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Germany prevails in launch of G7 "Climate Club" to promote green industrial products
Germany was successful this week in its efforts to get the G7 to explore a "Climate Club" of countries growing markets for green industrial products as it urged cutting back their use of biofuels.
As G7 president, Germany didn't reveal details of how the club will work in practice but said it would be open to "countries that are committed to the full implementation of the Paris Agreement."
German Chancellor Olaf Scholz pushed the G7 and G20 to create the Climate Club in May 2021 when he was still finance minister.
Scholz said such a club would boost markets for climate-neutral industrial products, for example green steel made using hydrogen. It could also launch international standards and trade policies aimed at driving climate action.
Germany, Europe's top steel producer, will need to manufacture more green steel as the EU tightens its grip on carbon emissions from the sector under proposed revisions to the bloc's carbon emissions trading system.
Last month, the International Energy Agency (IEA) released a report at Germany's request asking the G7 to trade industrial products made with hydrogen instead of fossil fuels like coal, on the grounds that industry globally was not on track for net-zero.
The G7 called on the IEA to provide expertise and country ministers to present the next steps for the club by the end of the year, according to a statement.
Whether the club will live up to its ambitions remains to be seen. "These are early-stage ideas and to live up to their climate leadership claims, the G7 will need to bring them real financial backing, and global buy-in outside the G7 club," said think tank E3G.
E3G added that G7 countries lacked clarity on their coal generation phase-out timelines.
The G7's move follows last year's announcement of a US-EU alliance proposed to boost trade in low-carbon steel.
Emerging country transition finance
The G7's statement said that the Climate Club will complement the existing "Just Energy Transition Partnerships" (JETPs) climate finance initiative.
Through JETPs, G20 members have provided financial support and technology transfers to help lower emissions in industrial and energy sectors in developing countries.
Germany, France, the UK, the US, and the EU launched a JETP to finance South Africa's energy transition at November's COP26 climate summit in Glasgow.
The countries pledged to mobilize $8.5 billion to help South Africa shift away from coal power while working to source options for financing electric vehicles and green hydrogen.
Biofuel limits sought amid food crisis
Several G7 governments—for example the UK, Germany, Canada, France, Italy and the US—require domestic refineries to blend biodiesel into other fuels, supporting farmers of feedstock crops and national emissions reduction.
UK Prime Minister Boris Johnson alongside his German counterpart tried to convince the G7 to supply waivers that would let refiners forgo blending requirements amid soaring prices for food that competes with biofuels for land.
Johnson asked G7 nations to "look at their demand on land" for biofuels, noting that "globally, the use of grain for biofuel is contributing to reduced availability and increased costs for human consumption."
He said Russia's blockade of ports in Ukraine prevented food exports, driving a rise in global food prices and threatening millions on the brink of famine.
Last year, more than half of Yemen's population faced acute levels of food insecurity, according to NGO Human Rights Watch.
The World Food Program said that it expected this could grow to two-thirds of the population by December.
The US, the world's top producer of bioethanol and biodiesel in 2019, does not support the use of biofuel production waivers, according to Reuters.
The US had the world's highest demand for biofuels as renewable road transport fuel in 2021, with 3.46 million metric tons (mt), nearly on par with Europe as a whole (3.74 million mt), according to data from IHS Markit by S&P Global Commodity Insights analysis.
The US government is attempting to deal with record-high gasoline and diesel prices by seeking refiners' input.
US renewable diesel road fuel demand is expected to more than double by 2024, according to the analysts' forecasts.
US production requirements were updated on 3 June, loosening biofuels mandates so refiners will have to blend less biofuel with gasoline and diesel in 2022.
Platts California Biodiesel for 2022 was assessed at $191.50/mt on 28 April but had declined to $158.25/mt on 28 June.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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