A carbon tax is a type of levy imposed on greenhouse gas emissions. It is meant to encourage companies to adopt clean methods of production.
The new policy will initially apply to iron, steel, cement, aluminium, fertilisers, hydrogen and electricity generation.In the global north it’s been applauded as a positive climate action. The policy’s architects see it as an opportunity for the EU to play a “leading role at the global level” on climate action.
We find that Africa would be the most affected region, as a share of GDP. This is because the EU represents a key market to many African economies exporting the products covered by the new law. In March 2023, the UK opened consultations for its mechanism. In May 2023, India announced that it would retaliate by introducing a tariff system. The US introduced its own retaliatory measure through the Inflation Reduction Act.
Africa could arguably weather the impact of the law had it been in the process of scaling up renewable energy capacity. Yet, to date, the continent continues to attract a mere 2% of global investments in renewable energy. The climate finance that was promised is not forthcoming. Nor has the EU itself contributed its fair share to international climate finance.