“The purpose of CBAM [the carbon border adjustment mechanism] is not to make money but to make sure that others raise the price of carbon,” says Pascal Lamy.
Both a former EU trade commissioner and a former director general of the World Trade Organisation, few are more qualified to assess the raft of new taxes and laws aimed at cutting carbon emissions via trade, than Lamy.
Chief among them is the EU’s carbon border adjustment mechanism (CBAM), a tax on imports of a group of products including steel, cement, iron and aluminium, that has been widely welcomed in Brussels but has prompted a backlash from countries that face being hit by the new tax.
"The EU needs to work with countries and offer them technical support,” Lamy tells EUobserver.
Lamy points to Mozambique, one of the African countries set to be hardest hit by CBAM, and how the EU could mitigate the effects on its economy.
“Mozambique exports a lot of aluminium, but its energy comes from the South African grid. The best case is to plug it into the grid in Mozambique, then the exports would become green. And the EU needs to invest to help Mozambique pay for this.”
The African Climate Foundation has estimated that the levy, which became law last year, could result in a four-percent drop in Africa's exports to Europe, despite the fact that the continent only accounts for four percent of greenhouse gas emissions.
South Africa is still threatening to challenge the CBAM at the World Trade Organisation, though EU trade commissioner Valdis Dombrovskis said last week that Brussels was in talks with a group of countries to assuage their concerns about the levy – under which payments will only start in 2026.
“CBAM is what it is. It will be more problematic if African and other countries don’t increase their own carbon prices. The day when CBAM is extended to other goods, African exports will have a premium,” says Lamy.
“I was against CBAM 10 or 20 years ago, but I’ve changed my mind,” he says.
However, he plays down the notion that the EU has dictated the terms of CBAM – though he is more critical of the EU’s new anti-deforestation law - to its African partners, though he concedes that “this is a perception, and perceptions matter.”
He is also confident that the levy is WTO compatible and does not discriminate against countries, “though I am quite convinced that there will be a dispute at some point.”
“We are in a testing period. This process started four years ago and the fact that it is not in force with payments is ample evidence that there has been and is plenty of time.”
He points out that some countries are already looking at ways to mitigate the effects of CBAM. India seems to be close to imposing an export tax on brown steel so that it will get the money and the EU will not.
In the meantime, Lamy argues that, when it comes to EU-African relations, Europe’s preoccupation with securing access to the critical raw materials needed to manufacture batteries for electric cars and propel the EU’s green transition, means that “the game is more balanced than it used to be.”
“Those countries that have something to offer to the EU have a competitive advantage,” he adds.
There is also growing momentum for international leaders to agree on a suite of new environmental levies to pay for the costs of climate change. Governments are close to agreeing the terms of reference for a new UN tax convention, while France, Kenya and Barbados are co-chairing their own tax task force with a mandate to look at green taxes.
France wants the UN Convention to focus on green taxes, urging it to "work on a standard and global transactional carbon price", along with global levies on air transport, and a tax on heavy fuel used in international shipping transport.
However, that has prompted concern that these new bodies will duplicate each other’s work and that they may only be able to reach agreement on taxes that are voluntary.
“In the case of a shipping tax, it’s all fine if everyone does it....and I can see some reluctance from some countries,” says Lamy.
“My own view is that most of what we need for the transition will have to come from pricing nature-based services...this is the big pot of money,” says Lamy, who co-chairs the Africa-Europe Strategy Group on Ocean Governance.
“Issue number one is a regulatory framework and taxonomy, and the right place to oversee that is the G20,” he says.
He welcomes the proposals by Barbadian prime minister Mia Mottley on reform of international finance, and French president Emmanuel Macron’s “but the main issue remains to finance the ecological transition...in giving a value to nature-based solutions.”
Pointing to recent agreements with the likes of Barbados and the Galapagos Islands offering debt alleviation in exchange for protecting coral reefs, he says “this is the way to go. Nature’s contribution to decarbonisation should be priced.”
“For the moment, there is nothing like a big, deep, liquid carbon market on this planet – and we need it.”
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.