An economist at the United Nations Economic Commission for Africa (UNECA) has strongly criticised the European Union’s implementation of its Carbon Border Adjustment Mechanism (CBAM) – a tax on carbon-intensive goods that are imported into Europe.
Speaking at the African Development Bank’s annual meetings in Brazzaville this week, UNECA chief economist and deputy executive secretary Hanan Morsy expressed dismay at the way the EU has approached CBAM implementation.
“Part of our concerns is that we were not part of how this was designed – we were neither consulted, engaged, or offered a say on implementation,” she said.
“In today’s world, this matters a great deal. While we all agree in terms of the direction of travel, we think we can support that agenda without it undermining our development.”
“We need to have a deeper discussion about how we can ensure that climate-related trade measures do not undermine Africa’s industrialisation and transformation objectives.”
EU claims CBAM levels playing field
CBAM has been effective since the start of this year and, from the EU’s perspective, is designed to ensure a level playing field on environmental standards. Under the EU’s Emission Trading System (ETS), European firms in carbon-intensive sectors have to purchase carbon permits for their emissions over certain thresholds, which is designed to encourage a shift towards lower emissions.
However, this potentially puts EU firms at a competitive disadvantage compared to non-European firms which are not subject to the same costs. CBAM therefore effectively serves as a tariff on carbon-intensive goods which ensures European manufacturers cannot be undercut by global rivals with less stringent environmental standards.
Morsy suggested that CBAM was reflective not only of the EU’s environmental policies but of a more protectionist global trading environment and said it “raises broader questions of fairness”.
“What is emerging is not just an environmental instrument – climate regulation is increasingly becoming trade regulation, industrial policy, and competitiveness policy – and this has profound implications for Africa,” she said.
“While Africa contributes a small share of global emissions, this has implications for our exports and industrialisation.”
Morsy argued that, in the future, African governments could look at imposing carbon-related taxes on manufacturers themselves.
“Perhaps, instead of this taxation being captured externally, governments could actually tax internally so at least we are getting resources out of this rather than exporting these revenues outside,” she added.
Morsy also noted that this kind of measure re-emphasises the need for the continent to progress further towards the African Continental Free Trade Area (AfCFTA), which she said could “help cushion against some of these external shocks by strengthening regional value chains”.
Metals manufacturers exposed
While the overall macroeconomic impact on the continent is expected to be quite low – the AfDB says that CBAM-related goods make up only 6% of Africa’s total exports, and of those only 2% are destined for the EU – certain sectors and countries are significantly exposed.
Manufacturers of aluminium, iron, and steel, particularly those in North Africa, which tend to do more trade with Europe, are set to be hit by significantly increased costs. Mozambique exports almost all of its aluminium output to the European market and is also exposed.
The AfDB noted that CBAM could not only impact the export of these goods directly, but would progressively impact downstream products.