The accelerating transition to a lower-carbon economy, now well underway, has produced its fair share of what Antonio Gramsci would have called “morbid symptoms”. One of the most morbid of these is the way in which the Global North appears to be, unilaterally and at least partially, turning its back on the “trade liberalisation trumps all else” mantra it itself had crafted and ruthlessly imposed over the three decades after the end of the Cold War. It is doing so by implementing climate-justified green protectionist policies and measures.      

The context in which this is occurring is the de facto reduction of the global climate agenda from the transformational change called for by climate activists and scientists (including acting to transform consumption patterns, promote greater equality and curb the excesses of the super-rich) to an almost exclusively technological process that is now propelling an accelerating transition to a lower-carbon economy.

Competition heats up

This transition is, not surprisingly, leading to intensified competition between companies both to develop and produce low-carbon products, technologies and “solutions”, and to demonstrate green credentials in whatever activity they may be involved in. In a world undergoing a deeply contested transition from unipolarity to greater multipolarity, this company-level competition is spilling over into inter-state rivalry. 

This is most evident in the contestation between the Global North and China, which has developed an early technological and manufacturing lead in batteries, solar energy equipment and new energy vehicles, among others. 

This lag is leading countries in the Global North to implement ambitious industrial policies aimed both at catching up with rivals and, in particular, reducing their dependence on Chinese technology — now seen increasingly as a matter of national security. It is in this context that climate-justified green protectionist measures are being introduced. 

Two such measures with rather different implications for the Global South in general and Africa in particular stand out: 

• the European Union’s Carbon Border Adjustment Mechanism (CBAM); and
• the “green” industries support sections of the United States’ 2022 Inflation Reduction Act (IRA).

The Carbon Border Adjustment Mechanism 

CBAM entered into force in October 2023. It will require all importers into the European Union (EU) of an initial list of products — aluminium, cement, electricity, fertilisers and iron and steel — to report in detail on the carbon emissions involved in their production. Where no acceptable information is available default values will be applied.

After a three-year transition period (in 2026), CBAM certificates will have to be purchased at a price set in the EU’s cap and trade system, known as the EU Emissions Trading System (ETS), for all imports of all designated products whose carbon content exceeds the internal EU threshold. The value of these certificates will be calibrated to make up the difference between the carbon emissions involved in the imported product and the EU norm at a price set in the ETS.

CBAM is ostensibly a measure to avoid carbon leakage by pegging the emissions content of imported products to levels set for domestic equivalences as part of the EU’s net zero commitments. The CBAM will apply equally to all designated imported products, with no special or differential treatment for those emanating from developing countries or the UN’s Least Developed Countries (LDC).

Restricting market access 

While purchase of CBAM certificates is not strictly a tariff, as a financial levy on imports it will have a similar effect in restricting market access and reducing the value of preferences provided under such arrangements as the EU’s Economic Partnership Agreements and Everything but Arms scheme, and even the benefits provided under the EU’s World Trade Organization tariff bindings.  

As its impact depends on the extent to which the carbon content of the import exceeds the norm established in the EU’s carbon cap and the ETS auction price (itself partly determined by where the cap is set), the exact incidence cannot be predicted with any certainty at this time. Nor can the rate and pace at which the list of products subject to it be expanded beyond the initial list (which is clearly seen as eventually covering all imports).                                                    

A study commissioned by the African Climate Foundation measured the potential impact based on different scenarios for ETS carbon price per tonne and product coverage. It found that even in the “lightest” scenario with the most limited impact, “Africa’s economy will be negatively affected by the CBAM, with exports to the EU declining by 4% in total, that Africa will be worse affected than any of the other major economies analysed” and that “even at €40 per tonne, the CBAM will raise EU import tariff revenue substantially, but have little impact on global CO2 emissions”. 

Blow for exports and GDP

With a higher carbon price and more extensive product coverage, Africa’s exports to the EU would decrease by 5.75%, “with Africa’s GDP falling by 1.12% (almost twice the initial scenario of a partial CBAM and a lower carbon cost)”. With the impact unevenly distributed among individual countries, some would be affected by more than these averages. 

These include Mozambique (an LDC), one of whose most important exports is smelted aluminium. According to the Centre for Global Development the CBAM levies on its aluminium exports could reduce its GDP by 1.5%.  

The Inflation Reduction Act of 2022 is a US federal law with several sections and chapters dealing with subjects ranging from measures to combat prescription drug price gouging to the imposition of a minimum tax rate for large companies (to combat tax avoidance) and to strengthen the Internal Revenue Service.

Federal funding of $391-billion

More importantly for present purposes, it includes a section authorising $391-billion in federal funding over several years to support climate-related measures, including incentives for manufacturers of clean energy equipment and new energy vehicles. To put that figure in context, in 2021 South Africa’s GDP in US dollars was valued at $419-billion. 

The IRA also provides for a $15,000 tax credit for consumers who buy electric vehicles with batteries manufactured in the United States. This appears at face value to be incompatible with the Agreement on Trade-Related Investment Measures of the World Trade Organization (WTO), whose “illustrative list” of prohibited measures includes imposing “local content” requirements on private sector transactions. 

Following a threat by the EU to mount a challenge in the WTO, the two sides agreed to “immediately begin negotiations on a targeted critical minerals agreement” to ensure that minerals extracted or processed in the EU would count for clean vehicle tax credits under the IRA. This would amount to an unprecedented arrangement in which localisation requirements implemented by one WTO member would be extended to cover inputs from other selected WTO members as well.  

Impact assessment and a way forward for Africa

While the CBAM and IRA are both forms of what are generically dubbed “green protectionist” measures unilaterally implemented by the Global North, they will impact somewhat differently and thus have rather different implications for countries of the Global South, and Africa in particular.   

The CBAM is a direct barrier to market access, with a similar effect to a tariff on products subject to it. Avoiding it will require meeting the same carbon standards as those set in the EU. This would necessitate large additional investments that alone would amount to pushing developing country exporters and LDCs way beyond the nationally determined contributions they have tabled at any United Nations Framework Convention on Climate Change Conference of Parties (most of which, in any case, were conditional on receipt of as yet non-existent climate funding). 

It is thus a measure that undermines both the principles of “less than full reciprocity” and “common but differentiated responsibilities” supposed to underpin multilateral trade rules and climate-related commitments, respectively. 

Moreover, research cited earlier points to huge disproportionality in its application to a continent that is among the least responsible for greenhouse gas emissions, but among those most affected by climate change. The gains in emissions reduction are small, compared to the loss of export earnings and incomes in any of the scenarios. 

A hard no to CBAM

As such CBAM is a measure that needs to be rejected, opposed and challenged in any way or forum possible. Developing a strategy for this is doubly urgent in view of its propensity to be replicated in several other jurisdictions. 

The United States’ IRA is also a measure introduced unilaterally, with no consideration of its implications for developing countries and no suggestion that it should be universally applicable and available to all.  

Trying to contain some of its departures from the existing uneven and unequal multilateral trade rules via WTO challenges or rules would, however, not be in Africa’s interest, in my view. Any ruling or new rule, even if it were accepted and implemented by the US (which looks in no mood to do so), would set precedents of general application that would almost certainly apply more broadly and probably end up further reducing policy space available to the Global South. 

Africa needs its own industrial policies

Instead, Africa should respond along the lines of learning more from what the Global North does than what it tells us to do. Africa needs to develop and implement its own ambitious industrial policies to ensure that the continent occupies a position in the emerging low-carbon economy, not just as a producer and exporter of raw materials used in the production of low-carbon products and technologies elsewhere, but of value-added, low-carbon industrial products.  

In this regard Africa needs, like the Global North, to reclaim the policy space needed to advance the necessary industrial policies to achieve this. 

As a step towards such an eventual end goal, the IRA would suggest the immediate pursuit of two specific policy goals. The first would be to cite the US’s overt use of localisation to immediately insist on developing countries’ right to implement local content requirements in ways adapted to their own realities and requirements. 

Easy and low-cost technology transfer

The other would be to campaign for an easy and low-cost technology transfer to developing countries based on a recognition that the transition to a lower-carbon economy is part of a (not yet sufficient) response to a global emergency — the threat of catastrophic climate change. 

Green technologies need, accordingly, to gain recognition as needing to be produced and developed in multiple locations, with a status more akin to global public goods than products providing opportunities for the reaping of huge monopoly profits buttressed by intellectual property regimes that have moved way beyond providing rewards for innovation. 

This would suggest, specifically, a campaign for a change in the rules of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights rules, similar to that launched by India and South Africa around Covid vaccines, but targeting more significant and substantial outcomes than was achieved in that campaign. DM

Rob Davies is an Honorary Professor at the Nelson Mandela School of Public Governance, a member of the AfCFTA Trade and Industrial Development Advisory Council and a former Minister of Trade and Industry. 

This is the sixth article in a series about the just transition and economic development.

Read part one here : A much larger transformation in Africa — why a just transition must be complemented by climate-resilient development 

Read part two here: https://www.dailymaverick.co.za/article/2023-12-01-conflicting-visions-on-just-transition-to-low-carbon-economy-cloud-critical-climate-change-negotiations/

Read part three here: https://www.dailymaverick.co.za/article/2023-12-04-making-the-most-of-africas-critical-minerals-in-just-transition-to-green-and-renewable-energy-sources/

Read part four here: https://www.dailymaverick.co.za/article/2023-12-05-food-systems-transformation-features-prominently-in-the-agenda-of-cop28/ 

Read part five here: https://www.dailymaverick.co.za/article/2023-12-06-gender-mainstreaming-in-approaches-to-climate-change-is-imperative-for-southern-africa/