Mozambique flag and a green outline of the globe to illustrate the Carbon Border Adjustment Mechanism (CBAM) and why it matters for Mozambique. Photo of flag by Bilal Ulker. Source: Adobe Stock. Photo of green globe by Benoît. Source: Adobe Stock
Why CBAM matters for Mozambique’s industrial future
The EU’s Carbon Border Adjustment Mechanism presents an opportunity for Mozambique to leverage its low-emission energy matrix and clean aluminium production to gain a competitive advantage in global trade. For this, the country needs to adopt effective industrial policy, build robust emissions tracking systems, and retain carbon revenues to support sustainable growth.
The international debate on combating climate change has entered a new phase with the creation of the Carbon Border Adjustment Mechanism (CBAM) by the European Union.
The CBAM was designed to address two concerns that have previously limited the effectiveness of European climate policies: the risk of carbon leakage (that is, the possibility of companies based in Europe transferring production to countries without environmental regulation), and the so-called international free-riding, where countries that do not internalise the environmental cost of emissions can benefit from reductions made by others without taking part in the collective effort.
What is CBAM and why is it being implemented?
The implementation of the CBAM is a direct result of pressure from European companies, which pay a tax proportional to the pollution they produce. In the European emissions trading system, each tonne of carbon dioxide emitted entails a significant financial cost for companies based in the EU.
However, until now, companies outside the EU have not faced the same charge when exporting carbon-intensive products to the European market. This differential treatment created competitive distortions and prompted several complaints from the European industrial sector calling for fairer competition conditions, as they were subject to additional costs not faced by foreign competitors.
In this context, the European Union opted to create the CBAM, a mechanism that aims to align the cost of carbon between domestic and imported products. The measure has been in a transitional phase since October 2023, during which emissions reporting is mandatory but no fees are charged.
Effective charging is scheduled to start from 1 January 2026, when all importers of aluminium, steel, cement, fertilisers, hydrogen and electricity will have to pay a tax corresponding to the volume of carbon emissions embedded in these products, thus levelling the playing field.
Comparative advantage of Mozambique’s low-emission production
Mozambique stands out among African countries that export industrial goods, because it has a relatively clean energy matrix. The best example of this is Mozal, the country's main aluminium smelter and one of its largest exporters.
Recent data from an IGC study on CBAM indicate that Mozal's environmental performance is comparable, or superior, to that of smelters in developed countries. According to the study, this advantage results not only from access to a low-emission energy grid powered largely by hydroelectricity, but also from Mozal's industrial scale and the relative modernity of its equipment. This characteristic ensures that Mozambican aluminium production has a significantly lower carbon intensity than major international competitors, such as China and India, whose smelters rely mainly on coal.
In this context, the CBAM coming into force represents both a challenge and an opportunity. On one hand, carbon-intensive exporting countries will face increased costs to access the European market, reducing their competitiveness.
On the other hand, countries such as Mozambique, with its low-emission production, can turn this situation into a real competitive advantage. If Mozal's carbon footprint is properly verified and certified, Mozambican aluminium may be less penalised by the CBAM, and benefit from better access conditions at a time when the European market is increasingly valuing sustainable products.
For Mozambique, this could translate into higher export revenues amidst a pressing need for development financing.
Transforming Mozambique’s industrial policy to meet sustainability objectives
This new framework has clear opportunities to diversify Mozambique’s industrial base. Aluminium is currently the main example, but other value chains could be developed based on access to clean energy. Among the possibilities are sectors such as steel, fertilisers, cement and even green hydrogen, all products covered by the CBAM and with growing demand in the European market.
To transform this potential into a real advantage, industrial policy must adopt a strategic and integrated approach, aligning incentives, public and private investment, and emissions certification mechanisms. The creation of green industrial zones, with preferential access to renewable energy, can attract international investors seeking to minimise the carbon footprint of their products.
In addition, the introduction of a national carbon tax for exporting sectors presents a significant fiscal opportunity. Instead of allowing CBAM revenues to be collected in the EU, Mozambique can internalise collection and retain resources in the country. This move not only strengthens the state's fiscal position but also allows funds to be channelled into sustainable industrial development and investments in technological capacity building.
Another key aspect is strengthening emissions measurement, reporting, and verification (MRV) systems to increase credibility and transparency vis-à-vis international partners. Without robust MRV systems, Mozambican companies risk being classified as emission-intensive by default, even if they operate with low actual emissions.
Policy implications of CBAM enforcement for Mozambique
The framework created by CBAM forces exporting countries, such as Mozambique, to rethink their strategies for integrating into international markets. In this context, the decision of whether or not to adopt a national carbon tax for exporting sectors should not be seen as a simple fiscal adjustment, but rather as a strategic choice with multiple implications.
We discuss the different strategies and outcomes extensively in a forthcoming strategy document, where we attempt to analyse Mozambique's possible responses to the CBAM using a series of linked decisions, in which each choice opens or closes doors to certain scenarios.
Mozambique has an important comparative advantage, as a significant part of its industrial production is powered by relatively clean energy. This differential will allow the country to position itself as a supplier of low-carbon products, opening doors to capture a sustainability premium, whether through higher prices, preferential access to green contracts, or greater attractiveness to investors and buyers focused on environmentally responsible value chains.
However, it is essential to recognise that the sustainability premium may also attract less clean companies and industries interested in benefiting from this competitive advantage without necessarily lowering their actual emissions. If clear rules are not established, there is a risk that companies with polluting processes will take advantage of Mozambique's 'green' image, capturing advantages in the international market without contributing to true decarbonisation.
Mozambique needs to align with the new global standard
With the introduction of the CBAM regulation, Mozambique will be under pressure to quickly align itself with the new global standard. If it acts swiftly, it will retain a large portion of the revenue associated with the carbon tax, prevent those resources from remaining in the EU, and at the same time, stand out as a sustainable supplier, capturing the sustainability premium from international customers. However, it is essential to ensure that only companies with clean processes benefit from this premium, avoiding competitive distortions.
If the government of Mozambique decides not to align with the new standard (which means they will not tax commodities that are subject to CBAM), all carbon tax revenues (around US$100 million per year) will be collected by the EU.
Although Mozambique continues to supply relatively clean products, it will miss the opportunity to use the revenues generated by the CBAM to finance public policies to mitigate the environmental effects of pollution associated with industrial production. In practice, this means that the country will continue to suffer directly from local pollution, without the revenues that could be allocated to energy transition, strengthening environmental enforcement or protecting public health.
Mozambique can benefit from CBAM – if it acts strategically
The recent developments around CBAM highlight the importance of integrating environmental and energy concerns into industrial policy strategies in Mozambique. With the global transition to low-carbon economies, it is essential to rethink the traditional model of industrialisation and explore new investment opportunities and competitive differentiation.
Mozambique’s energy matrix has great potential for renewable energies, especially hydro and solar power. This is an asset in a context where the ability to prove low emissions in the production of industrial goods is increasingly becoming a requirement for accessing high-value international markets, especially the EU.
Finally, it is important to note that Mozal's example serves as a reference for future industrial development strategies in Mozambique. Their experience shows that it is possible to combine scale production, integration into global value chains and environmental sustainability, even in a low-income country context.