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A host of countries have called for more clarity on the impact of the proposed International Maritime Organization (IMO) measures towards the reduction of sector greenhouse gas emissions and the redistribution of resources collected through levy mechanisms.
A Report by Africa Policy Research Institute (APRI), the African Future Policies Hub (AFPH) and the London School of Economics Firoz Lalji Institute for Africa warns of negative economic impacts of a proposed IMO shipping carbon levy for African economies and offers key recommendations.
Berlin, October 9, 2024 – A group of three Africa-focused policy organizations, Africa Policy Research Institute (APRI), the Firoz Lalji Institute for Africa at the London School of Economics and Political Science (LSE) and the African Future Policies Hub (AFPH) have today released a report titled "Navigating climate action: Assessing the economic impacts and trade-offs of a shipping carbon tax for African states”.
The report is released against the backdrop of the International Maritime Organization’s (IMO) commitment to cutting sector emissions to net zero by 2050. It explores impacts on the economy and food security in African countries if a proposed IMO carbon levy were implemented without safeguards that cushion negative impacts on developing regions like Africa.
The report details recommendations the IMO should implement to allow for an equitable transition to net zero sector emissions.
Though decarbonization of the shipping industry can be an opportunity for industrialization, there are reservations regarding potential negative impacts of such a levy on cost of living and food security, especially for African countries.
Using the Global Trade Analysis Project Energy-Environmental (GTAP-E) Computable General Equilibrium (CGE) model, the report examines the impact of a carbon levy on the African economy as a whole and on select individual African countries.
The findings suggest that such a levy would disproportionately impact the economies of many African nations, exacerbating existing structural imbalances in freight costs. The supply of maritime shipping services within Africa could decline by up to 7 percent, while global prices for agricultural and processed food commodities could rise by 0.011 percent and 0.013 percent, respectively. These shifts carry serious implications for food security, as many African countries rely heavily on food imports.
The report also concludes that a maritime shipping levy would also result in a fall in household incomes in most individual African countries. Ghana, for example, is forecast to experience a 0.101 percent reduction - 10 times the reduction forecast for European household incomes.
The report therefore recommends that the IMO must ensure to minimize the disproportionate negative impacts on affected states, and that in adopting economic measures it should ensure that a significant portion of revenues raised by a levy are allocated towards funding out-of-sector mitigation and resilience in line with the “polluter pays” principle.
“Almost 90 percent of Africa’s global trade is done by sea. Africa’s dependence on shipping makes it vulnerable to changes in the sector. Our countries must engage with the issue with a clear understanding of the risks and a realistic assessment of the opportunities, particularly considering the investment landscape including in green hydrogene and maritime shipping fuels. While the decarbonisation of the maritime sector is a matter of “when” rather than “if”, ensuring that it is done in a way that does not shift the burden from the polluter to African citizens will be important. Hence we encourage countries to strongly support a clear mechanism for out-of-sector redistribution.” - Faten Aggad, Executive Director at the African Future Policies Hub (AFPH).
Furthermore, the revenues a country receives must include exposure to climate risk, economic context, access to climate finance and fiscal space, national income, the magnitude of disproportionate negative impacts that the measures have on the economy as well as the country’s own contribution to GHG emissions.
The paper is a product of collaboration between APRI, the Firoz Lalji Institute for Africa at the London School of Economics and Political Science (LSE) and the African Future Policies Hub (AFPH) and received funding from the Climate Emergency Collaboration Group (CECG) and Ocean Conservancy.
Authors
Maria Ogbugo is a senior business executive with 19 years of experience in shipping, oil and gas regulation, and banking in Ghana, West Africa. She is a leader in the West African maritime sector, specializing in coastal shipping, equitable decarbonization, and infrastructure development.
David Luke is Professor in Practice at the London School of Economics Firoz Lalji Institute for Africa, specializing in African trade policy and with decades of experience in policy advisory services, research management, and capacity development for both the private sector and governments across Africa.
Oluwasola Omoju is an Economist and Senior Research Fellow at the National Institute for Legislative and Democratic Studies (NILDS), where he provides research and technical support to the Nigerian parliament.
William Davis is an independent consultant and Visiting Fellow with the Firoz Lalji Institute for Africa. He has over 15 years experience as an economist and has focused on Africa for most of that time, covering trade, fiscal and industrial policies.
Faten Aggad is Executive Director at the African Future Policies Hub (AFPH). She has served as Senior Advisor on Climate Diplomacy and Geopolitics at the African Climate Foundation (ACF) and to the African Union High Representative on future relations with the European Union.
Key Collaborators:
Micaela Rosadio Cayllahua - Data Science Fellow at APRI.
Olumide Abimbola - Director, Africa Policy Research Institute (APRI)
Maria Nkhonjera - Senior Program Officer at the African Future Policies Hub (AFPH)
Fadil Elobeid - Africa Engagement Programme Manager at the Firoz Lalji Institute for Africa
Lesley Orero - Africa Engagement Programme Officer at the Firoz Lalji Institute for Africa
Sofija Spasenoska - Communications and Events Officer at the Firoz Lalji Institute for Africa
About APRI
APRI is a nonpartisan and independent think tank with offices in Berlin, Germany, and Abuja, Nigeria. It conducts research on key policy issues affecting Africa and African countries and provides insights to the policy-making processes of Germany and the European Union on African affairs. APRI also offers policy options to African leaders and civil society actors.
About AFPH
The African Future Policies Hub (AFPH) is a public policy support hub dedicated to backstopping African countries and regional institutions in international climate negotiations and the formulation of policies on the green transition.
About the Firoz Lalji Institute for Africa at LSE
The Firoz Lalji Institute for Africa at LSE engages with Africa through cutting-edge research, teaching, and public events. It aims to place the continent at the heart of LSE and be a hub for working with under-represented voices in and beyond Africa to bring their perspectives to global debates.
If you have any queries, please contact:
Vincent Reich
APRI - Africa Policy Research Private Institute gUG
+49 30-33909525
press@afripoli.org
DOI: https://doi.org/10.59184/es024.01
http://Report on APRI website: https://shorturl.at/fbkE6
Shipping Carbon Tax and African Economies
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Shipping Carbon Tax and African Economies
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