Decoding the G7: 5 takeaways for business on climate and energy
Gillian Nelson, Policy Director, We Mean Business Coalition
As we hurtle towards the mid-point of another year in this crucial decade that will determine our collective future, a spark of hope has emerged. The statement released by G7 Energy and Climate Ministers after their meetings in Sapporo in late April has set a strong baseline upon which international diplomacy and collaboration can build this year.
This stands us in good stead as we head into the remainder of the G7 including the Leaders’ Summit, the G20, UN Climate Summit and COP28 — and potentially towards an outcome spurring action from all stakeholders to keep 1.5°C within reach by leaving fossil fuels behind.
Ahead of the meeting, the We Mean Business Coalition sent a letter to G7 Ministers, outlining our key recommendations for a 1.5°C-aligned clean energy transition. Many were included in the communiqué in full. Others were partially met, or with language that requires more interpretation. Reading between the lines of what the Ministers’ text does and does not say — with reference to the latest science — here are five key takeaways for business on where G7 governments currently stand.
1. The G7 has committed to phasing out unabated fossil fuels in line with 1.5°C
What the G7 ministers said:
“We underline our commitment, in the context of a global effort, to accelerate the phase-out of unabated fossil fuels so as to achieve net zero in energy systems by 2050 at the latest in line with the trajectories required to limit global average temperatures to 1.5°C.”
What it means for the clean energy transition:
Building from the discussion that began at COP27, when India’s proposed language on phasing down all fossil fuels won support from over 80 countries — the G7 has become the first major international grouping of countries to explicitly state their commitment to phasing out unabated fossil fuels in line with scientific pathways for 1.5°C.
The IPCC refers to unabated fossil fuels as those which are “produced and used without interventions that substantially reduce the amount of greenhouse gas emitted throughout the life cycle; for example, capturing 90% or more CO2 from power plants.” In practice, that means a very limited role for even abated fossil fuels in the coming years, unless the technology to capture and store the vast majority of greenhouse gas emissions becomes commercially available and viable at scale in a timeframe consistent with halving global emissions by 2030.
This is a strong signal. The G7 has clearly recognized that the future is in clean energy — which is good for both business and the climate. Continued reliance on fossil fuels exposes people and economies to risks, from extreme weather to rising inflation. Fossil fuels lead to continued market volatility, while renewable energy is increasingly cost competitive.
The text also makes specific references to the ‘first fuel’ of energy efficiency as a key pillar in the global energy transition. This will be welcomed by business, as efforts to increase energy efficiency cut costs and boost resilience. EP100 members have reported $1.2 billion combined cost savings to date through energy efficiency improvements.
Even on gas, there has been a marked change of tone used since last year’s G7. Fossil gas is no longer being referred to as a ‘transition’ fuel nor defined as ‘necessary’. The communiqué focusses on the primary need to accelerate the transition to clean energy and reduce demand for gas, with conditions on any gas investments to be consistent with climate commitments and not create ‘lock in’ effects.
This is likely to have an effect on markets. Increasingly widespread climate goals are already impacting investment decisions in some parts of the world. Renewed commitment from the G7 to the transition will be good for boosting clean energy investments.
2. Renewable capacity in the G7 will increase significantly over the next seven years
What the G7 energy ministers said:
“The G7 contributes to expanding renewable energy globally and bringing down costs by strengthening capacity including through a collective increase in offshore wind capacity of 150 gigawatt by 2030 based on each country’s existing targets and a collective increase of solar (photovoltaic) to more than 1 terawatt by 2030.”
What it means for the clean energy transition:
This outcome has been reported as being a big win for solar and wind energy. According to the International Renewable Energy Agency (IRENA), the targets reflect estimates it had prepared for the group to align with a 1.5°C pathway.
Expert analysis from Ember estimates that meeting these 2030 targets will mean annual solar installation capacity will more than double in the G7 from 2023-2030, compared to installation rates in 2022, and offshore wind installation rates will increase sixfold per year between now and 2030.
To achieve those rates we will likely see a speeding up of permitting processes across the G7 — an essential step for supporting the rapid roll out of new renewable energy projects. We’re also likely to see improving grid and charging infrastructure, building on G7 Ministers’ 2022 commitment to ‘remove barriers and obstacles that currently hinder or slow down the expansion of renewable energies, for example in the context of planning and permitting procedures.’
This will be welcomed by business to help meet growing demand for renewable energy — particularly by the 400 companies that have committed through RE100 to procuring 100% renewable energy — and will help bring many more along on the journey as costs fall even further. Governments can further support growth and attract greater private investment by creating a level playing field on which renewable electricity competes fairly with fossil fuel electricity and reflects the cost-competitiveness of renewable electricity.
This direction from the G7 will enable companies to invest more confidently in renewables, making the most of this cost-effective, reliable and secure form of energy.
3. Power systems will run almost entirely on clean energy in the G7 by 2035, with coal phaseout likely around 2030
What the G7 energy ministers said:
“(We) reaffirm our commitment to achieving a fully or predominantly decarbonized power sector by 2035, and prioritizing concrete and timely steps towards the goal of accelerating the phase-out of domestic unabated coal power generation in a manner consistent with keeping a limit of 1.5°C temperature rise.”
What it means for the clean energy transition:
Building from the 2022 G7 agreement to accelerate coal phase-out, the group has gone one step further this year by qualifying the intended speed of this phase-out, with their reference to being consistent with 1.5°C. According to the IEA’s roadmap for the global energy sector, reaching net zero by 2050 in order to keep the 1.5°C limit within reach implies phasing out unabated coal by 2030 in the G7.
The IEA has also documented how the G7 can fully decarbonize its power systems by 2035. Although the G7’s commitment on decarbonizing the power sector by 2035 recalls the language agreed to in 2022, using the words “fully or predominantly,” it is expected that this will be revisited by Heads of State at the G7 Leaders’ Summit in late May. Many G7 members support removal of the word “predominantly” in favour of a G7-wide commitment to full decarbonization.
As indicated by over 230 major Japanese companies in a statement to the G7 Presidency, decarbonizing power systems should be of high priority to governments. Not only due to climate concerns but also to stimulate greater business and investment opportunities, and ensure continued competitiveness in a global market that is increasingly influenced by climate-related considerations.
4. The G7 still has much work to do on aligning its financial flows with decarbonization commitments
What the G7 energy ministers said:
“We reaffirm our commitment to the elimination of inefficient fossil fuel subsidies by 2025 or sooner, and reaffirm our Leaders’ previous calls for all countries to do so.”
What it means for the clean energy transition:
The lack of progress on fossil fuel subsidies, and finance in general, could stand in the way of ensuring a smooth and just transition at the pace required to keep within the 1.5°C limit. G7 fossil fuel subsidies came to over $80 billion in 2022. As We Mean Business Coalition CEO María Mendiluce points out: “to phase out fossil fuels, the G7 must stop subsidizing them… Redirecting this capital towards scaling up renewables, increasing energy efficiency and supporting communities affected by this transition will put our climate goals within reach.”
When heads of state meet in Hiroshima in two weeks, they can correct this by committing to sharing concrete national plans for how these subsidies will be eliminated by their 2025 deadline. Importantly, business needs to see how governments will repurpose funds towards electrification, energy efficiency, renewable energy, and other measures to support a just and equitable clean energy transition.
Equally important will be ensuring that the G7’s international public finance is aligned with a global clean energy transition. Supporting clean development across the world will not only support leveraging increased private finance but will also help companies decarbonize global supply chains.
5. A just transition will be central to achieving these goals
What the G7 energy ministers said:
“We emphasize the need to support a national level just transition of workforce and to create decent work and quality jobs for all in our efforts to address the triple crisis [and] we will aim to take effective measures such as accelerating necessary energy transition policies, facilitating research and development on related clean technologies, and creating new jobs and retraining affected workers in order to ensure a just transition.”
What it means for the clean energy transition:
Phasing out unabated fossil fuels will affect communities and workforces, and the G7 has recognized this will require targeted support. Governments can manage a just transition through careful planning and policies, including promoting green and decent job creation, along with strategies to work with companies to train, reskill and upskill fossil fuel workers.
Collaboration and partnerships between governments, businesses and workers will be vital. Later this year, the We Mean Business Coalition’s Business & Just Transition Taskforce, co-led by BSR and The B Team, will publish a Just Transition Resource Platform. It will help companies understand expectations and leverage existing guidance and tools to integrate principles of a just and inclusive transition into corporate climate action plans.
Next stop: Hiroshima
The Ministerial communiqué isn’t binding, and it certainly isn’t perfect. But it is important in setting the political direction, which is clearer than ever. We now need to see these ministerial commitments matched by endorsements and supportive finance and fiscal environments from heads of state at the G7 Leaders’ Summit in Hiroshima. That must be followed by bold domestic policy to put promises into practice, backed with finance, to create safer and more stable clean energy systems and economies.
Gillian Nelson is Policy Director at We Mean Business Coalition