Nigeria, other African countries may lose $25b yearly to EU carbon adjustment initiative

• Programme could reduce GPDs of some countries by over 8.4%

• Exports to Europe to fall by 5.7 per cent

Nigeria and other African countries may record a yearly loss of $25 billion if the European Union (EU) goes ahead to introduce its Carbon Border Adjustment Mechanism (CBAM) in October as proposed.

CBAM is a direct response by the EU to the Paris Agreement approved at the 21st conference of the United Nations Framework Convention on Climate Change.

While the Paris agreement emphasises the importance of responding effectively to climate change based on the best available scientific knowledge and the intrinsic relationship between climate actions and equitable access to sustainable development and poverty eradication, the EU came up with CBAM to position the region as a global leader on climate action. It will also reduce greenhouse gas emissions to 55 per cent below the 1990 levels by 2030.

But stakeholders, including Africa, have raised concerns over CBAM’s compliance with Paris commitments and its impact on African exports.

CBAM is a direct response by the EU to the Paris Agreement approved at the 21st conference of the United Nations Framework Convention on Climate Change.

While the Paris agreement emphasises the importance of responding effectively to climate change based on the best available scientific knowledge and the intrinsic relationship between climate actions and equitable access to sustainable development and poverty eradication, the EU came up with CBAM to position the region as a global leader on climate action. It will also reduce greenhouse gas emissions to 55 per cent below the 1990 levels by 2030.

But stakeholders, including Africa, have raised concerns over CBAM’s compliance with Paris commitments and its impact on African exports.

CBAM will be introduced on October 1, with a three-year transition period during which only emissions reporting obligations will apply without any financial payments or adjustments.

After the transition period, CBAM will be gradually phased in from 2026 to 2034, covering imports of iron and steel, cement, aluminium, fertiliser, hydrogen, and electricity.

African Climate Foundation (ACF) and the Firoz Lalji Institute for Africa at the London School of Economics and Political Science (LSE) in a comprehensive report made available to journalists raised concerns over the development, saying it would cost Africa $25 billion yearly.

The concerns are that being home to 33 of the world’s 46 least developed countries (LDCs) identified as highly vulnerable and confronting severe structural impediments to sustainable development, Africa would be among most impacted regions if the EU goes on with GBAM implementation.

According to the report, eleven African LDCs could experience moderate to large-negative impacts on their outputs by more than 1.5 per cent and up to 8.4 per cent.

From the hypothetical model on which the CBAM was applied to all imports, the report forecast it could reduce total exports to the EU from African countries by 5.72 per cent and Africa’s gross domestic product (GDP) by 1.12 per cent.

Given that the EU is a particularly import-export market for African countries, the group noted that CBAM could cause a fall in exports from Africa to the EU of aluminum by up to 13.9 per cent, iron and steel by 8.2 per cent, fertiliser by 3.9 per cent and cement by 3.1 per cent.