A new EU law imposing the world’s first carbon border tax takes effect in October 2023.
- The tax is meant to discourage companies from moving production to countries with lax climate policies.
- The EU’s carbon border adjustment mechanism will charge importers the same carbon price as EU producers.
- A new report finds Africa could lose 0.91% of GDP annually, equivalent to $25 billion, due to the border tax.
- The annual losses represent 3 times the EU’s 2021 development cooperation budget for Africa of $6.8 billion.
- Africa would be the most affected region as a share of GDP due to its exports to the EU of affected products.
- Though Africa has a limited carbon footprint, the policy still disproportionately affects African economies.
- African countries could mitigate impacts by diversifying exports but market diversification has been a challenge.
- African countries need a differentiated approach that allows time to adjust plus appropriate finance to respond to the EU policy.