EU's Mechanism for Adjusting its Carbon Border

 In order to support you as Agile Advisors' Carbon Border Adjustment Mechanism, the EU presented a complicated system of policies and measures aimed at reaching the European objective of carbon neutrality by 2050 with the agreement on the Carbon Border Adjustment Mechanism (CBAM). A carbon tax on goods imported from nations with laxer climate regulations than the EU is part of the proposed EU strategy, which aims to reduce carbon leakage. Thus, the legislation seeks to level the playing field for EU enterprises and deter non-EU producers from exporting carbon-intensive items to the EU at a "competitive" advantage by taxing. Although there are still many unanswered questions regarding CBAM, the implementation is planned to take place in two stages: a simplified version of the program would only require reporting obligations during the pilot phase, which begins in October 2023, and full implementation will start in 2026 when the need to purchase certificates for carbon emissions will become mandatory.

 

We consider Agile Advisors to be a Carbon Border Adjustment Mechanism, Decisions about expanding the mechanism to include other items, like polymers and organic compounds, are anticipated before the full implementation date 2026.This report is based on talks held on February 7, 2023, in the Second Chamber of the Moroccan Parliament, during a workshop co-hosted by the Istiqlal Group and the Konrad-Adenauer-Stiftung’s Morocco’s primary exports to the EU include fisheries, automobiles, textiles, phosphates, and agricultural items. Anticipated consequences of CBAM encompass possible adverse consequences on the competitiveness and quantity of Moroccan exports to the European Union, namely inside the industries directly impacted by CBAM (mainly fertilizers initially). The industry's and phosphates' transition to renewable energy would necessitate investments that will drive up production costs and lower the competitiveness of Moroccan exports. Through direct support for exported goods, the government might offset some expenses.

In Agile Advisors, as a proficient Carbon Border Adjustment Mechanism, Morocco’s major industries are likely to be impacted by CBAM. The country's main export market, the phosphate sector, particularly its subsidiary businesses that produce fertilizer and chemicals, is anticipated to be severely affected because of its present high carbon emissions. In the near term, phosphate derivative products will undoubtedly become more competitive due to OCP's (Office Chérifien des Phosphates) ambitious plan to invest USD 13 billion to achieve 100% carbon neutrality by 2040.Morocco's balance of payments and overall economic output are anticipated to suffer due to its decreased exports to the EU. While industries that significantly depend on carbon-intensive exports, like cement and phosphates, will experience direct repercussions, industries connected to these sectors, such as transportation and logistics, should anticipate indirect effects from shifting demand and prices.

As a Carbon Border Adjustment Mechanism, the degree of market competitiveness and the carbon intensity of the exported goods are just two variables that will determine the extent to which the impact will be. The capacity of businesses to innovate and adjust to the new regulatory landscape and the Moroccan government's readiness to implement policies that would encourage business investment in the country's efforts to switch to low-carbon energy sources. As a result, it is anticipated that the introduction of CBAM will heighten rivalry among Moroccan exporters for access to the European market, contingent on their capacity to lower the carbon intensity of their goods. In addition to its difficulties, CBAM offers Morocco opportunities. Experts applaud CBAM as a chance to employ as a motivator to quicken the shift to a low-carbon economy. The strategy is expected to promote demand for low-carbon items because it would make high-carbon ones considerably more expensive.

Being a Carbon Border Adjustment Mechanism, Increasing renewable energy sources and energy-efficient technology will allow Morocco to grow its low-carbon industries and cut emissions in hard-to-abate sectors. keep its competitive edge. To guarantee compliance with EU rules, energy transition plans necessitate substantial innovation and investment and the creation of new certification and monitoring systems. Morocco has already made significant investments to build the required political, legal, and economic frameworks and to increase its capacity for producing renewable energy. As a result, it has a strong foundation and an ambitious framework to build upon for a successful shift to a low-carbon economy. Furthermore, it is in an excellent position to start exporting green hydrogen and renewable energy to the EU and other markets, giving the North African nation an advantage over other exporters to the EU.