While the focus of the UN COP27 Climate Change Conference taking place this month in Sharm El-Sheikh is rightly on the green-transition funding pledges made since the COP15, of which only fractions have been met, other policies by the developed countries that are detrimental to the developing countries and their exports have tended to be neglected.
Among these is the issue of border-adjustment mechanisms to limit carbon emissions, which are soon to be implemented by the developed countries. How much are the developing countries aware of such mechanisms and how much they will affect their trade? Were these mechanisms carried out in an inclusive process? In other words, has an open and frank dialogue taken place in the relevant fora before introducing and applying them unilaterally by the developed countries?
This article is an early warning to Egyptian exporters, as well as to exporters from other developing countries who will find themselves in similar situations soon. Believing they have done much domestically and are more resilient in their fight against greenhouse gas (GHG) emissions, the developed countries are resorting to new mechanisms that increase the tariffs on their imports. These measures are known as negative measures that penalise exporters for their levels of carbon emissions, as opposed to positive measures that aim to help countries transition to a green economy through supportive measures, namely additional finance, clean technology, and green investment.
No one denies that Egypt, presumably like other developing countries, is currently experiencing a so-called “green gold rush” and has already received billions of dollars in new investment in green sectors. The war in Ukraine has also allowed Egypt to partially position itself as a substitute gas exporter, for which it is attracting new investment flows. One can undoubtedly see some increases in climate finance to support the green growth of the developing countries, but even so these are a far cry from what the developed countries promised to set up in the form of a Green Fund with pledges of $100 billion a year at the COP15 held in Copenhagen, Denmark, in 2009.
The countries taking part in that meeting recognised that in order to limit rises in global average temperature to 1.5 degrees Celsius, they must make immediate and much-deeper emissions reductions. However, as it stands under the various national plans, the global average temperature at the end of this century will be at best 2.7 degrees Celsius above pre-industrial levels, which is catastrophic by any standards.
Whether the Ukraine war will accelerate the clean-energy transition and fossil-fuel reduction, not only as a climate-change but also as a security-oriented issue, or whether it will push the developed countries, notably the members of the EU, to more tolerance towards fossil fuels, especially coal and natural gas, is still an open question.
Renewable energy is becoming a security issue for the EU to drive global decarbonisation and a lever against oil dependency. In this context, the developed countries are acting unilaterally one after the other to introduce carbon-limit mechanisms: the EU has introduced its Carbon Adjustment Border Mechanism (CBAM) and the US has introduced its Clean Competition Act (CCA). Japan and Australia are following suit. Countries implementing new tariffs at their borders view this from their perspective as leveling the playing field and enabling their national companies to compete fairly in their domestic and global markets while addressing the main sources of global warming.
In order to distance ourselves from the mutual blame game that has exacerbated the climate-change situation over the years through the adoption of unyielding positions on both sides, it is imperative to find a new cooperative path on climate change. Arguments that accuse the developed countries of having been the main cause of CO2 emissions for decades and purportedly justifying the developing countries in following the same path provide no solution.
It is crucial that the developing world embarks on a cleaner path than the developed world. In this sense, if the developing countries are pushed out of the negotiations on the development of such carbon-limit mechanisms, they will feel it to be within their right to push for future joint action and genuine South-North cooperation on the path to a green transition. The developing countries are committed to an inclusive process in relevant fora such as the World Trade Organisation (WTO). The question is whether the developed world still believes in such multilateral fora whose mechanisms link environmental and trade instruments that the developing countries have long resisted.
Preliminary simulations and studies by the International Monetary Fund (IMF) and the UN Conference on Trade and Development (UNCTAD) warn of the adverse impacts of these border mechanisms on the exports of the developing countries and place Egypt among the countries hardest hit by the new carbon-emissions adjustments. This is despite the fact that Egypt is not a major polluter, ranking 27th among world countries and emitting round 350 million tons of CO2 in 2019 or a share of 0.75 per cent of global emissions.
However, Egypt will be hit hard in the four so-called Scope 1 sectors that will face increasing tariffs under the border mechanisms, namely chemicals, fertilisers, iron and steel and non-ferrous metals (aluminium). According to calculations by the International Trade Centre (ITC), 62 per cent of Egypt’s total exports of $41 billion are CO2 emitters. The figure becomes even more frightening, as 79 per cent of Egyptian exports to the EU in the four sectors mentioned will be subject to higher tariffs through the adjustment border mechanisms.
If the developed countries are serious about global decarbonisation goals, they should support the developing countries in transforming their industrial and manufacturing sectors and not resort to negative measures that deprive them of a secure source of hard currency. In addition, as the developing countries typically have less access to the advanced technologies needed to decarbonise their economies, promoting technological developments through a more flexible application of Intellectual Property Rights (IPRs) and lowering the costs of accessing these technologies will probably benefit the developing countries the most.
Finally, cancelling or restructuring developing countries’ debt is also an important means of reducing a financial burden that could be used instead for climate mitigation and adaptation purposes.
The writer is a former assistant foreign minister for international economic affairs.
*A version of this article appears in print in the 17 November, 2022 edition of Al-Ahram Weekly.