EU’s carbon levy could cost Africa $25bn per year, says bank chief

The EU’s new carbon imports levy could cost African states up to $25 billion per year, the President of the African Development Bank (AfDB) has warned, in a new critique of the new tax. 

Speaking at the Sustainable Trade Africa Conference in Dubai on Wednesday (6 December) Akinwumi Adesina warned that the new EU carbon border adjustment mechanism (CBAM) could significantly constrain Africa’s trade and industrialisation progress by penalising value-added exports including steel, cement, iron, aluminium and fertilisers. 

The AfDB was created by the UN and African Union to provide finance for African governments and companies investing in the region.

“With Africa’s energy deficit and reliance mainly on fossil fuels, especially diesel, the implication is that Africa will be forced to export raw commodities again into Europe, which will further cause de-industrialisation of Africa,” said Adesina. 

CBAM requires importers to pay a carbon price equivalent to that paid by European producers under the EU Emissions Trading System (ETS), in an attempt to level the playing field for all businesses operating in the bloc and prevent EU industries from being undercut by more-polluting foreign competitors. 

The levy will apply initially to cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. 

While CBAM was approved with a large cross-party majority earlier this year, the new levy, which came enter force in October, has prompted an angry backlash from developing countries, with African leaders complaining about the lack of consultation during the drafting of the law. 

They point out that Africa only accounts for about 4% of global carbon emissions. 

“Africa has been short-changed by climate change; now it will be short-changed in global trade,” said Adesina. 

“Because of weak integration into global value chains, Africa’s best trade opportunity lies in intra-regional exchanges, with the new Africa Continental Free Trade Area estimated to increase intra-Africa exports over 80% by 2035,” he added. 

Although the levy is primarily aimed at big carbon polluters such as China and Russia, who are also among the EU’s geopolitical rivals, it will also hit African states, despite repeated assurances from EU officials that CBAM would not damage the African economy. 

India and South Africa have led the international opposition to CBAM, lodging claims at the World Trade Organisation (WTO) that CBAM breaches the WTO’s non-discrimination principle. Those claims have been dismissed by EU officials. 

Potential costs

There are differing assessments of the potential costs of CBAM on African economies. 

South Africa’s Presidential Climate Commission (PCC) has estimated that the CBAM would cut Africa’s exports to the EU by 30-35% – worth between €1.7bn and €2.1bn – by 2030. 

A report by the African Climate Foundation in July, meanwhile, forecasts that exports of aluminium to the EU from Africa would drop by 13.9%, iron and steel by 8.2%, fertiliser by 3.9% and cement by 3.1%. 

“The EU must acknowledge the concerns of its partners and work towards mitigating the negative impacts on African economies,” warned the ACF. 

The levy will severely affect only a handful of African countries. 

Mozambique’s GDP would drop by about 1.5% due to the tariffs on aluminium exports, according to the Washington-based Center for Global Development. Mauritania and Senegal would also lose heavily, the think-tank warns.

[Edited by Nathalie Weatherald]

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