By Benjamin Fox

NAIROBI - The economic effects of the EU’s new carbon import levy are set to be far smaller than feared by many third countries, according to a report published on Monday (3 June) by Sandbag, a think-tank focused on EU climate policies.

But the report also contends that foreign manufacturers can minimise the charges they face under the Carbon Border Adjustment Mechanism (CBAM) by utilising ‘resource shuffling’, by “selectively exporting to Europe the low-emission intensity goods to enjoy lower CBAM charges, while the high-emission goods are kept for other markets.”

“Although the EU wishes to avoid such practice, it might not manage to do so under current rules,” the report adds.

It adds that if the rules set up for the transitional period remain in force permanently, metal products made from recycled materials, even from steel and aluminium, will be nearly exempt of CBAM.

The levy will apply to imports of a group of products including steel, cement, iron and aluminium and was designed to be part of the bloc's push towards net-zero carbon emissions.

It was passed into law last year and came into force as a reporting requirement in September 2023. Payments under the scheme will not be enforced until 2026.

Although the levy is primarily targeted at China and Russia, the African Climate Foundation has estimated that the levy could result in a four percent drop in Africa's exports to Europe, with South Africa and Mozambique among those likely to be worst affected.

'Resource shuffling'

The report states that, in the ‘resource shuffling’ scenario, EU importers of Chinese goods would make a net profit of €32m.

It also states that the goods covered by the CBAM regulation represent €13.4bn (2.82 percent) out of €474bn EU imports from China in 2021 values, and CBAM fees would represent 0.12 percent of total imports from China on average.

Aside from Russia, no countries would pay more than €1bn in fees in any scenario, the research finds, saying that this would cause “very small impacts on trade partners”.

Alternatively, should firms take a “business-as-usual” approach and not revise their trading practices, that would result in a net loss to EU importers of Chinese goods, of €245m per year.

However, Sandbag’s research does not look at the costs that could be faced by African states, though it notes that Egypt, Algeria and Morocco account for 14, 12, and 10 percent of the EU’s fertiliser imports, respectively.

Although the EU Commission insists that it will not unpick the levy, EU trade commissioner Valdis Dombrovskis told reporters last week that there was “intensive engagement ongoing with various countries across the globe on preparation for implementation of CBAM”.

South Africa’s trade minister Ebrahim Patel, one of CBAM’s most vocal opponents, also told reporters last week that his government was still mulling whether to lodge a formal complaint at the World Trade Organisation against what he described as the ‘protectionist’ levy.