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UNCTAD report highlights Carbon leakage to poor countries, What is it?

Least Developed Countries Report 2022: UNCTAD warns against carbon leakage to poor countries

Least Developed Countries (LDCs) must not become “carbon havens” as polluters in rich countries weed high-emitting industries out of their economies, a new report from the United Nations Conference on Trade and Development (UNCTAD) warned.

The “effective and increasingly restrictive environmental laws” in industrialized countries, to reduce carbon dioxide (CO2) emissions, which cause pollution and global warming, push companies to pollute abroad, said the report.

And any policy of trading partners targeting carbon emissions, generated by the production of exported goods, could have a strong dampening effect on LDC exports, even indirectly if the latter are exempt from it.

Carbon Leakage. Source: UNCTAD

Rebeca Grynspan, secretary general of UNCTAD, warned of “serious consequences” if such policies “displace polluting industries from developed countries to LDCs to allow the former to meet their carbon emission reduction commitments.”

LDCs “disproportionately bear the burden of climate change impacts,” Grynspan said.

“The international community must take into account their development needs and fully support them to ensure a just, balanced and sustainable low-carbon transition,” he added.

“The least developed countries disproportionately bear the burden of climate change impacts. The international community must take into account their development needs and fully support them to ensure a just, balanced and sustainable low-carbon transition”

Rebeca Grynspan

Carbon leakage is defined as the increase in CO2 emissions outside the countries taking domestic mitigation measures divided by the reduction in emissions from these countries.

Carbon emission policies

According to Unctad, carbon leakage occurs when countries with strict carbon emission policies cause an increase in emissions in other countries, as a direct result of the increased cost of reducing emissions in the regulated country.

The entity is concerned that LDCs, which are marginalized in world trade, now face additional headwinds due to the environmental policies of their trading partners.

The 46 LDCs – almost all in Africa, Asia, the Pacific region, and Haiti in the Caribbean – are home to 1.1 billion people and generate minimal CO2 emissions: in 2019, they accounted for less than four per cent of global emissions total greenhouse gases.

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However, over the past 50 years, 69% of global deaths from climate-related disasters have occurred in LDCs.

On the other hand, the economies of the LDCs depend heavily on exports of basic products such as minerals, metals and fuels, which cause high CO2 emissions.

Their products are often inputs to carbon-intensive global value chains, such as metals, cement, fertilizers, or electricity.

Between 2018 and 2020, around 80% of LDCs were classified as commodity-dependent, meaning that more than 60% of their merchandise exports consisted of primary products.

Therefore, the drive to cut carbon emissions could have a negative impact on LDC export sectors, the report warns.

The more than two-thirds of LDCs whose economies depend on the export of carbon-intensive commodities could face severe fiscal constraints, and economic output losses, if the extraction of these commodities were to be significantly reduced.

Commodity trap heightens vulnerability

Given the vulnerability of the LDC economies, Unctad urges development partners to grant special and differential treatment to these 46 countries, with specific, sufficiently flexible and long-term financing.

Source: UNCTAD

At the same time, LDCs need national policies for the transition to a low-carbon economy. It is about promoting the adoption of green technologies and innovations and creating an enabling environment for technological upgrading and broader innovation, according to the Unctad analysis.

The report was published shortly before the start of the 27th UN Conference of the Parties (COP27) on climate change in Sharm el Sheikh, on the southern coast of Egypt, on November 6.

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