Climate clubs and carbon border adjustments: a review

The relationship between the concept of a climate club and that of carbon border adjustments depends on how each of them is defined and understood. There are many different conceptualisations of climate clubs and carbon border adjustments, but only a handful of studies provide explicit definitions. We collected 16 definitions, which are included in the supplementary material that accompanies this article.

The understanding of what a 'climate club' is varies. Some studies take a broad view of the concept to include any international constellation that focuses on climate change and has a membership smaller than the UNFCCC (Zefferman 2018, Hagen and Eisenack 2019, Unger et al 2020). Other scholars have a narrower understanding of the climate-club concept and link it to excludable club goods which are understood as benefits that can accrue only to club members and cannot be accessed by non-members (Nordhaus 2015b, Sprinz et al 2018, Paroussos et al 2019, Mandel et al 2020). Usually these are in the form of exemption for trade tariffs that apply to those countries that choose to remain outside the club. This narrower understanding of the concept predominates, is also clearer and more specific. It is also the one we focus on in this article.

Most studies of carbon border adjustments do not define the concept itself, but many provide definitions of relevant economic terms, such as 'indirect taxes' (Tamiotti 2011), 'carbon leakage' (Droege 2011, Ladly 2012) and 'welfare changes' (Böhringer et al 2012a, Li et al 2013). These terms are then used to outline the economic implications of carbon border adjustments (Wang et al 2012, Zhang et al 2017). Publications on climate minilateralism tend to define terms such as 'legitimacy' (Karlsson-Vinkhuyzen and McGee 2013), 'polycentricity' (Dorsch and Flachsland 2017) and the concept of 'minilateralism' itself (Gampfer 2016).

Most studies of climate clubs, carbon border adjustments and minilateralism treat the state as the primary actor (Das 2015, Reingewertz 2017, Schwerhoff 2017, Martin and van den Bergh 2019). Only a few see a role for cities (Steffen et al 2019) or non-state actors (van Asselt 2014, Green 2017). In table 1, we provide a typical definition from each subfield of literature. The definition by Nordhaus (2015b) is particularly influential and has been cited in numerous other studies (Carlson 2016, La Rovere, 2016, van den Bergh 2017, Chen and Zeckhauser 2018, Barrage 2019).

The definitions in table 1 highlight the linkages between the three concepts. Nordhaus' (2015b) definition of a 'climate club' rests on two elements: (a) an agreement among a group of countries to undertake emissions reductions through a harmonised carbon price, and (b) a penalty jointly levied upon non-participating countries in the form of a small and uniform tariff on imports from those countries (Nordhaus 2015a, 2015b, Barrage 2019). Part (i) of Nordhaus's definition focuses on the norms of cooperation in a club arrangement and resonates with Falkner's (2016, p 89) understanding of minilateralism, which he describes as a forum 'to create specific benefits that can be limited to those countries that are willing to join the institution and abide by its rules'. Part (ii) of Nordhaus's definition of penalties on non-members overlaps with Sanctuary's (2018, p 829) definition of carbon border adjustment as a 'specific duty on imports that is a function of climate policy'.

Falkner's (2016, p 89) definition of climate minilateralism shows that it is essentially the same as a climate club. This could explain why 'minilateralism' has fallen out of favour in the climate literature as the debate has gravitated towards climate club terminology.

We identified the ten main journals where the debate on climate clubs, carbon border adjustments and climate minilateralism is unfolding (see table 2).

Table 2 shows that the literature is scattered among a large number of journals, most of which have only published studies in one of the subgroups of the reviewed literature. This indicates that despite the logical interconnections, they are also disconnected in some ways. Beyond the top ten journals represented in table 2, most journals have only published on one of the three topics, and only once. This dispersion indicates that climate clubs and carbon border adjustments are topics which many publishing outlets and authors have covered once, but that few have pursued over time. This may have contributed to the lack of interaction between the branches of literature.

Figure 2 shows that there is a paucity of research by academics based in non-Western countries. Almost 50% of the literature was penned by academics based in Europe and 30% in North America. Only 15% of the studies were authored by academics based in Asia, and 7% in other parts of the world. It is also notable that the share of contributors from other parts of the world has declined over time, approaching zero in 2019–2021. The lack of Asia-based research is particularly problematic, considering that much of the tension over the EU's CBAM or a climate club would be expected to arise between Asian and Western countries.

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Several Asian states are among the world's ten largest emitters of GHGs, continue investing heavily in coal, and are export-dependent economies dependent on international trade (Overland et al 2021). If such countries do not start taking an interest in this topic, they may be ill prepared when the EU's CBAM is launched.

There is some diversity in the geographic representation of countries in the literature. Most studies have retained a global focus while referring to individual countries to exemplify certain aspects of a climate club or CBAM (Lininger 2015a, 2015b, Hermwille et al 2017, Bjarne et al 2019, Mandel et al 2020). In-depth studies of single countries have also been conducted, including studies of Brazil (La Rovere 2016), South Africa (Rennkamp and Marquard 2017), the United States (Metcalf and Weisbach 2009, Weber and Peter 2009) and China (Voituriez and Wang 2011, Li et al 2012).

We review the literature's representation of the countries that make the largest contributions to global GHG emissions. We used data from the Climate Data Explorer of the World Resources Institute (WRI 2021) to identify the 20 largest emitters in the most recent year available (2018). As shown in figure 3, we differentiate between top emitters (the countries ranked 1–10 and jointly responsible for almost 70% of GHG emissions) and large emitters (the countries ranked 11–20 and jointly responsible for more than 11% of GHG emissions).

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Our results show that while there is a correlation between the number of studies that mention a particular country and its emissions, there are important exceptions. The four largest contributors of GHGs—China, the USA, the EU and India—have received similar numbers of mentions in existing studies. However, in some cases, countries with low emission levels have received more academic attention than those with high emission levels. For example, although Russia contributes a larger proportion of global GHG emissions than Brazil, it is mentioned less frequently. Despite being among the world's top emitters, Indonesia has been mentioned only 35 times in existing research; indeed, Canada, which produces lower levels of emissions, has been mentioned more than twice as often as Indonesia, while Iran, which is the world's 9th largest GHG contributor, seems to be off the academic radar. One possible explanation for the small number of studies that mention Indonesia and Iran is that their emissions are mainly generated by sectors other than industry. However, these countries are economically and geopolitically influential and their role in global climate governance may become greater if the scope of climate clubs and CBAMs is expanded to include emissions from agriculture and land use change.

Within the large emitter category, Mexico received the highest number of mentions, followed by Australia and South Africa. One possible explanation for the greater academic attention to South Africa and Brazil than to countries with higher levels of emissions is their membership in BASIC, a climate alliance of the major newly industrialised countries—Brazil, South Africa, India and China. Some scholars argue that BASIC can influence the formation of a climate club (Hovi et al 2017, Rennkamp and Marquard 2017, Sprinz et al 2018).

Another gap lies in the lack of analysis of emerging economies, such as Pakistan and Vietnam. While the large GHG emissions of such countries are mostly not from industries relevant to the EU's CBAM, their economies tend to be unstable and sensitive to changes in international trade practices.

Ecologically vulnerable developing states have important stakes in global climate change mitigation efforts (Sultan et al 2013, Huda 2017, Leal-Arcas 2017, Venugopal et al 2021). If the low representation of some geopolitically important countries and major developing countries within the literature is carried over into practical policy, this can heighten the risk of retaliation against a climate club or CBAM (Fouré et al 2016).

The relationship between the concept of a climate club and that of carbon border adjustments is affected by the genealogy of the two concepts. The concept of a climate club grew out of a pre-existing broader literature theorising about all kinds of clubs and processes of inclusion and exclusion related to club membership. Hovi et al (2016) trace the origins of club theory to studies from the early 20th century on the use of tolls on congested roads (Pigou 1920, Knight 1924). Also, Potoski (2015) and Sprinz et al (2018) engage with the literature on club theory, particularly that of Buchanan (1965). A study by Keohane and Nye (2002) was one of the earliest attempts to conceptualise the role of clubs in international affairs, which in a subsequent publication they developed further into the concept of a climate club (Keohane and Victor 2011).

The literature on border taxes refers to earlier studies by James Markusen and Allan Williams on the international externalities of domestic and foreign production processes (Williams 1966, Markusen 1975). Scholarship on carbon border adjustments has been shaped by the work of academics such as James Hansen (Hansen et al 1981), although the concept of carbon taxes was first proposed by David Wilson in the 1970s (cited in Sutherland 2020). Scholars of carbon border adjustments refer to several historical documents. For example, De Schutter (2014) and Holzer (2014) refer to the 1970 report of the General Agreement on Tariffs and Trade Working Party on Border Tax Adjustments, while Pirlot (2017) engages with the 1968 report of the Organisation for Economic Co-operation and Development (OECD) on tax adjustments applied to exports and imports in OECD member countries. These policy documents are not concerned with climate change and GHG emissions but with other issues in international trade.

In summary, the two branches of literature grew out of separate academic lineages unrelated to climate change. This results in different intellectual baggage and terminological and analytical frameworks.

The literature discusses two types of climate club. First, 'transformational' or 'Buchanan' clubs are those in which the production and allocation of club goods are the primary goals. These clubs address the free-rider issue by facilitating benefits for members and penalties for non-members (Weischer et al 2012, Nordhaus 2015a, Hovi et al 2017).

The second type is what we would call a 'voluntary' or 'pseudo-climate club'. The goal of such a club is to bring together a group of like-minded countries concerned about climate change or focused on a specific aspect of climate change mitigation. In such a club, membership is not clearly demarcated and the excludable benefits are small, leaving the door open to free-riding (Green 2017; Sabel and Victor 2017, Stua 2017a). Table S3 in the supplementary material describes the membership and objectives of 29 such voluntary climate clubs that are currently in operation.

Climate club scholars emphasise the advantages of the Buchanan model in addressing climate change. Stua (2017a) argues that a climate club could contribute greatly to climate governance by rewarding effective climate action with private goods for participating club members, while safeguarding the public good of climate change mitigation. A number of scholars have argued that a climate club can address the critical problem of freeriding on the climate action of others through a combination of club goods for members and tariffs for non-members (Hovi et al 2017, Rennkamp and Marquard 2017, Nordhaus 2020). Hovi et al (2017) suggest that even a club with only a handful of major actors as initial members can grow and eventually reduce global emissions as long as the club pursues an open membership policy and if certain conditions are met.

Nordhaus (2015b) presents an economic model in which a group of countries agrees on a target carbon price. The countries are then to meet this price requirement through a carbon tax, cap and trade, or hybrid regime. Non-member countries, that is, those that do not comply with the carbon price, are penalised with tariffs on exports to the countries that are part of the club. His analysis indicates that a relatively low tariff rate will induce high club participation if the international target carbon price is approximately USD 50 per ton. Hovi et al (2016) classify the Nordhaus proposal as a 'top-down model' for a climate club, where the regime is cemented before countries decide whether to participate. By contrast, other scholars conceive of a climate club as a bottom-up initiative by a small group of states (Sabel and Victor 2017, Sprinz et al 2018, Zefferman 2018). In such a scenario, the club is initiated by a coalition of countries which then implements multiple strategies to increase membership. This can include club goods, such as preferential market access and 'conditional commitments' which require members to deepen their mitigation efforts if new members join the club (Hovi et al 2017, p 1078). In a bottom-up climate club, the mitigation requirements for members are more flexible and dynamic than in the Nordhaus model.

There is also some diversity in the conceptualisation of tariffs, penalties and club goods within the literature. Nordhaus (2015a, p 9) recommends 'uniform penalty tariffs' across all imports from non-members into a club region. Sælen (2016) shows that the use of side payments can be more effective as incentives than club goods or conditional commitments. He argues that side-payments in the form of technology transfers or emissions trading could encourage reluctant countries to join climate clubs. Hovi et al (2017) conception of a climate club requires each member to spend 1% of its GDP on mitigation in exchange for favourable trade agreements. These approaches differ from studies that recommend tariffs on the carbon content of imports from non-members (Weischer et al 2012, van den Bergh 2017, Stua 2017b).

Studies of carbon border adjustments are marked by divergent views on their effectiveness. Proponents of carbon border adjustments argue that they can enhance the global mitigation effort by generating revenues for sustainable development, incentivising efficiency, and encouraging recalcitrant parties to increase the domestic cost of emissions (Anouliès 2015, Balistreri et al 2018, Bullock 2018, Antón 2020). By contrast, other scholars take a more critical view and argue that carbon border adjustments will be abused for protectionist purposes, resulting in trade wars, generating little welfare and disrupting international cooperation on climate policy (Kuik and Hofkes 2010, Moore 2011, Antimiani et al 2013, 2016, Black 2017). Researchers have compared the effectiveness of carbon border adjustments with rebates for exporters (Fischer 2012, Jakob et al 2013, Böhringer et al 2017a), an international cap and trade system (Hecht and Peters 2019), shared responsibility (Chang 2013) and punitive tariffs (Irfanoglu et al 2015).

A defining feature of this literature is the large number of studies that undertake complex economic modelling of carbon border adjustments, particularly in the context of energy-intensive industries (Fouré et al 2016, Trachtman 2016, Böhringer et al 2017b, McKibbin et al 2018). Although several studies mention the risk of carbon border adjustments triggering trade wars (Condon and Ignaciuk 2013, Mason et al 2015, Zhang 2016), scholars have not explicitly examined the implications of these mitigation mechanisms for domestic or international politics. This is an important gap in the literature.

While more than half of the reviewed studies hold favourable perceptions of climate clubs/carbon border adjustments, there is some variation in the opportunities and challenges they are thought to bring. Nordhaus (2015b) argues that in addition to addressing the free-rider problem, a climate club can overcome the 'small coalition paradox', which arises when coalitions are either small or shallow. His study indicates that even small trade penalties imposed on non-members of a climate club can induce a large, stable coalition with a large reduction in greenhouse emissions. Some scholars have argued that a climate club can facilitate technology diffusion, low-cost climate finance, improved reporting and transparency, and catalyse the adoption of new technologies (Springmann 2013, Paroussos et al 2019, Leal-Arcas 2020, Mandel et al 2020). The benefits provided by carbon border adjustments include the prevention of carbon leakage (Babiker and Rutherford 2005, Winchester 2012, Böhringer et al 2016, Cosbey et al 2019, Yu et al 2021), welfare creation (Eyland and Zaccour 2014, Schinko et al 2014) and increases in energy efficiency (Dorsey-Palmateer and Niu 2020). The main advantages expected from climate minilateralism are rapid progress in negotiations among a small group of important countries (Eckersley 2012), increased proliferation of environmental norms (Karlsson-Vinkhuyzen and McGee 2013) and greater levels of problem-solving effectiveness (Gampfer 2016).

There are significant overlaps in the challenges that a climate club and a CBAM are likely to encounter. A climate club or CBAM may end up privileging the voices of a small number of countries, thereby reproducing existing international hierarchies. Some authors argue that if poor and ecologically vulnerable countries do not have a voice in the decision-making process, these initiatives may not achieve global legitimacy (Eckersley 2012, Weischer et al 2012, Mattoo et al 2013). Other challenges include potential retaliation by non-members of a climate club, those at the receiving end of carbon border adjustments, or those who are excluded from a minilateral forum (Ghosh et al 2015, Carlson 2016, Andersen 2018, Rocchi et al 2018).

We classify the 122 publications covered in this review into three major disciplinary groups: economics, international relations (IR) and political science. This classification is based on the methodology/conceptual framework of each publication, the journal's disciplinary profile and the academic background of the authors. According to our classification, 70% of the studies belong to economics. These studies use technical modelling and economic theories to analyse the prospects for a climate club, CBAM, or climate minilateralism (Babiker and Rutherford 2005, Burniaux et al 2013, Moghaddam et al 2013, 2014, Liang et al 2016, Zhang et al 2020). We classify 23% of the reviewed studies as political science. This category includes studies that examine climate clubs and carbon border adjustments through interdisciplinary lenses combining public policy, law and economic perspectives, and may thus err on the high side. (Ghosh et al 2015, Mehling at al 2019, Charlotte et al 2020). Finally, we found that only 7% of the studies belong to the IR category.

Both a climate club and a CBAM would have important implications for IR because of their potential to exacerbate pre-existing tensions between developed and newly industrialised countries, as well as to cause political discord within countries. Several studies have examined possible consequences, such as retaliation by non-member countries of a climate club, trade wars, counter-coalitions and interactions between domestic and international political processes (Victor et al 2007, Aijun et al 2013, Böhringer et al 2016, Hovi et al 2016, van den Bergh 2017, Chen and Zeckhauser 2018). However, the majority of these studies examine the conflict potential of a climate club or CBAM in silos that are removed from broader academic IR debates.

The carbon border adjustment literature is heavily dominated by economists, and not a single study specifically on this topic was categorised as IR. This is particularly paradoxical, considering that the main or only real-world route to a possible climate club is the EU's CBAM. While a few studies of climate clubs examine IR issues, all studies of climate minilateralism make some connection to IR frameworks. Thus, it appears that the linkage between this broader field of research and IR was lost when minilateralism fell out of favour.

The disconnect between the climate club, carbon border adjustment and broader IR literatures is indicative of a larger climate gap in the extant IR literature. A meta-analysis by Sending et al (2019) finds that between 2015 and 2019, only 0.77% of the articles in five top IR journals were about climate change or a related topic. Sending et al (2019, p 184) argue that while there is a long tradition of specialised research on specific aspects of climate change which could be loosely classified as IR, there is a conspicuous absence of studies of how climate change may affect 'systemic shifts in the international system, the status of sovereignty, the drivers of foreign policy, or the endurance of alliances and functioning of international institutions'. This gap is surprising, given the likely substantial impact of environmental policy and decarbonisation on future geopolitical trends (O'Sullivan 2017, Huda 2020, 2021, Vakulchuk et al 2020, Overland 2021). The lack of climate club and carbon adjustment studies within the IR literature is concerning, considering that such a club/mechanism would be fundamentally political, inter-state and diplomatic by nature, and likely to trigger retaliation from non-member countries, trade wars, counter-coalitions and interactions between domestic and international political processes. The paucity of IR work on these topics may undermine the political feasibility of such initiatives by leaving them unprepared to tackle the political and diplomatic conflicts that they might trigger. In other words, the extant literature fails to inform policymakers about 'the international political conditions under which a climate club may or may not be formed, and what the consequences might be' (Sending et al 2019, p 188). In an era of continuing failure to mitigate climate change and growing anti-globalization and hostility between China and the United States, this research gap could have consequences for climate change mitigation, as well as global peace and stability.

We sought a broad overview of whether authors take a positive or negative view of the concepts of a climate club, carbon border adjustments and climate minilateralism. We divided the perceptions in the 122 publications into three categories: positive, neutral and negative. A detailed table showing our classification of the perceptions in each publication is included in the supplementary material.

Overall, 53% of the studies were found to be positive towards the concept of a climate club/carbon border adjustments/minilateralism, 29% were neutral and 18% clearly opposed them. These sceptical studies argued about the economic, technical and/or political disadvantages of these approaches to climate change mitigation. While climate club and minilateralism perceptions are overwhelmingly positive, a large portion of studies on carbon border adjustments take a neutral stance.

As shown in figure 4, the largest proportion of authors who are positive towards a climate club, carbon border adjustments or climate multilateralism was found in Europe. By contrast, the smallest share of positive views was found among Asian authors, where neutral views predominate. It is also noteworthy that the vast majority of negative views are directed at carbon border adjustments rather than a climate club or minilateralism and that this is valid regardless of which world region authors are based in. Only among authors based in North America is there a noticeable minority who take a negative view of a climate club.

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In this section, we undertake a systematic examination of the interconnections between the climate club and carbon border adjustment literatures. We used the VOSviewer network analysis application to visualise the (dis)connectedness between the branches of literature (see figure 5). VOSviewer is a computer application for tracing and visualizing bibliometric networks. The software facilitates the graphical representation of networks based on citations, bibliographic coupling, co-citation, or co-authorship relations. The number of publications included in the VOSviewer analysis is slightly different from that in the rest of this article because VOSviewer only processes citation data from Web of Science and some of the publications we cover in this review are not included in Web of Science. In an attempt to cover more publications, we experimented with processing combined data from the Dimensions and Scopus databases in Geography Markup Language and using the CitNetExplorer application for visualisation. However, this did not work well due to incompatibilities with the CitNetExplorer application.

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To enhance the robustness of our analysis, we performed two types of visualisation using VOSviewer: citation analysis (panel a) and bibliographic coupling (panel b). Citation analysis counts the instances of publications citing each other. In bibliographic coupling, if two publications have some of the same sources in their bibliographies, they are counted as 'coupled'.

The citation and bibliographic coupling network maps provide similar impressions. First, they show that the climate club and carbon border adjustment literatures are indeed distinct and link more to works that are part of the same branch of literature than to those that are part of the other branch of literature. However, the visualisations also show that the two literatures are not entirely separate, as there are also some linkages between them.

4.1.1. Free-rider challenge

4.1.2. Role of sanctions

4.1.3. Compatibility with international law

4.1.4. Justice and equity issues

Notwithstanding the interlinkages described above, the climate club and carbon border adjustment literatures are to some extent disconnected from each other. Above, we described the divergences between the two branches of literature in terms of historical roots, disciplinary affinities and diffusion across publication outlets. Another disconnect is the lack of comparative analysis on the opportunities and challenges of a climate club and carbon border adjustments. Most studies engage with the other branch of literature only at a superficial level, if at all. Most cross-references are limited to brief, descriptive statements on corresponding concepts in the other branch of literature. For example, while some studies of carbon border adjustments refer to the Nordhaus concept of a climate club (2015b), they do not examine in detail the contradictions and complementarities between the two types of mechanism (Cosbey et al 2019, Al Khourdajie and Finus 2020). While some scholars of climate clubs do engage more deeply with studies on carbon border adjustments (e.g. Keohane and Victor 2010, van den Bergh 2017), many others do so only briefly (e.g. Weischer et al 2012, Potoski 2015). These weak linkages between the two branches of literature obscure the inherent overlaps between a climate club and carbon border adjustment. As a result, the extant literature does not explain the strategic considerations that lead policymakers to focus on one over the other, as in the case of the EU's prioritisation of CBAM discussed in the next section.

As explained in the introduction, something like the EU's CBAM is the core mechanism required to enable a climate club to function. Conversely, the structural logic of CBAM should force the creation of a climate club as countries choose whether to implement carbon pricing similar to the EU or pay fees on their exports to the EU while avoiding carbon pricing at home (Tagliapietra et al 2019, Anderson et al 2020). Why, then, did the EU not simply state that its CBAM is the first step towards a climate club?

There are several possible reasons for this. First, the multiple disconnects between the climate club and carbon border adjustment literatures identified in this study may have influenced thinking and discourses in the EU. However, as we have seen, there are also some connections between the literatures; therefore, further explanation is needed. This is provided in the next paragraphs.

Second, the logic and argumentation that underpin CBAM are linked to domestic GHG emissions pricing and the risk of carbon leakage, and any consequences along the lines of a climate club are unintended side effects. This may render CBAM safer than an officially announced climate club in terms of avoiding trade conflicts. By contrast, a climate club involves a more explicit international agenda, where the stated aim is to force changes in the behaviour of other states. This increases the risk of trade and other international conflicts.

Third, as highlighted by Tagliapietra and Wolff (2021b), trade conflict is not only an external threat to a climate club or CBAM, but also to the internal cohesion among its participating states. Faced with a severe trade war, some states may opt out of the climate club, leaving it more vulnerable to further pressure. If launching it in the form of CBAM reduces this problem, this could be an important advantage.

Fourth, the concept of free riding used by Nordhaus (2015b) and other economists in their discussion of a climate club may be confusing for policymakers and others who are not familiar with economic theory and rational choice terminology. Free riding is an easy concept for a non-expert to understand if one is, for example, referring to someone riding a bus without a ticket or using a public hospital without paying taxes. However, the challenge of mitigating climate change is different because the good to be shared—avoidance of climate change—cannot even come into existence if not all actors are brought onboard from the start. It may, therefore, make more intuitive sense to think of climate mitigation as a mobilisation challenge rather than one of free riding or burden and benefit sharing.

Fifth, Nordhaus is by far the most famous proponent of a climate club. He is an American orthodox economist who has been criticised by environmentalists for his earlier work advocating a neoclassical growth model that discounts the long-term value of nature (Hickel 2018). He might not represent the type of intellectual tradition and source with which the European environmentalists, French politicians and other actors who actively promote CBAM are most likely to identify.