Report: How reduction in emissions will affect businesses in developing nations

A recent report shows that global emission reduction could hit the economies of developing nations hardest if advanced economics carry on with their climate target plans. 

The report was released on October 5, by the Economist Intelligence Unit — a research and analysis unit that aims to help businesses, financial firms and governments to navigate the ever-changing global landscape.

The report said the significant industrial transformation which is imminent and will favour renewables in place of fossil fuel.  

It suggested that businesses need to begin reinventing their activities and products to reflect global climate ambitions, because the drive towards emissions reduction could forever change the way businesses are done globally.

“Achieving these targets will require significant industrial transformation, notably the replacement of petrol-powered transport with electric vehicles, and eventually reduced reliance on natural gas in favour of renewables,” the report stated. 

“The EU is ramping up investment in green technology. It will ban the sale of new diesel and petrol cars in Europe by 2035, which will push consumers to adopt electric vehicles. The EU has also set the end date for the production of internal combustion engines for 2030.”

The report said a recent ‘Fit for 55’ proposal by the European Union (EU) aims to “codify the bloc’s climate target into law” thereby favouring green initiatives and introducing carbon pricing on imported goods. 

This according to the report will affect the economies of developing countries who would lose competitiveness because they rely on this export revenue and also have hopes of developing their economies through carbon intensive industries.

“In previous climate talks, developing countries have insisted that they should not be barred from achieving similar economic growth to that achieved by developed economies in the past through the development of carbon-emitting industries,” the report added. 

“In the absence of breakthroughs on climate financing, the EU has proposed a Climate Border Adjustment Mechanism (CBAM), which would tax imported goods produced by emissions-intensive processes that are not allowed under EU environmental regulations. 

“Developing economies are likely to lose competitiveness if advanced countries end up regulating their imported emissions on the CBAM model. Developing economies have been critical of these proposals; the least developed countries are likely to face exceptionally high compliance costs, and middle-income countries will lose competitiveness if this system is widely adopted.”

The report goes on to state that though other advanced economies may follow suit on the EU’s policy proposal, countries like China might become the country of choice for carbon-intensive exports. 

“If other advanced economies follow the EU and regulate the carbon intensity of their imports (which is far from certain, especially in the US), the potential impact would be even bigger,” it said.

“However, in this scenario, China could become the preferred destination for carbon-intensive exports, making Chinese climate regulation more critical in shaping global value chains, even beyond the country’s direct role as the world’s largest emitter.”

As the world goes to COP26, the report recommends that governments should provide a framework to clarify how their policies would evolve in order to help businesses make better choices for the impending industrial transformation. 

“We expect developed countries with more ambitious NDCs to set out more detailed frameworks for industrial policies to reduce overall emissions. Meanwhile, developing countries will provide greater detail on what they hope to accomplish if more climate financing becomes available. 

“Even if many countries’ NDCs prove modest, the impact of greater regulation, innovation and financing will result in significant global industrial transformation in the coming decades.”