EU's carbon border tax: new report shows Africa stands to lose billions in revenue every year

Prof David Luke, strategic director at the Firoz Lalji Institute for Africa at the London School of Economics and Political Science, discusses the EU’s new carbon border tax, and its possible impact on Africa.

- Prof David Luke

A new European law that imposes the first-ever carbon border tax in the world comes into force in October 2023. It will be applied gradually over the next three years before it is fully implemented.

A carbon tax is a type of levy imposed on greenhouse gas emissions. It is meant to encourage companies to adopt clean methods of production. But firms could get around the tax by moving production units outside of the EU to countries with less strict terms, such as those in Africa, and then exporting products back to the EU. That’s why the EU has come up with the Carbon Border Adjustment Mechanism (CBAM).

It currently costs firms operating in the EU around R1 600 to emit 1t of carbon dioxide. Under the new system, importers will be charged the same for carbon emissions as domestic producers are.

The new policy will initially apply to iron, steel, cement, aluminium, fertilisers, hydrogen and electricity generation.

But the mechanism has already proved to be highly controversial.

NORTH-SOUTH DIVIDE

In the global north, it has been applauded as a positive climate action. The policy’s architects see it as an opportunity for the EU to play a “leading role at the global level” on climate action.

Climate activists in the global north are excited about it, too, although a UN Conference on Trade and Development study concluded that emission reduction from the CBAM represents only a small percentage of global carbon dioxide emissions.

In the global south, the CBAM has been heavily criticised. Critics see it as an industry protection measure that will have negative repercussions on regions such as Africa.