Carbon border adjustment mechanism could hit some trading partners hard – Eurasia Review

The EU plans to use a carbon adjustment mechanism as a means of creating a level playing field and providing economic incentives that will promote decarbonization in particularly emitting sectors. The mechanism will initially target energy-intensive and energy-consuming products such as cement, steel and aluminum. According to the plans of the President of the European Commission von der Leyen, it could then be applied to other imported goods.

The study authors argue that the extent to which a country’s economy is threatened by the mechanism depends primarily on two factors: exposure and vulnerability.

“The exhibition is about the importance of trade with the EU for the economy in question. Vulnerability, in turn, can be defined as the inability to adapt, for example by changing trade flows, or by decarbonizing and verifying the carbon content of a product, ”says lead author Laima Eicke. .

According to the study, the countries of the South and the non-EU member states of Eastern Europe are particularly at risk. The researchers took a closer look at three countries that would be particularly affected for different reasons: Bosnia and Herzegovina, Morocco and Mozambique.

Bosnia’s weak trade diversification poses challenges

The Bosnian economy is characterized by low diversification of trading partners and export goods: 72% of its exports go to the EU, which the country hopes to join in the future. Steel and aluminum are among its most important export products. Bosnia and Herzegovina would therefore already be hard hit by the first phase of implementation of the mechanism, which targets these emission-intensive goods.

“Past experience with low-carbon transitions in energy-intensive industries shows that these require large-scale investments over a longer period. Efforts to mobilize and subsidize investments in these industries are already underway in the EU. Manufacturers in Bosnia and Herzegovina will find it difficult to ‘go green’ at a pace sufficient to remain competitive in the EU, ”said co-author Silvia Weko.

Morocco is locked into fossil fuels for now

Morocco is an emerging economy with rapidly growing energy demand, a high proportion of which is met by fossil fuels. This energy infrastructure, combined with long-term power purchase contracts, creates a strong dependence on the trail that leaves little room for rapid decarbonization.

This emission-intensive energy system increases the carbon footprint of products manufactured in Morocco and is likely to result in a significant levy as part of a carbon border adjustment mechanism.

Mozambique lacks the capacity to verify the carbon footprint of exports

The complexity and cost of reporting the carbon content of export products is a particular challenge for developing countries like Mozambique. Given these obstacles, a carbon border adjustment mechanism could restrict countries’ trade options rather than act as an incentive for decarbonization.

Mozambique’s total final energy consumption is 64% less carbon intensive than the EU average. This value is likely to be significantly higher for emissions-intensive and trade-exposed industries, but reliable data is lacking. Mozambique’s adaptive capacity depends to a large extent on its ability to establish a transparent information system to monitor, report and verify the comparatively low emission intensity of its products.

The EU should support the decarbonisation efforts of its trading partners

The study makes it clear that the EU must take into account the international implications of its policies in order to avoid creating new global divisions.

“If the carbon border adjustment mechanism is to contribute to climate protection, the EU should provide financial and technical support to countries where it represents a considerable risk. These countries simply do not have the resources to afford the massive investments needed for decarbonization, ”explains Laima Eicke.

One possible measure would be to provide capacity building expertise to promote the adoption of best practices to reduce emissions in energy intensive and tradable industries. European partner countries could also provide training in emissions monitoring, reporting and verification.

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