27th Feb 2024

India and South Africa lead WTO backlash on EU carbon tax

  • India will lead protests at the WTO against the EU's carbon border levy (Photo: European Commission)
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India and South Africa are set to formally protest against the European Union's new carbon border tax at the World Trade Organization's (WTO) ministerial conference later this month.

"Any unilateral measures taken to combat climate change should not constitute a means of arbitrary or unjustifiable discrimination or disguised restriction on global trade," an Indian government officials told reporters on Wednesday (7 February).

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The European Commission is expected to set out its own priorities ahead of the WTO conference due to be held in Abu Dhabi from 26 to 29 February in a debate in the European Parliament on Thursday morning.

Part of the EU's ambitious programme to move to net zero emissions, the carbon border adjustment mechansim (CBAM) is a carbon levy which will apply initially to imports of aluminium, cement, electricity, fertilisers, hydrogen, iron and steel.

Importers of these products in the EU will pay a carbon levy, unless the products come from regions with similar laws on emissions to the EU.

India and South Africa have led the international opposition to CBAM, arguing it could breach the WTO's non-discrimination principle, and the new levy has caused consternation among African states who are among the small contributors to global carbon emissions.

South Africa was the first country in its region to set a carbon tax: at 120 South African Rand (€6) per ton of CO2 and is currently negotiating a €7.7bn Just Energy Transition Partnership (JETP) with the EU, the UK and the US to speed up the de-carbonisation of its economy.

Research by the African Climate Foundation (ACF) last year estimated that "Africa's economy will be negatively affected by the CBAM with exports to the EU declining by four percent".

The mechanism puts a disproportional responsibility on a continent "… that is among the least responsible for greenhouse gas emissions, but among those most affected by climate change," the African Group at the WTO said.

The African Group at the WTO said that its rules allow trade measures that trade measures that help implement domestic environment policies but aim to stop such measures from creating obstacles to trade.

"Any climate justified measures [such as levies] that directly restrict market access by developing countries and LDCs (Less Developed Countries), where research shows the reduction of carbon emissions is minimal, should be avoided," it adds.

The law officially entered into force last year, but implementation has already been delayed. Last week, the European Commission announced a 30 day extension for businesses that were originally required to register and submit their first quarterly CBAM reports by 31 January.

There is little prospect of the CBAM being modified and the WTO does not have the power to force the EU to scrap or re-write it. EU officials maintain that the plans in the CBAM legislation to phase-out free allowances for carbon emissions to EU firms means that it is WTO compliant.

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Blackmailing the Global South on EU carbon border tax won't work

According to the European Commission, CBAM is supposed to prevent "carbon leakage". In other words, it seeks to prevent European industries relocating to jurisdictions with less stringent environmental policies, while also incentivising carbon pricing and industrial decarbonisation abroad.


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