March 7, 2024

Navigating New Turbulences at the Nexus of Trade and Climate Change

The accelerating transition to a lower carbon economy, now well under way, is leading several of the developed country majors to introduce programmes and policies that amount to a significant departure from the trade policy playbook crafted during the era of hyperglobalisation. Although climate science is warning that we are still far from averting the threat of catastrophic climate change, there is much greater urgency and seriousness in parts of the developed world to drive a more decisive shift to lower carbon products and technologies. This is evident in efforts to give effect to ‘net zero’ commitments made in United Nations Framework Convention on Climate Change (UNFCCC) Conferences of the Parties (COPs).

As part of these processes, two rather different measures with trade policy implications stand out – the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) and the ‘green’ industries support sections of the United States’ Inflation Reduction Act (IRA). This paper will discuss some of the implications of these measures for developing countries and in particular for the efforts of African countries to address the long-recognised fundamental challenge of underdevelopment by reducing dependence on production and export of primary products through diversifying and moving to higher value-added production (industrialisation).

While having these broad features in common, the two main ‘climate-justified’ protectionist measures adopted to date – CBAM and the IRA – are different in content with somewhat different potential implications for developing countries in general, and Africa in particular. This paper will look in more detail at these measures before suggesting some of the elements of a possible response.

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