Conference Agenda

The concept of a “climate club” of countries has emerged as a bottom-up strategy to address weak and non-harmonised climate policies worldwide. This study explores the feasibility of such a club in a geopolitical landscape where non-member countries may retaliate against border carbon adjustments with trade tariffs. To this end, we adapt an existing empirically calibrated agent-based model of a climate club to incorporate the impacts and costs of retaliation. The model describes 31 heterogeneous regions in terms of carbon emissions, abatement costs, domestic carbon prices, and imports and exports. We run the model for 162 scenarios with different initial coalitions, carbon prices, carbon border tariffs, and trade retaliation tariffs, testing the dynamics and convergence of countries towards a stable coalition. Earlier findings indicate that a climate club initiated by the European Union alone or jointly with China or the United States has a high likelihood of achieving global coverage under a sufficiently stringent border tariff, equal to or higher than the club’s carbon price. However, in scenarios with retaliation by China or the United States, the likelihood of success for a club initiated by the European Union is significantly reduced. In contrast, a club jointly launched by the European Union and China can withstand moderate retaliation under the adequate initial conditions, increasing the likelihood of achieving an ambitious global coalition. Meanwhile, a club initiated by the United States and the European Union is more vulnerable to retaliation by China, though expansion remains possible under intermediate carbon prices and a comparable or higher carbon tariff.