Adeshina Warns: EU Carbon Tax Threatens Africa with $25 Billion Annual Loss

In a stern cautionary statement at the Sustainable Trade Africa Conference during Cop28 in Dubai, Akinwumi Adesina, the President of the African Development Bank (AfDB), highlighted the potential dire consequences of the European Union’s Carbon Border Adjustment Mechanism (CBAM), colloquially known as the EU’s carbon tax. In a notable deviation from the status quo, Adesina warned that this mechanism could impose an exorbitant additional cost of $25 billion on Africa’s value-added products, posing a significant threat to the continent’s trade and industrialization aspirations.

In his address, Adesina underscored the risk of penalizing value-added exports, including steel, cement, iron, aluminum, and fertilizers, which could hamper Africa’s progress in trade and industrial development. He emphasized the predicament arising from Africa’s energy deficit and its predominant reliance on fossil fuels, particularly diesel. Adesina predicted that this could compel Africa to revert to exporting raw commodities to Europe, exacerbating the de-industrialization of the continent. He lamented, “Africa has been short-changed by climate change; now it will be short-changed in global trade.”

Citing data from the International Renewable Energy Agency, Adesina pointed out the apparent neglect of Africa in the global energy transition. He argued that the proposed legislation would not only widen regional disparities but also deepen existing inequalities. Drawing attention to the stark reality, Adesina revealed that Africa received a mere $60 billion or 2% of the $3 trillion invested globally in renewable energy over the past two decades. This trend, he cautioned, could negatively impact Africa’s ability to competitively export into Europe.

Adesina further criticized the CBAM for its failure to consider the principle of common but differentiated responsibility outlined in the Paris Accord. This principle mandates developed countries to peak on carbon emissions and achieve net-zero in the first half of the century, while allowing developing countries to peak and achieve net-zero in the second half. Adesina argued that the CBAM did not align with these principles, further exacerbating the challenges faced by developing nations.

In shedding light on the CBAM, the European Commission defines it as a “landmark tool to fight carbon leakage.” The mechanism, which entered its transitional phase on October 1, aims to equalize the price of carbon between domestic products and imports. The EU’s rationale is to prevent the undermining of its climate policies by production relocating to countries with less ambitious green standards or by the replacement of EU products with more carbon-intensive imports.

The CBAM specifically targets imports of items and key precursors with high carbon intensity, focusing on sectors at substantial risk of carbon leakage. These sectors include cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. When fully implemented, the CBAM aspires to address over 50% of emissions within the EU’s Emissions Trading System-covered sectors.

During the introduction of the CBAM, Valdis Dombrovskis, the European Commission’s Executive Vice-President for an Economy that Works for People, emphasized the mechanism’s compliance with World Trade Organization rules. Dombrovskis stressed the necessity of the CBAM for the EU to achieve its ambitious emission reduction targets and climate neutrality by 2050. He asserted that the mechanism would tackle the risk of carbon leakage in a non-discriminatory manner, in full compliance with WTO rules. Dombrovskis expressed the EU’s commitment to leading by example and encouraging global industry to adopt greener and more sustainable technologies.

As the potential ramifications of the CBAM loom large, Africa finds itself at a critical juncture, grappling with the dual challenges of energy transition neglect and the impending financial burden on its value-added exports. Adesina’s warning serves as a call to action for African nations to engage in diplomatic efforts and collaborative initiatives to safeguard their interests in the face of evolving global trade dynamics.