The European Union’s carbon border adjustment mechanism (CBAM)—proposed in 2021 and ratified by the European Council and Parliament to come into effect in October 2023—will set a border carbon price on imports in six sectors: aluminum, cement, electricity, fertilizer, hydrogen, and iron and steel. The EU has two goals in implementing the CBAM: (1) to encourage its trading partners to increase their climate ambitions, and (2) to reduce competitiveness pressures on domestic industries, preventing carbon leakage to non-EU countries. The CBAM has the potential to affect the EU’s trade and geopolitical relationships, particularly through the process of determining equivalency of non-EU emissions pricing regimes. Moreover, experts criticize the CBAM regulation as placing developing and least developed countries at a disadvantage as they struggle to keep pace with the energy transition in industrialized countries.
This chapter investigates how the CBAM will affect the EU’s trilateral and bilateral geopolitical relationships with Africa and China. We use trade data to identify the exposure of China and a subset of African countries (Algeria, Egypt, Morocco, Mozambique, South Africa and Tunisia) to the CBAM, using CBAM industries’ share of exports and the importance of the EU market. We explore the effect of the CBAM on bilateral and trilateral trade relations, and how differences in emissions pricing will affect the treatment of CBAM sector exports from African countries and China. We also present a qualitative analysis of responses from developing countries following the European European Commission’s 2021 CBAM announcement. We find the CBAM will only have a limited effect on the trilateral relationship between Africa, China and the EU. Each African country has a unique trade relationship with the EU as well as individual emissions-reduction approaches. However, Mozambique is a least developed country particularly exposed to the CBAM, placing the debate of exemptions based on developing status at the forefront of its bilaterial relationship. Moreover, South Africa is prepared to challenge the EU’s CBAM, in concerted action with China, through the BASIC country bloc. Therefore, the CBAM may significantly affect the trilateral relationship between the EU, China and South Africa.
