In June 2021, the European Union (EU) committed to reducing its greenhouse gas emissions by at least 55% by 2030 compared to 1990 through the adoption of the Fit for 55 package. The package's 12 proposals include the introduction of a border carbon adjustment mechanism (MACF). By taxing the carbon content of its imports, the EU seeks to protect the competitiveness of its industry and prevent carbon leakage. Carbon leakage occurs when companies relocate their production to countries with less ambitious environmental regulations.
During the phase starting in October 2023, importers will only have to declare the carbon content (direct and indirect emissions) of imported goods. From January 2026, the MACF will have a particular impact on the following sectors cement, iron and steel, aluminum, fertilizers, electricity and hydrogen.. In concrete terms, to import goods from these different sectors, an additional tax proportional to the carbon content of these products will have to be paid. The amount of this tax is linked to the CO2 allowance trading market of the EU-ETS.
These sectors were chosen for two reasons. Firstly, they represent a high risk of carbon leakage and a high carbon intensity (measured in kg CO2 per € of added value). Secondly, they are of prime importance to European industry. However, the mechanism's next deadlines foresee the extension of this tax to other sectors of the economy.
By increasing the cost of imports from non-EU countries, the introduction of this mechanism represents a potential loss of competitiveness for Moroccan exports. This risk is primarily a function of theexhibition of Moroccan exports, i.e. the share of EU-bound exports of goods covered by the MACF in the country's total exports. Secondly, this risk can be quantified by measuring the vulnerability of the country - understood as a loss of competitiveness - in the face of these new regulations.
Fertilizers, the main sector exposed to MACF
To assess the exposure of Moroccan exports, we have based ourselves on data from the World Integrated Trade Solution (WITS) for 2019, which give a detailed account of all trade between countries. These data make it possible to calculate the share of Moroccan exports subject to these new regulations. We first studied the exposure of the cement, iron and steel, aluminum and fertilizer sectors (MACF Base scenario), before extending the analysis to other scenarios (Scenario 0, Scenario 1, Scenario 2), which progressively include more and more sectors that could be included in future MACF revisions. For details of these scenarios, we invite the reader to take a look at this article from which most of our analyses are drawn.
In the baseline scenario, the share of Moroccan exports subject to MACF is around 1.6% (with the fertilizer sector accounting for 1.4%) and could rise to over 10% if the mechanism is extended to other sectors of the economy. In response to the European MACF, the US Congress has mentioned the introduction of a border carbon adjustment mechanism in July 2021. Assuming alignment of the US MACF with the European MACF, some 13% of Moroccan exports could eventually be impacted by an additional tax. This figure could increase if we take into account electricity and hydrogen exports, which are not included in this study and which are set to increase in the coming years.
Greater vulnerability for the cement and aluminum sectors
Once MACF is in place, Moroccan exporters will have to pay an additional tax to enter the European market. This additional tax will depend on the carbon content of production (measured in tonnes of CO2 per unit of good produced), so that the most efficient producers (with the lowest carbon content) will see their competitiveness increase. Exporters unable to calculate the carbon content of their production will be allocated a tax of the same amount as the 10% of the least efficient installations in the European Union.
Using carbon intensity data from the GTAPWe have compared the carbon content of the various sectors subject to MACF for different countries, in order to determine which are most at risk of losing competitiveness. In the fertilizer, iron and steel sectors, Morocco has one of the lowest carbon contents among the main exporters of goods to the EU. This translates into a potential gain in competitiveness for the country. In the case of aluminum and cement, on the other hand, payment of a carbon tax at the borders could undermine the country's competitiveness.
Note: For reasons of data confidentiality, we have omitted the carbon content values on the y-axis.
To avoid being disadvantaged on the European market, Moroccan aluminum and steel exporters could decide to redirect their exports towards other markets. This is all the more plausible given the diversity of trading partners for these exports today. To account for the concentration (or diversity) of trading partners on regulated goods, we calculate the Herfindahl-Hirschman Index (HHI). In the case where all exports are destined for a single trading partner, the value of the HHI is 1. In a situation of strong diversification of trading partners, the value of the HHI tends towards 0. The HHI values for the aluminum and cement sectors are 0.58 and 0.52 respectively, attesting to an average diversification of trading partners. Given the low level of exports from these sectors to the EU, the risk remains limited for the time being, but could increase if other trading partners decide to align themselves with European environmental regulations.
The last word
The MACF's impact on Moroccan exports across all sectors remains limited in its first phase (cement, iron and steel, aluminum, fertilizers, electricity and hydrogen), but could impact nearly 10% of exports if the mechanism is extended to other sectors. This drop in exports is likely to reduce the availability of foreign currency and could have wider macro-economic effects.
Focusing on the first phase of MACF, we can see that the Moroccan fertilizer sector - thanks to its low carbon content relative to other countries exporting to Europe - could gain in competitiveness over the next few years. However, there are still a number of challenges, because Moroccan electricity is still largely coal-firedThe high carbon content of aluminum and cement could undermine Morocco's competitiveness in these sectors. The country could then turn to other markets without this type of regulation, or work to reduce the carbon content of its electricity production. In this respect, the inclusion of hydrogen in the latest revision of the European MACF reinforces the importance of producing low-carbon (green) hydrogen in Morocco.
As mentioned above, manufacturers who are unable to quantify the carbon content of their production will have to pay a tax equivalent to that paid by the least efficient European manufacturers. There is therefore a national issue at stake to measure, list and inventory carbon emissions from Moroccan industries throughout their value chains. In addition to helping to reduce national emissions by increasing the cost of polluting activities, the introduction of a carbon tax could accelerate the country's development of expertise in carbon emissions assessment.
Article by Mehdi Mikou