On 1 October, the Carbon Border Adjustment Mechanism (CBAM) came into force in the European Union (EU), bringing with it the threat of severe impacts on Mozambique’s economy.
CBAM is one of the EU’s essential elements for achieving carbon neutrality. It aims to respond to the risk of “leakage” of carbon dioxide (CO2) emissions that would occur if European companies transferred their production to countries with less stringent climate policies or opted for more carbon-intensive imports.
CBAM covers exports to the EU of cement, iron and steel, fertilisers, hydrogen, electricity and aluminium and it is the inclusion of the latter in this list that should set alarm bells ringing in Mozambique’s decision-making centres, as the sector accounts for 73.7% of the country’s exports to the EU.
It’s no surprise, then, that CBAM could mean a drop of between 1.5 and 2.5 per cent in Mozambique’s GDP, as some studies have pointed out. The World Bank, in its Mechanism Exposure Index, is quite clear: in the aluminium sector, Mozambique is the most affected country in the world.
Until the end of 2025, during the transition phase to full implementation, CBAM only requires the communication of the carbon intensity of products entering the EU. After 2026, importers will start paying for allowances at the European Carbon Market price. The cost of these allowances reached a record €100.34 per tonne of CO2 in February 2023.
It is the inclusion of aluminium on this list that should set alarm bells ringing in Mozambique’s decision-making centres, as the sector accounts for 73.7% of the country’s exports to the EU.
Mozambique would do well to take advantage of the transition period to implement strategies that minimise the impact of CBAM and, at the same time, allow Mozambican industry to take advantage of the international funding available for fairer, more global decarbonisation, with a possible market gain in the area of green products and services.
Mitigating the impact of CBAM involves decarbonising the aluminium smelting sector in the first instance, but also the cement sector in the long term, if it has the ambition to export to the EU (or to markets that are set to adopt the same model as CBAM, such as the USA, Japan, the UK and Canada). If it can be demonstrated that the aluminium and cement produced in Mozambique are carbon-neutral products, no CBAM allowances will be paid.
Fortunately, Mozambique has the ideal conditions to implement a strategy to decarbonise these industries, based on the capture and geological storage of CO2, a technology usually referred to as CCS (CO2 capture and storage). CCS technology consists of capturing CO2 in industrial exhaust gases and transporting it via pipelines or ships to places where it can be injected into sedimentary rocks, usually more than 1 kilometre deep.
Essentially, it’s “putting the carbon back into the rocks”. CCS technology is well-established and there are around 30 active projects worldwide that prevent almost 40 million tonnes of CO2 from being emitted into the atmosphere each year. Studies coordinated by the University of Évora in Portugal in 2015 showed that Mozambique has exceptional conditions for this in the Rovuma Basin, the Mozambique Basin and even in the Tete coals.
Mozambique should look at this technology not only as an opportunity to decarbonise the industry and avoid the impacts of CBAM, but also to attract investment from neighbouring countries that feel the same need to decarbonise but don’t have the geological storage capacity that Mozambique has.
However, CCS technology involves considerable costs and implementation times. It is urgent to take advantage of CBAM’s transition period to carry out socio-economic studies that demonstrate the viability of CCS technology in the Mozambican industrial context, and to identify existing funding opportunities in international mechanisms to combat climate change. Some of these funding opportunities could come from CBAM itself, for which the EU estimates annual revenues of around 1.5 billion euros by 2028. In July 2022, the European Parliament indicated that part of the CBAM’s revenues should be made available to the least developed countries for investment in their decarbonisation policies. Unfortunately, the published regulation does not confirm this allocation of funds.
The capture and storage of Co₂ is one of the solutions for which Mozambique has exceptional conditions
Mozambique’s representatives in international forums on combating climate change, starting with COP28 in Dubai, must make their opinion felt with the European Commission, otherwise the CBAM will become a mechanism for protecting European policies and industries, but a source of injustice for less developed countries.
But even if these prospects for using CBAM profits are not confirmed, there are financing mechanisms that Mozambique can use to decarbonise its industry. This is the case with the Green Climate Fund and the Global Environment Facility, both instruments of the UNFCCC, which have so far been little in demand.
At a time of such acute changes in the industrial and energy sectors, and faced with the need to combat climate change, to which Mozambique is so vulnerable, countries wishing to maintain their export levels to the EU, or even increase their competitiveness in the sectors covered by CBAM, must seek the technological and financing solutions that best serve the interests of their economy.
The capture and geological storage of CO2 is one such solution, for which Mozambique has exceptional conditions, but which requires government and business entities to define strategies, otherwise they will not be able to take advantage of international funding for its evaluation and implementation.