7 Ministers of Climate, Energy, and the Environment following their meeting in Torino, Italy on April 30th also included positive signals on aligning trade policies with climate goals in order to decarbonize industry, including underlining the importance of consistent emissions measurement methodologies and standards. But it also fell short in certain areas and can be seen as a missed opportunity to accelerate efforts to align policies and systems. G7 Leaders, though, at their summit in June, have another chance to raise ambition on climate-aligned trade specifically by setting the foundation for a robust emissions data system for traded goods. 

The Importance of the G7 Leading on Climate-Aligned Trade 

International trade – traded goods and their supply chains – currently accounts for 25 percent of global greenhouse gas (GHG) emissions, and achieving global science-based climate goals, including reaching long-term objectives of the Paris Agreement, will not be possible unless nations adopt climate-aligned trade policies to reduce GHG emissions. These policies are needed to accelerate climate action by harnessing the power of international trade to promote innovation, reduce costs, and stimulate demand for green goods. Climate-aligned trade policies have a particularly large potential to reduce emissions associated with the industrial sector; the production of products such as aluminum, cement, chemicals, fertilizers, and steel is especially emissions intensive.

The G7, representing some of the world’s largest economies, is in a unique position to accelerate progress on climate-aligned trade and industrial decarbonization. The G7 has the ability to set the tone for aligning climate and trade policies, leading by example for other economies to follow suit. For example, at last year’s meeting of the G7 Climate, Energy, and Environment Ministers in Sapporo, Japan, Ministers made major breakthroughs, acknowledging the importance of rapidly decarbonizing industry in line with Paris Agreement goals, elevating the importance of emissions intensity as an important factor in addressing carbon leakage, and articulating the need to reduce tensions that may result from climate-aligned trade policies.

This year, the Climate, Energy, and Environment Ministers took steps to further progress on climate and trade issues. Statements made by the G7 Ministers this year were in line with some of the recommendations issued by the Consortium for Climate-Aligned Trade (CCAT), a coalition of leading organizations and experts focused on climate and trade issues. Aligning with the CCAT recommendations, the G7 Ministers:

+ Reaffirmed the importance of industrial decarbonization to meet Paris Agreement goals

+ Highlighted the importance of alignment within the G7 and with non-G7 countries to develop emissions measurement methodologies and standards for materials

+ Highlighted the need to reduce the risk of carbon leakage and adhere to international trade principles

+ Affirmed the need for cooperation on promoting a free and fair international economic system and consistent methodologies for the measurement of embedded emissions


The Importance of Embracing Interoperability

Not evident from the G7 Ministers’ commitments was an agreement to embrace the importance of interoperability of emissions data systems for traded goods and set a time-based goal for a framework on interoperability. Interoperability would ensure that carbon accounting definitions, standards, and methodologies would be consistent across countries to accurately assess emissions. Interoperability would allow countries to have their own independent policies but ensure that each country’s system is part of a cohesive effort to meet climate goals. CCAT members recommended that the Ministers agree to strive toward the interoperability of emissions data systems, coordinate to refine product-level emissions accounting, and set a deadline by which a common framework for emissions accounting could be developed. Adopting those recommendations are important because they provide a starting point for coordinating standards and verification protocols and building an international system that deepens collaboration on reducing GHG emissions intensity and that avoids conflict. G7 action along these lines would help several of the world’s largest economies and their closest partners to articulate a framework upon which they can build, while also providing useful input to continuing global discussions beyond the G7. 

While the Ministers did not introduce a concept of interoperable methodologies to support tradability of goods in heavy industries, they did embrace interoperability for hydrogen. In their communiqué, the Ministers acknowledged the need to develop a consistent methodology to calculate the emissions associated with hydrogen and shared a commitment to “work towards mutual recognition mechanisms based on climate, environmental, and social criteria in order to ensure carbon intensity-based tradability, transparency, robustness and trustworthiness.” Along this very clear line, if interoperability is proposed for hydrogen, it should also be embraced for steel and similar traded goods. The G7 Ministers’ statement on hydrogen opens the opportunity to expand interoperability to traded goods in heavy industries.  

The G7 has another opportunity to enhance its commitment to align climate and trade policies, with an emphasis on interoperability of emissions data systems, when G7 Leaders meet in Apulia, Italy between June 13-15, 2024. We urge them to consider building on progress from the ministerial summit to elevate climate-aligned trade, industrial decarbonization, and data interoperability as priorities for G7 leadership. 

*The insights in this article are those of Climate Advisers and may not necessarily represent the perspectives of all those associated with CCAT.