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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.
Posted 29 June 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability
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.
