The South African industrial sector and experts have resoundingly rejected the looming Carbon Border Adjustment Mechanism (CBAM) levy on South African exports of aluminium, steel, fertiliser and cement to the EU to be fully phased in by January 2026, and have described it as a unilateral means by the EU to protect its own industries.
The levy, designed to control carbon leakage to the EU from products outside its borders, could levy up to €80 (R1 640) per ton of steel.
CBAM currently covers cement, aluminium, fertiliser, electricity, hydrogen, iron and steel, iron ore, and a number of downstream products.
In South Africa, there is an immediate risk to exports amounting to some R52.4 billion, based on 2022 data, and this risk is expected to grow as CBAM expands its coverage.
As an exporting country, South Africa will face additional costs due to this carbon border adjustment, making several major South African exports less competitive in the EU compared to products using less carbon-intensive methods and materials.
During a panel discussion yesterday, academia and industry experts noted that exporters in these sectors could expect a decline in exports relative to a baseline with no CBAM of up to 10%, based on a carbon price of $100/ton in the EU.
Based on 2022 export levels, this would have amounted to a decline in export revenue of as much as R3.5bn.
Panellists at the discussion included Irshaad Kathrada, adviser to the Minister of the Department of Trade, Industry and Competition; Dipak Patel, head of climate finance and innovation at the Presidential Climate Commission; Gaylor Montmasson-Clair, senior economist at Trade & Industrial Policy Strategies (TIPS); and Hendrik de Villiers, head of environmental sustainability at Hulamin, a member of the Energy Intensive Users Group (EIUG).
In addition to the lost revenue from falling exports to the EU, the local industry could see increased competition to the EU for South African steel and aluminium.
It could also suffer if the EU’s demand for imported steel and aluminium declines, forcing exporters to find alternative markets which would be less climate stringent.
Panellists argued that there were a number of potential policy responses, which both the EU and South Africa could consider to minimise the economic and social impact of CBAM.
This, they said, was because the CBAM targets the hard-to-abate sectors facing significant technical and financial hurdles to decarbonise.
The South African government advocates addressing CBAM within the World Trade Organization and UN Framework Convention on Climate Change forums.
“Countries including India, Indonesia, Morocco, Türkiye, Ukraine, Uruguay, and Western Balkan countries have implemented, adjusted or are considering implementing direct carbon pricing to reduce CBAM compliance costs and to capture revenue that would otherwise be paid to the EU,” Patel said.
“Australia, Canada and Japan are also weighing the implementation of their own domestic border carbon adjustments. The UK has announced it will introduce a CBAM with a scope broadly comparable to the EU’s by 2027.
“Alternative markets may likely have less stringent climate regulation, notably in Africa, undermining SA exporters opportunities.”
EU head of unit for CBAM, energy and green taxation, Vicente Hurtado Roa, said there was no earmarking of the CBAM revenues, but climate finance from the EU was much larger that the projected revenues.
Roa said the CBAM was not designed to generate revenues and by the EU’s estimates, those generated were expected to be limited around €2bn depending on carbon price level, and as a result South Africa would not be hard hit by the levy.
“Discussions are starting on possible inclusion of agriculture, but this does not seem to materialise in any case before 2030,” he said.
“I do not think there are discussions about including vehicles manufacturing in the Emissions Trading System (ETS). A sector has to be in the ETS as a first condition to be considered for CBAM.”
BUSINESS REPORT