Trade, industry & competition minister Ebrahim Patel has asked his counterparts in the EU and UK to reconsider the introduction of a carbon tax that could be detrimental to exports from South Africa and the continent.
The Cross-Border Adjustment Mechanism (CBAM) will enter its enforcement phase in January 2026 and proposes a tax on carbon-intensive imports such as steel, fertiliser, cement, iron, and aluminium and associated products.
The EU has requested exporters to report on the carbon input of their products entering the territory from January as it seeks to achieve net neutrality by 2050. South Africa’s heavy reliance on coal-based power generation makes it one of the largest carbon intensive exporters to the EU.
In March, Patel highlighted South Africa’s concerns about CBAM at a meeting of trade ministers in Abu Dhabi.
He told ministers of trade in the EU and UK that the unilateral measure would undermine South Africa’s progress in the industrialisation transition, damage its industries and destroy jobs.
“I have met with my EU and UK counterparts to emphasise the principles of multilateralism, to point to the cost of CBAM measures on African industrialisation, and to call on them to work within the framework of the World Trade Organisation (WTO) to find agreed mechanisms to address climate emissions.
“The cost of the transition to a greener, more sustainable economy must be done on a just basis. Africa has not created the climate crisis — more than 200 years of coal and oil-based industrialisation in the global north has led to profound climate problems for humanity.”
He said placing the cost of climate change on developing countries was an act of historical injustice, but it was not too late for the EU to revisit and revise its approach.
Business Unity South Africa’s (Busa’s) director of environment, Happy Khambule, said the introduction of CBAM was a decision arrived at by a small group of countries and it was difficult for the Global South to prepare for it adequately.
“At the recent ministerial conference, the government and industry bodies tabled the fact that the CBAM is a bad idea, that it would stifle market access for countries that cannot make the switch. Those issues are known to the EU and WTO,” said Khambule.
He said there were indications from economies such as the UK, US and Japan for plans to impose reciprocal carbon taxes on exports in response to CBAM. Busa was still assessing the true tax burden of CBAM after the first round of carbon reporting in January.
“There is an emerging global direction from the wealthy economies that has not helped. On our side there are consequences. The first set of reports has ended in January and the next set of reports will end in a couple of months and we will only know the true tax liability after that.”
While CBAM was a challenge, South African exporters could still use the country’s carbon tax to reconcile some of the costs of embedded emissions into exported products, thereby reducing the liability on those exports, Khambule said.
Securing a new export market for South African goods to soften the blow may be a pressing priority. However, he said the EU was a massive trading bloc, therefore the departments of trade, industry & competition, and of international relations, would have to establish these trade regimes.
“There is a desire to do that, but to do it, you need certain types of agreements to be in place and we need to rely on the department of trade, industry & competition and the department of international relations & cooperation to facilitate that. We are not sure which countries or markets, and we also don’t know which products, because while we make goods, we don’t know who would buy those. So, it’s not an easy task.”
Trade and Industrial Policy Strategies economist Seutame Maimele said based on data gathered last year, about R52.4bn of South African exports were at risk in the short term, representing about 10% of the country’s total exports to the EU, and 2.2% of its exports to the world.
In 2022, R7.5bn of R30bn worth (25.4%) of iron and steel finished product exports from South Africa were destined for the EU.
“The CBAM transition period kicked in from October 2023. During this time, exporters to the EU in specified sectors must report accurate greenhouse gas embedded emissions data to EU importers, which the CBAM texts refer to as EU declarants.”
He said South African companies did not know about the new requirements, as some timelines differed from one draft to another.
South African exports were vulnerable to CBAM because they are emissions-intensive with the carbon intensity of the country’s metal exports at about 5,000 tonnes of carbon dioxide equivalent per million dollars.
