Report

Impacts of Climate Change Policies on Developing Country Export Markets

Climate change policies including net-zero commitments, green new deals, and circular economy plans often combine carbon-reduction objectives with a set of policy and market interventions needed to reach those goals. When implemented, these policies are likely to impact international trade, and potentially hamper the development of lower-income countries. This report takes stock of such potential impacts on goods exports of sub-Saharan African countries, least developed countries (LDCs) and low-income economies.
By Tom Moerenhout, Christophe Bellmann on July 26, 2021
  • Most net-zero and circular economy plans foresee a drastic reduction of oil demand, which will affect exporters such as South Sudan, Angola, Nigeria, Chad, and Congo who rely on fossil fuels for more than 50% of their total exports—96% in the case of Chad.

  • While markets for fossil fuels will tighten, there is space for growth in markets for metals and minerals that are essential to the energy transition. The most important and valuable market is the one for non-ferrous metals such copper, aluminum, nickel, and zinc.

  • Regional trade, including intra-African trade, can offer new opportunities for diversification and is less likely to attract restrictions related to net-zero commitments or circular economy packages that are more prevalent in OECD countries or large emerging economies.

Overall, net-zero commitments and circular economy packages are likely to have significant impacts on exports of developing countries. The most immediate impact potential is on exports of fossil fuel products. The risks for agricultural products may not be as pronounced but will affect a much higher number of LDCs and African countries. Finally, countries relying on metals and minerals may benefit from increased demand associated with renewables and battery production, at least in the short to medium terms, but in the long term, demand for secondary raw materials and recycling requirements may affect export prospects.

These trends will force developing countries to accelerate their efforts to diversify their export basket and comply with new requirements in OECD countries and emerging economies. Besides technical assistance and capacity building for example under the Aid for Trade initiative, the promotion of South-South trade in the context of regional integration including the African Continental Free Trade Area offers significant prospects to offset the negative impacts associated with net-zero commitments or circular economy package and support economic diversification.