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Africa|Aluminium|Cement|Concrete|Export|Financial|Gas|Innovation|Manufacturing|Steel|Sustainable|Technology|Manufacturing |Products

Incoming CBAM could see African aluminium, iron exports plummet

11th May 2023

By: Marleny Arnoldi

Deputy Editor Online


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The African Climate Foundation (ACF), together with the Firoz Lalji Institute for Africa, finds that the European Union’s (EU’s) incoming Carbon Border Adjustment Mechanism (CBAM) will impact negatively on African economies, particularly in the form of export competitiveness and administrative hurdles for market access.

The CBAM, which will be introduced on October 1, will particularly hamper African countries that have historically struggled to access the European market.

In a new report published by the ACF and Firoz, the organisations set out the implications of the CBAM for Africa regarding relevant obligations under international legal frameworks as well as strategic considerations for African countries, to ensure that the CBAM is implemented in such a way that it is not more trade restrictive than necessary nor discriminatory.

The CBAM will first go through a three-year transition period whereby only emissions reporting obligations will apply, without any financial payments or adjustments.

Following the transition period, the CBAM will be gradually phased in from 2026 to 2034, initially covering imports of iron and steel, cement, aluminium, fertiliser, hydrogen and electricity.

“The CBAM aims to position the EU as a global leader on climate action and reduce greenhouse-gas emissions to 55% below 1990 levels by 2030.

“However, the proposal has faced scrutiny from partners like Africa, who question its compliance with Paris commitments and its impact on African exports,” says ACF chairperson Carlos Lopes.

Africa is home to 33 of the world’s 46 least developed countries (LDCs), identified as highly economically vulnerable and confronting severe structural impediments to sustainable development.

The report identifies that several African LDCs would be among those most impacted by the application of the CBAM. In a hypothetical scenario in which the CBAM was applied to all imported products, 11 African LDCs are forecast to experience a moderate to large negative impact on their gross domestic product by more than 1.5% and up to 8.4%.

Additionally, in a hypothetical model in which the CBAM was applied to all imports, the report forecasts CBAM could reduce total exports from African countries to EU countries by 5.72% and reduce Africa’s GDP by 1.12%.  

Given that the EU is a particularly significant import-export market for African countries, the CBAM could cause a fall in exports from Africa to the EU of aluminium by up to 13.9%, iron and steel by 8.2%, fertiliser by 3.9% and cement by 3.1%.

If the scope of the CBAM is expanded over time, the impact could be more substantial.

When the CBAM was under consideration, an exemption for LDCs and vulnerable economies was considered, but ultimately decided against by the EU.

Instead, the European Parliament called for the EU to provide financial support, at least equivalent in financial value to the revenues generated by the sale of CBAM certificates, to support LDCs’ efforts towards the decarbonisation of their manufacturing industries.

However, the EU has committed CBAM revenues to its Innovation Fund, which seeks to support innovative techniques, processes and technologies, including the scaling up of such techniques, processes and technologies, with a view to their broad roll-out across the EU.

The ACF states that this contradicts an earlier EU proposal to finance LDC efforts towards the decarbonisation of their manufacturing industries at the level of revenues generated by the sale of CBAM certificates.

More recently, the EU statement to the seventy-third United Nations Conference on Trade and Development noted that the EU support could include technical and financial assistance to support climate mitigation and adaptation in LDCs.

Concrete commitments to LDCs affected by the CBAM are yet to be made, the ACF points out.

“Considering the issues raised by the joint report, it is essential that key stakeholders engage in a constructive dialogue on the CBAM. The EU must acknowledge the concerns of its partners and work towards mitigating the negative impacts on African economies.

“Simultaneously, African countries should also take the lead in formulating measures to protect their interests and ensure their economic development is not hampered by the CBAM,” the organisation adds.

Notably, the CBAM is just one of many measures needed to address the urgent threat of climate change.

“While it is commendable that the EU is taking steps to reduce greenhouse-gas emissions, more needs to be done. Developed countries must step up their efforts to provide climate finance to developing nations and transfer technology to support their transition to low-carbon economies,” Lopes concludes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online


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