Mozambique's strategic responses to the implementation of CBAM

From 1 January 2026, the European Union will implement the Carbon Border Adjustment Mechanism (CBAM), impacting exporters of products such as aluminium, iron, steel and fertilisers – including Mozambique. Through Mozal (the country's main aluminium smelter), Mozambique produced around half a million tonnes of aluminium in 2021. According to conservative estimates based on export data from Banco Moçambique, around 90%-97% of aluminium produced is exported to the European Union. Production associated with aluminium generated 1.05 million tonnes of CO₂ emissions. 

The CBAM will require importers of carbon-intensive products to pay a levy of around 70 euros for every tonne of CO₂ emitted in the production process. This measure aims to prevent carbon leakage and level the playing field between European producers and foreign exporters. The application of the CBAM implies a total potential tax of 78.4 million euros on Mozal's annual exports. Without equivalent national legislation, the entire amount will be collected by the European Union and not by Mozambique. However, if the country implements a similar carbon tax, it can retain this revenue locally. We have discussed the different implications of this regulation for Mozambique at length in a previous blog.

Navigating CBAM implementation: Strategic choices for Mozambique

The apparent economic benefit of introducing a carbon tax for countries with relatively clean characteristics – like Mozambique – seems clear. However, it raises a discussion around the strategic process for making this decision. In this case, there are three main players involved in the CBAM strategic process: the European Union (EU), Mozambique (MOZ) and the Rest of the World (RW).

Considering the discussions in previous blogs on rethinking CBAM for low-income countries and what CBAM means for Mozambique, there can be different strategic options, implications and results in terms of benefits and costs for the economy. This post synthesises the possibilities using a series of linked decisions, in which each choice opens or closes doors to certain scenarios. 

Mozambique is currently faced with a decision tree, whose main branches can be summarised as follows:

1. What if the EU implements CBAM before Mozambique takes action?
2. Could Mozambique gain by implementing a carbon tax before the rest of the world?
3. What should Mozambique do if the rest of the world never implements a carbon tax?
4. What happens if the UK/other markets introduce their own form of carbon tax?
5. What would change if the EU does not implement CBAM?

1. What if the EU implements CBAM before Mozambique takes action?

If the EU goes ahead with CBAM as planned in January 2026, we could see other relevant countries (for example, China, India, Brazil, South Africa, or other major exporters) implementing a carbon tax before Mozambique, which could quickly create an international regulatory standard. This trend can already be seen in cases such as China and South Africa, which have already introduced a carbon tax before the European CBAM, and countries such as Brazil, which are currently exploring the possibility of introducing carbon prices.

As the global trend points towards the internalisation of the cost of carbon in all major markets, the political and economic pressure to align fiscal and environmental policies is becoming much greater. The consequences of non-alignment extend beyond revenue generation and can materialise in the form of restrictions on trade. However, it is also necessary to consider the cost associated with changing strategy, or the possibility of a country aligning its regulatory structure with other countries and then deciding to de-align.

There are a few different response options that Mozambique can adopt given these regulatory changes:

• Start with only the most exposed sectors (that is, aluminium), expanding to other products as international requirements evolve and more markets join the carbon policy.
• To avoid regulatory isolation and limitations on market access, the most logical option is to quickly adopt a national carbon tax, especially one that covers exports destined for markets with active regulation. It is important to note that the EU will most likely not recognise carbon taxes that only apply to exports; however, for commodities that are primarily exported (as is the case with aluminium), we can expect that this distinction will not matter.
• Mozambique can choose to apply the tax only to products destined for the EU and other countries/regions that have implemented CBAM or similar mechanisms, protecting the competitiveness of exports to other unregulated markets.

By implementing a national carbon tax before other countries in the region, Mozambique can ensure that the revenues from the tax stay in the country, rather than being collected by the EU or other trading partners at the border. 

In addition to the substantial revenues generated by the tax, aligning with the new global standard can ensure continued access to European and other advanced markets, minimising the risks of trade barriers, surcharges, or punitive quotas. Alignment would also help strengthen Mozambique's image as a responsible and sustainable partner, which can open doors to green financing, co-operation agreements and access to clean technologies.

However, late alignment could risk the loss of access to strategic markets, trade retaliation or loss of preferential partner status. Mozambique could be seen as a freerider of other countries' policies, which would weaken its position in international negotiations.

2. Could Mozambique gain by implementing a carbon tax before the rest of the world?

By implementing a carbon tax before its international competitors, Mozambique can position itself as a regional and international leader in sustainability and climate action. This status can bring strategic advantages, especially in markets that value low-carbon products, such as the EU:

• Demonstrating early commitment to climate goals reinforces Mozambique’s image as a responsible country aligned with global trends. This positioning can be used as an argument in trade negotiations and to attract foreign investment.
• As an early adopter, Mozambique can influence the design of future rules and standards in the region, consolidating its position as a benchmark in sustainable exports.

If Mozambique introduces a carbon pricing regulation before the rest of the world, it will ensure that all revenues related to exports to regulated markets stay in the country. Pioneer status may facilitate access to climate funds, green credit lines and investments from international companies seeking clean and resilient value chains.

There are potential risks associated with pre-empting the rest of the world and introducing a carbon tax. If Mozambique's main competitors do not adopt the carbon tax immediately, there could be a cost disadvantage for exports destined for markets where the low-carbon "premium" is not valued. Broad and early implementation could have a negative impact on the local industry, especially if there are no support and compensation measures for sensitive sectors.

These risks can be mitigated if the regulation is calibrated to initially apply the tax only on exports to markets that already require carbon regulation, while maintaining flexibility for other markets. 

To minimise risks and maximise gains, it is necessary to guarantee a structure that allows the scope and value of the tax to be reviewed as other countries in the region or the world begin to adopt similar policies. This makes it possible to minimise risks and maximise gains. 

In addition, it is necessary to involve companies and industry associations in the process of designing, implementing and monitoring the policy, to adjust responses quickly to changes in the international scenario.

3. What should Mozambique do if the rest of the world never implements a carbon tax?

If the EU enforces CBAM and all other relevant countries, including the UK and other advanced markets, never implement a carbon tax, Mozambique will encounter a scenario of regulatory isolation: one in which the most demanding markets impose environmental restrictions on imports, while most international trade remains without climate regulation. 

In this case, Mozambique can choose to:

• Apply a carbon tax only on exports destined for markets that have already implemented CBAM or similar mechanisms. In this way, Mozambique would benefit from its relatively clean production, while remaining competitive in all other traditional and regional markets, without imposing additional costs on exporters operating in markets without environmental requirements.
• Not implement any tax, continuing to export based on the comparative advantage of the clean energy matrix, especially in the case of aluminium. In this scenario, competitiveness is preserved, but the country forgoes potential tax revenues.

If Mozambique applies the tax to all markets, it risks losing competitiveness with countries that don't impose environmental costs and can therefore sell at lower prices in price-sensitive markets. If Mozambique doesn't introduce a carbon tax, it could lose tax revenue to the EU (if CBAM is already in force), as the tax will be levied at the European border, with no financial return for Mozambique.

Even without implementing a tax, Mozambique can continue to benefit from the premium associated with its low-carbon production, especially in sectors such as aluminium. Mozambique's characteristics could potentially help attract more investment to industries that benefit from the green premium. 

If it decides to introduce a selective tax only on exports to regulated markets, Mozambique can capture significant revenues without damaging its global competitiveness, and use these resources to finance industrial modernisation or just transition policies.

4. What happens if the UK/other markets introduce their own form of carbon tax?

When the UK or other relevant trading partners (such as Canada, Japan, South Korea, Australia, and potentially China) implement a carbon tax or mechanisms similar to CBAM, Mozambique will need to adjust its strategy so as not to lose access to these markets and ensure the retention of tax revenues.

• Mozambique may have to extend the application of the carbon tax to exports destined for these new markets, replicating the model already designed for the EU.
• It is essential to maintain a legal and institutional structure that allows for rapid adaptation, in order to cover other markets as soon as international regulation demands it.

If Mozambique adapts quickly, it will preserve and strengthen access to markets that value clean production while also diversifying the destination of its exports and reducing the risks of over-dependence on just one economic bloc. 

By expanding the policy to cover other regulated markets, Mozambique can reinforce its image as a reliable and sustainable partner, creating opportunities to gain market share in countries that are looking for suppliers with a low carbon impact.

To maximise the potential benefits of carbon pricing, Mozambique would have to actively monitor international trends, creating internal mechanisms to quickly adapt national rules to changes in the export requirements of key partners. 

Continuous dialogue with regulatory authorities and importing companies in the target countries facilitates recognition of the systems for measuring, reporting and verifying emissions, avoiding unnecessary penalties or restrictions.

5. What would change if the EU does not implement CBAM?

Although it is unlikely, if for some political, economic, or legal reason the EU decides not to go ahead with CBAM or to suspend its implementation, the international context for carbon policies will change significantly. The main driver of external pressure disappears, altering the calculation of costs and benefits for exporting countries like Mozambique.

• The absence of CBAM significantly reduces the immediate incentive for Mozambique to introduce a carbon tax focused on exports to Europe, since there is no risk of tax revenues being raised externally or of sudden restrictions on access to the European market.
• Mozambique can reassess the pace and scope of any national carbon pricing initiative. If there is no pressure from other partners (UK, Canada, etc.), the country gains a margin to decide based on domestic and regional interests, whether that is attracting climate finance, preparing for future global changes, or market differentiation.

Even without CBAM, Mozambique can capitalise on its comparative advantage of producing with a low carbon footprint by investing in certification and international marketing to guarantee the green premium with voluntary buyers or niche markets. The international context is volatile, and the decision not to implement CBAM may be temporary. Mozambique must maintain regulatory flexibility and the technical capacity to quickly introduce pricing mechanisms should the international situation change.

In this scenario, it would be essential to maintain monitoring mechanisms to detect early signs of CBAM reactivation or the adoption of similar policies by other blocs. It will also be necessary to participate actively in multilateral and regional forums that allow Mozambique to anticipate trends, influence debates and ensure that its interests are considered in future discussions on carbon regulation.

Conclusion

Coordination in the effort to implement CBAM will ensure that market players other than the EU, such as Mozambique and the rest of the world, maximise the outcome of their chosen strategy. 

However, there are countries whose production structure may not be conducive to implementing a carbon tax. The EU and other countries setting a new international standard for competition and production can help ensure that these countries make efforts to become cleaner.

Contact IGC Mozambique for more