Morocco lures manufacturers to avoid EU carbon taxes

Pexels/Kateryna Babaieva

• Carbon import tariffs due from 2026
• Hope that CO2 capture can lower costs
• Big opportunity for GCC investment

Morocco is looking at investing in carbon dioxide capture and storage to attract manufacturers to the country who want to avoid the EU’s upcoming carbon tax on imports. 

The European Union’s Carbon Border Adjustment Mechanism (CBAM), which will come into effect in 2026, will tax imports of goods such as steel, cement and fertilisers into the EU based on the CO2 created during their production. 

Morocco believes that by offering carbon dioxide capture and storage it will enable manufacturers to produce goods with a lower carbon footprint, and thus reduce the tariffs charged by the EU on imports of their products.

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However, in order to make this work, the overall cost including that of CO2 capture and storage, has to be lower than the taxes. 

Veronika Ertl, a director overseeing climate change for the Middle East region at the Berlin-based political think tank Konrad-Adenauer-Stiftung, says that it could be a good strategy by the Rabat government.

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“Positioning Morocco as an industrial location is smart,” Ertl says. Cheaper renewable energy prices and labour costs are two big factors.

“There is also the free trade agreement with the USA, which does not apply to CBAM but could be very attractive to EU manufacturers and investors.”

The GCC is a leader in the field of CO2 capture and is investing heavily in the technology. Saudi Arabia, Qatar and the UAE are actively boosting their carbon capture, utilisation and storage (CCUS) facilities because of their large CO2 emissions from fossil fuel industries. Like Morocco, these countries also have access to ideal geological formations for CO2 storage. 

However, a lack of firm policy, regulatory frameworks and funding is limiting carbon capture capacity development in the Middle East and Africa, according to an expert in the field.

CCUS is forecast to increase considerably over the next decade, offering an investment opportunity of $196 billion by 2034, the UK-based data analysis consultancy Wood Mackenzie says. They add that the Middle East plans to expand its total capture capacity from 5 million tonnes per annum (mpta) in 2023 to 43 mpta by 2034.

Nearly 40 percent of this will be developed in Saudi Arabia, says Hetal Gandhi, CCUS lead for the Asia Pacific region at the consultancy.

In Morocco, the UK company Brilliant Planet has raised €12 million ($13 million) to build a 30-hectare algae farm as a pilot carbon capture project.

Raffael Jovine, chief scientist and co-founder of the company, says: “We are using underutilised natural resources to grow new biomass and absorb excess carbon dioxide.

“Per unit area, this approach sequesters up to 30 times more CO2 per year than tropical forests.”

Challenges

However, this would not provide the industrial scale needed for Morocco’s plans. The country’s geological formations offer opportunities for CCUS, with estimated storage capacity of more than 10 gigatons of CO2. 

There are significant challenges in realising these opportunities. The financial investments required for CCUS projects in Morocco are substantial, potentially reaching billions of dollars.

Ertl says: “The infrastructure does not yet exist, but it is an interesting direction of travel.

“There will have to be some upfront investment, potentially from the Gulf countries, and particularly the UAE who have good economic relations with Morocco.

“If it is organised well and they can find the investment for it, this could work.”