Contributions, by Sector and Region

TABLE 5.1 Changes in output Following the Implementation of nationally determined Contributions, by Sector and region

Region Most affected sector Second-most affected sector Third-most affected sector Sector Change (%) Sector Change (%) Sector Change (%)

China Coal extraction −6.0 gas extraction and distribution

−3.0 wearing apparel and leather products East Asia and Pacific Air transport −10.6 Coal extraction −8.6 other transport −0.2

−5.8

Europe Coal extraction −33.2 Air transport −2.5 gas extraction and distribution −2.2

Europe and Central Asia Coal extraction −15.7 gas extraction and distribution

latin America and Caribbean Coal extraction −18.3 gas extraction and distribution −1.1 nonmetallic minerals −0.6

−3.3 refined oil −1.3

middle East and north Africa Coal extraction −5.7 gas extraction and distribution

rest of high-income countries Coal extraction −18.5 gas extraction and distribution

South Asia

Coal extraction −6.1 wearing apparel and leather products Sub-Saharan Africa Coal extraction −8.9 gas extraction and distribution

United States Coal extraction −25.0 gas extraction and distribution −0.3 wearing apparel and leather products −3.3 textiles

−0.4 gas extraction and distribution −0.2 meat products (including fisheries) and other food −4.9 other transport −0.2

−1.2

−0.4

−0.2

−0.5

world Coal extraction −10.9 gas extraction and distribution −2.2 Air transport −0.9

Sources: World Bank calculations; Chepeliev et al. 2021. Note: The “other transport” sector refers to water and ground transport. For each region, the top three sectors with the largest reduction in output are shown. Percentage changes indicate the corresponding change in output in 2030 relative to the post-COVID baseline.

being the world’s largest net importer of fossil fuels and having a relatively low carbon price consistent with its NDC target, experiences an increase in imports of fossil fuel commodities. Both East Asia and Sub-Saharan Africa, being large net energy exporters, experience a reduction in exports of fossil fuels. In the case of Sub-Saharan Africa, the reduction in fossil fuel exports is compensated for by an increase in exports of other goods and services, including agricultural commodities.

Implementation of the European Green Deal will likely have moderate negative impacts on the real per capita incomes of the EU’s trading partners beyond those related to the NDCs. These impacts will be driven by two key factors. First, the significantly higher carbon price in the EU (from US$39 per ton of CO2 under the NDC target to US$213 per ton of CO2 under the European Green Deal target) will substantially reduce demand for fossil fuels within the EU. This reduction in demand will adversely affect the Middle East and North Africa and the Central Asia regions, including the Russian Federation, as the EU is a primary destination of their fossil fuel exports (figure 5.2). The higher price of carbon will make production of energyintensive products more expensive in the EU, which will have a negative effect on exports of such products. Second, implementation of the CBAM will further reduce

FIGURE 5.2 Impacts of the European green deal and CBAm on gdP per Capita, by EU trading region, 2030

0.2

Change in real income (%) 0

–0.2 –0.14

–0.4

–0.6

–0.8 –0.04

–0.39 –0.16 –0.07 –0.08 –0.08

–0.36 –0.23

–0.88 –1.0 –0.94 East Asia and PacificSouth AsiaSub-Saharan Africa Middle East and North AfricaEurope and Central Asia Latin America and the Caribbean ChinaUnited StatesWestern Europe Rest of high-income countries World European Green Deal CBAM European Green Deal + CBAM

Sources: World Bank calculations; Chepeliev et al. 2021. Note: CBAM = Carbon Border Adjustment Mechanism; EU = European Union. Figures represent % changes in 2030 relative to the baseline with implemented national determined contributions.

income in the EU’s trading partners, not only the large energy exporters (Europe and Central Asia and Middle East and North Africa) but also China, a key exporter of energy-intensive chemical products to the EU. The EU carbon tax affects mainly the demand for and price of fossil fuels, while the CBAM affects more energy-intensive goods, such as metals, chemical products, nonmetallic minerals (cement, lime), and electricity. As a result, the main exporters of these commodities to the EU (Europe and Central Asia: chemicals, metals, and electricity; China and the Middle East and North Africa: chemicals) lie in regions that will experience negative consequences from implementation of the CBAM.

In this scenario, since the border tax is related to the carbon content of production in the exporting country, the impact of the CBAM across countries will be determined primarily by the carbon intensity of exports and the overall importance of exports to the EU (figure 5.3), noting that only commodities covered by the EU ETS sectors are subject to the tax.12 The three regions most severely affected by the CBAM—Europe and Central Asia, Middle East and North Africa, and Sub-Saharan Africa—have both carbon-intensive exports and a relatively high share of EU-designated exports in GDP.

In terms of the changes in trade patterns, the European Green Deal primarily suppresses imports of fossil fuels and petroleum products because of lower EU-wide demand. Imports of coal will be affected the most, declining by 69 percent (table 5.2). This reduction in imports will result mainly from shrinking US exports. Imports of electricity, nonmetallic minerals, and wood and paper products will also see