Skip to content 
5 April 2023 – Plastics and organic chemicals are now part of a growing list of South African exports which will be negatively impacted by the EU’s policy to penalise goods based on their carbon content.
A policy brief released by independent think tank Trade & Industrial Policy Strategies, and authored by economists Lerato Monaisa and Seutame Maimele, noted that $1.5 billion or roughly R27 billion of exports (based on 2021 data) are at risk due to the EU’s Carbon Border Adjustment Mechanism.
The CBAM is part of a broader goal to reduce greenhouse gas emissions that contribute to climate change. It is a carbon tax applied to carbon-intensive products imported into the EU. It ensures that cheaper imports which are not subject to a carbon tax flood the EU market – given that EU manufacturers are impacted by carbon pricing. The measure has been put forward as an equaliser.
But concerns have been raised by non-EU nations that it may not be compatible with the World Trade Oranization’s rules. The TIPS policy brief also notes that South Africa and other BRICS nations – Brazil, Russia, India and China – have opposed it because it will “disproportionately impact” the Global South.
The impact will not be favourable for Africa, an EU Impact Assessment showed. The continent could see export declines of between 30% to 35%, a working paper commissioned by the Presidential Climate Commission highlighted. The same working paper references a study that indicates South Africa’s exports to the EU would fall by 4% (based on a carbon tax of $75 applied to direct emissions).
It’s been widely reported that South Africa’s iron and steel industries will take a beating.
“Iron and steel exports face significant risk. About 26% (in value) of products included in the CBAM are exported to the EU,” the policy statement read. In 2021, iron and steel exports that would have been impacted by the CBAM accounted for 4% of all South African exports.
The impact on chemical fertilisers and cement is considered marginal because South Africa is not a major exporter of these products to the EU.
Recently there have been adjustments to the CBAM, and following a transitional period between 2023 to 2026, it will apply to indirect emissions. Indirect emissions are associated with electricity consumption or cooling and heating.
“This is a problem for South Africa as the country is heavily reliant on coal-based power generation, which makes it one of the most carbon-intensive exporters,” the policy brief read.
This means aluminium, which is highly energy-intensive, will be impacted by the application of the CBAM to indirect emissions. The main source of greenhouse gas emissions for aluminium is coal-powered electricity, the policy brief indicated.
“Export risk is high as about 25% of the products covered in the CBAM are exported to the EU,” the policy brief read. In 2021 the aluminium exports that the CBAM would have impacted accounted for 1% of all South African exports.
From 2026, the CBAM will also apply to organic chemicals and plastics – which are highly carbon-intensive.
“The organic chemicals sector exposure to the CBAM is high. About 30% (in value) of the products covered by the CBAM were exported to the EU in 2021,” the policy brief read. The largest contributors to greenhouse gas emissions is the production of ammonia and nitric acid, the policy brief read.
It also noted that South Africa’s chemicals and pharmaceutical product exports are more carbon intensive than most other countries.
As for plastic exports, they also have high exposure to the CBAM. In 2021, about 10% (in value) of the products covered by the CBAM were exported to the EU. Coal is used to supply electricity and heat, as well as a feedstock for plastics production.
The carbon intensity of South Africa’s rubber and plastics products is also comparatively highly carbon intensive – TIPS
The CBAM will also result in compliance costs for exporters that will have to account for and verify the emissions associated with their products.
“The CBAM requires third-party verifiable carbon audits, which can be costly even for large firms.”
A domestic carbon reporting system, which could be led by the Department of Forestry, Fisheries and the Environment, could help ease the administrative burden of South African firms, the policy brief recommended.
Overall, steps should be taken to decarbonise these carbon-intensive industries by deploying more renewables as an electricity source to power manufacturing and industrial activities and also investing in energy-efficient technologies.
South Africa could also be more ambitious in its climate change policy. “South Africa’s current climate change policies are not ambitious by global standards,” the policy brief read.
South Africa could also reform its carbon tax – by increasing it – heavy emitters may be motivated to reduce emissions and lower the carbon intensity of their products. Source: News 24