SUZIE SHEFENI
Namibia and other African exporters face a clarion call to decarbonise their carbon-intensive industries or face financial penalties. Introduced in October 2023 with a two-year transition period, the European Union’s Carbon Border Adjustment Mechanism is designed to help Europe meet its carbon neutrality goals by 2050.
Along with the promised mobilisation of €1 billion for Namibia’s green hydrogen ambitions through the Global Gateway international infrastructure investment project, CBAMs are another feature of the European Green Deal that has implications for Namibia’s markets, as well as economic and environmental policies.
The EU’s Carbon Border Adjustment Mechanism
The issue of carbon leakage – the flight of industry to regions and nations with fewer carbon regulations to avoid the financial cost of decarbonising – has long plagued international climate change mitigation efforts.
The EU’s carbon adjustment mechanism (CBAM) will impose a carbon tariff on all goods imported to the European market. The tariff targets carbon-intensive sectors, namely iron and steel, electricity, cement, aluminium, fertilisers and, following a recent amendment, hydrogen, which are carbon-intensive and vulnerable to carbon leakage. This makes all goods on the European market face the same carbon price, alleviating the financial burden that domestic European producers had to bear under the previous carbon emissions trading system therefore preventing carbon leakage.
Impact on Namibia
For African nations like Namibia, the CBAM trade regulation will impact exports but also encourage decarbonisation through a market-based approach. The EU is one of Namibia’s most important trading partners. According to the United Nations COMTRADE database on international trade, in 2022 European Union imports from Namibia included roughly US$438 720 for Iron and Steel products, US$270 950 for fertilisers, and over U$18 million for a grouping consisting of cement and other stone products.
For exporting non-EU producers, the carbon emissions associated with their products will be subject to the CBAM tariff unless they can demonstrate that they have already paid an equivalent carbon price in their own country.
Under the CBAM regulation, EU importers will have to purchase CBAM certificates detailing the carbon footprint of their goods. This will require Namibian exporters to record and report their products’ embedded carbon emissions. Embedded carbon emissions account for all the emissions “embedded” in the creation and delivery of a product – therefore putting the onus on the exporter rather than importer.
Namibian exporters who do not currently practise carbon accounting can expect to invest more in compliance, as they adjust their processes to monitor, report and verify the carbon content of their products. To assist with this, the EU has established sector-specific reporting mechanisms that Namibian producers will have to familiarise themselves with and develop proficiency in. In the long run, we can expect producers to increasingly invest in the development of low-carbon production methods to reduce their exposure to carbon costs. This gradual move can encourage the decarbonisation of Namibia’s industries.
Furthermore, the carbon tariff may also be calculated based on whether the producer has already paid a carbon price in their own country. As Namibia has not implemented a national carbon-pricing mechanism, such as a carbon tax or an emissions trading system, the local private sector may be incentivised to explore the option of lobbying for the introduction of carbon-pricing. This is because EU importers will, in an effort to reduce expenditure, seek to shift associated import costs to producers or find producers in states with a carbon-pricing scheme. It is important to note that a carbon-pricing scheme has its own complex national implications that do not fit the scope of this article but must be critically considered should the private sector lean into the option.
Need for Policy Response
All in all, there is a need for a policy response. The EU is a geopolitical bloc, Namibia is a single nation. The response cannot solely be at a national level but can potentially be streamlined at a regional level, including potential bandwagoning at the SADC level.
This can include the establishment of a centralised body responsible for compliance oversight and capacitating exporters with carbon accounting skills and infrastructure. The nuanced question of a carbon-pricing scheme should also be considered: at a national level, it offers advantages of a pricing scheme that addresses Namibia’s economic structure, energy mix, and emissions profile. However, a regional one offsets the disadvantages of regional carbon leakage onset by competitiveness issues.
Furthermore, scholars at the African Climate Foundation and the London School of Economics and Political Science have estimated that the overall economic output of the continent could shrink by 0.91% percent due to the CBAMs. It would be helpful for Namibia to conduct its own economic impact assessment into the projected cost of CBAMs should the private sector not evolve to meet the decarbonisation wave. This will incentivise critical action on the side of corporates and the state.
Finally, as conversations around CBAMs proliferate in the Global South, the question of climate justice emerges like a spectre. As long established by the UN Framework Convention on Climate Change, Namibia and other African nations disproportionately feel the impact of climate change and most sub-Saharan nations do not have the financial capacity to respond to decarbonisation calls.
The EU should enhance its commitment to climate finance for adaptation and mitigation, not in the form of climate loans but grants, guarantees and equity investments to avoid the structural traps that haunt African economies. There is also a need for Namibia to secure the accreditation of more local institutions to access the Green Climate Fund. Currently, only the Environment Investment Fund has been accredited as a micro-lender. Namibia itself has ambitious nationally determined contribution objectives for 2030 which it cannot meet without an overhaul of micro and macro access to finance.
In conclusion, the CBAM pilot period began 10 months ago and is planned to be in a gradual transition phase until December 2025, with full operationality by 2026. The newly introduced CBAM regulations turned the ‘polluter pays’ principle into European policy, and despite being from a low-emission country, Namibian stakeholders should use the time to plan their strategies and prepare exporters for carbon accounting.
