Activites

In their working paper “The distributional effects of European climate policies in the Global South A model-assessment for Egypt” SPES partners from PEP -Partnership for Economic Policy provide empirical evidence on the impacts of the CBAM on Egypt, a Global South country characterised by carbon-intensive production and strong trade linkages with the European Union. Authors conduct a comprehensive analysis at both the macroeconomic and microeconomic levels. At the macro level, they employ a computable general equilibrium (CGE) model to estimate the economy-wide effects and determine whether CBAM poses a significant negative impact on Egypt’s overall economic performance. To capture the distributional consequences, the CGE model is linked with a behavioural model. This integrated approach allows to assess the micro-level effects of CBAM, particularly its implications for poverty and inequality across different socioeconomic and demographic groups.

CBAM, Carbon Border Adjustment Mechanism

CBAM is primarily designed to curb carbon leakage by imposing tariffs on imports from countries with less stringent climate policies, thereby ensuring that the EU’s climate objectives are not compromised by the relocation of production to these regions. Although this strategy supports the EU’s environmental ambitions, it poses economic challenges for developing and least developed countries, particularly those whose economies depend on carbon intensive exports to the EU. For these countries, CBAM introduces new trade barriers that make accessing the European market more difficult in the absence of comparable climate regulations. Low- and middle-income countries, particularly in Africa, expect disproportionate impacts due to their dependence on the EU market and the high carbon intensity of their exports.

CBAM impacts on Egypt

Egypt’s industrial sector plays a significant role in the economy, accounting for roughly one-third of GDP. The labour market is highly segregated by gender. Women work mainly in services (particularly in the public administration, education and health system) and as informal and often unpaid family workers. Men work in the primary and secondary sectors, including the CBAM industries. The CBAM industries are the highest-emitting and were responsible for around 9% of the country’s total greenhouse gas (GHG) emissions in 2015. Egypt’s high carbon intensity and relative high share of exports are reflected in the World Bank’s CBAM exposure index. Egypt’s index is the highest in the MENA region and indicates an increased risk of reduced export competitiveness compared to EU standards.

Result of the analysis indicate that the simulated implementation of the CBAM has only modest effects on Egypt’s overall economy. This is largely due to the relatively small share of CBAM-covered products in Egypt’s total exports. Macroeconomic outcomes indicate minimal changes in household income and consumption, suggesting negligible impacts on poverty at the macro level. However, the microsimulation reveals deeper insights.

It shows that poverty and inequality worsen, particularly under higher carbon price assumptions. Poor households are more affected than rich households; rural households are affected worse than urban; and unskilled workers are more impacted than skilled ones.

Across the multiple indicators—income, consumption, and food security—the most vulnerable populations experience the worst impacts. Furthermore, the micro level results show that, men are more affected than women. This observation is consistent with the male-dominated workforce in the most impacted sectors such as iron and steel, aluminium, fertilisers, cement, and refinery.

These findings underscore the importance of targeted government support for vulnerable groups to avoid rising inequality.