New report highlights risks of shipping carbon tax for African economies

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%, while global prices for agricultural and processed food commodities could rise by 0.011% and 0.013%, 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% 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% 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 hydrogen and maritime shipping fuels.

“While the decarbonization 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,” states 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.